<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 30, 1998
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2575576
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9920 SOUTH LA CIENEGA BOULEVARD
INGLEWOOD, CALIFORNIA 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK: Number of Shares of Common Stock outstanding as of June 30,
1998: 39,756,670 shares.
DEBT SECURITIES: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of June 30, 1998, $2,195,000 in principal amount
of such Notes and $1,038,000 in principal amount of such
Debentures were outstanding.
CAPITAL SECURITIES: 9.98% Series B Capital Securities of Imperial Capital
Trust I Due 2026. As of June 30, 1998, $73,343,000 in net
principal amount was outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
<PAGE>
IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998
Except for the historical information contained herein, the following discussion
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology including "may", "will", "intend", "should",
"expect", "anticipate", "estimate" or "continue" or the negatives thereof or
other comparable terminology. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a result
of various factors, including those set forth in documents filed with the
Securities and Exchange Commission.
FINANCIAL REVIEW
The following discussion presents information about the results of operations,
financial condition, liquidity, and capital resources of Imperial Bancorp ("the
Company") for the three months and six months ended June 30, 1998. This
information should be read in conjunction with the Company's 1997 consolidated
financial statements and notes thereto, and the accompanying quarterly unaudited
consolidated financial statements and notes thereto.
PERFORMANCE SUMMARY
Net income for the second quarter of 1998 increased to $16.6 million, or $0.40
per diluted share, from $11.0 million, or $0.27 per diluted share, for the
second quarter of 1997. The annualized return on average total assets increased
to 1.36% for the quarter ended June 30, 1998, from 1.25% for the same period of
1997. The annualized return on average shareholders' equity increased to 17.55%
for the second quarter of 1998 compared with 14.34% for the second quarter of
1997. Net income for the second quarter of 1998 includes gains net of
commission expense totaling $6.7 million after-tax from the exercise and sale of
equity warrants, and an incremental loan loss provision of $4.1 million after-
tax relating to a charge-off on one commercial loan.
Net income for the six months ended June 30, 1998, increased to $29.9 million,
or $0.72 per diluted share, from $18.9 million, or $0.47 per diluted share, for
the first six months of 1997. The annualized return on average total assets
increased to 1.30% for the first half of 1998, compared with 1.13% for the first
half of 1997. The annualized return on average shareholders' equity increased
to 16.37% for the first half of 1998, compared with 12.75% for the same period
of 1997. Net income for the first half of 1998 and 1997 includes after-tax
gains, net of commission expense, from the exercise and sale of equity warrants
totaling $7.0 million and $1.0 million, respectively.
Earnings per share calculations for the prior periods have been adjusted to
reflect a three-for-two stock split effected on February 6, 1998.
Net income increased 51% and 58%, respectively, for the second quarter and first
six months of 1998 compared with the comparable periods of 1997. The increase
in year-to-date net income is largely attributable to growth in loans and to
increases in gains on the exercise and sale of equity warrants and fee-based
income. Average loan balances for the current quarter and year-to-date
increased approximately 40% compared with the comparable periods of 1997. Loan
growth is expected to continue for the balance of 1998 but at a more moderate
pace.
Net interest income increased to $65.1 million for the three months ended June
30, 1998, compared with $47.8 million for the same period of 1997. Net interest
income for the six months ended June 30, 1998, increased to $125.7 million from
$88.0 million for the first half of 1997. The Company's net interest margin
decreased to 5.93% for the second quarter of 1998 compared with 6.12% for the
second quarter of 1997, however, on a year-to-date basis, the net interest
margin increased to 6.07% for 1998 from 5.98% for the same period of 1997. The
decrease in the net interest margin for the second quarter of 1998 is largely
due to a decrease in loan yields. The Company's cost of funds for the second
quarter of of 1998 decreased slightly from the same period of 1997.
The provision for loan losses for the quarter and six months ended June 30,
1998, totaled $14.1 million and $20.0 million, respectively. The provision for
loan losses for the comparable periods of the prior year totaled $4.4 million
and $7.7 million, respectively. The increases in the provision for loan losses
for the quarter and year-to-date compared to the prior year reflect loan growth
and net charge-offs recorded in the second quarter of 1998. Charge-offs for the
second
1
<PAGE>
quarter of 1998 include $7.0 million related to one commercial loan. The
Company's loan portfolio increased by $429.1 million, or 15%, since December 31,
1997. The ratio of the allowance for loan losses to period end outstanding
loans was 1.80% at June 30, 1998, 1.83% at December 31, 1997, and 1.81% at June
30, 1997.
Noninterest income for the three months ended June 30, 1998, increased to $35.5
million from $16.0 million for the three months ended June 30, 1997.
Noninterest income for the second quarter of 1998 includes gains totaling $16.6
million from the exercise and sale of equity warrants. Excluding gains on
equity warrants, noninterest income increased 25% to $18.9 million for the
second quarter of 1998 from $15.2 million for the second quarter of 1997.
Noninterest income for the first half of 1998 increased to $36.6 million,
excluding $17.0 million in gains on equity warrants, from $26.7 million for the
first half of 1997, excluding $2.5 million in gains on equity warrants and $2.8
million recognized on the appreciation of Imperial Credit Industries, Inc.
("ICII") (NASDAQ-NMS-ICII) stock donated to not-for-profit organizations in the
first quarter of 1997. The increase in noninterest income for the quarter and
year-to-date compared with the prior year is primarily due to growth in fee-
based service income including: merchant card processing fees, international
income, fees derived from the sale of nonproprietory mutual funds, factoring
fees, trust fees and service charges on deposits.
Noninterest expense increased to $59.1 million for the three months ended June
30, 1998, from $40.8 million for the three months ended June 30, 1997.
Noninterest expense totaled $109.2 million for the six months ended June 30,
1998, compared with $80.5 million for the six months ended June 30, 1997. The
increase in noninterest expense for the current quarter and year-to-date
compared with the prior year occurred primarily in salary and benefits expense
and customer services expense. The increase in salary and benefits expense is
primarily the result of expansion in the Company's core lending and deposit
businesses and related support operations, and the addition of new offices.
Benefits expense includes $5.0 million of commissions associated with the
exercise and sale of equity warrants. The increase in customer services expense
can be attributed to the growth in deposit balances generated by the Financial
Services Group.
Total assets at June 30, 1998, were $6.2 billion, an increase of 32% from total
assets of $4.7 billion reported at December 31, 1997, and a 50% increase over
total assets of $4.1 billion reported at June 30, 1997. Total loans at June 30,
1998, were $3.2 billion, a 15% increase from $2.8 billion reported at December
31, 1997, and a 37% increase over $2.4 billion reported at June 30, 1997. The
growth in the loan portfolio occurred primarily in commercial loans.
Total deposits at June 30, 1998, were $5.5 billion, an increase of 33% over
total deposits of $4.2 billion at December 31, 1997, and a 56% increase over
total deposits of $3.5 billion at June 30, 1997. Noninterest-bearing demand
deposits increased to $3.6 billion at June 30, 1998, from $2.4 billion at
December 31, 1997, and $1.9 billion at June 30, 1997. Noninterest-bearing
demand deposits represented 64% of total deposits at June 30, 1998, compared
with 57% at December 31, 1997 and 53% at June 30, 1997.
Nonaccrual loans totaled $25.9 million at June 30, 1998, compared with $10.6
million at December 31, 1997, and $7.9 million at June 30, 1997. Restructured
loans totaled $23.7 million at June 30, 1998, $24.0 million at December 31,
1997, and $24.1 million at June 30, 1997. All restructured loans were
performing in accordance with their modified terms at June 30, 1998. The
balance of real estate owned and other assets net of allowance ("OREO") was $3.3
million at June 30, 1998, $3.3 million at December 31, 1997, and $3.0 million at
June 30, 1997.
Imperial Bancorp is classified as "Well Capitalized" with leverage, Tier I and
total capital ratios at June 30, 1998, of 9.32%, 10.25% and 11.57%,
respectively, compared to 8.61%, 9.67% and 11.06%, respectively, at June 30,
1997.
SPIN OFF
On February 27, 1998, the Company received from the Internal Revenue Service a
ruling favorable to the Company's proposed spin off, in a tax free distribution
to shareholders, of a portion of the Company's specialty lending and finance
businesses (the Lewis Horwitz Organization, the small business lending division,
Imperial Trust Company and the Company's investment in Imperial Credit
Industries, Inc.) into a newly formed corporation, Imperial Financial Group,
Inc. ("IFG"). On June 18, 1998, the Company announced that the Board of
Directors set a record date of September 17, 1998, for the spin off of IFG with
the distribution to occur on October 1, 1998. Shareholders as of the record
date will receive one share of IFG for each two shares of Imperial Bancorp
owned. The spin off, which is in the form of a dividend to the Company's
shareholders as of the record date, is subject to certain remaining conditions
including the finalization of financing and other necessary regulatory approvals
which the Company expects to receive.
2
<PAGE>
Prior to distributing the common stock of IFG to the Company's shareholders, the
Company will contribute to IFG the following: (i) the assets and liabilities
relating to The Lewis Horwitz Organization, a division of Imperial Bank ("the
Bank") that specializes in motion picture and television financing, (ii) all of
the common stock of Imperial Trust Company, a California licensed trust company
that offers a wide range of trust and investment management services, (iii) all
of the common stock of a newly formed industrial loan company, Crown American
Bank, that holds the assets and liabilities of the Bank's Small Business
Administration ("SBA") lending business that provides loans to small businesses,
a portion of which are guaranteed as to repayment by the U.S. Government, and
(iv) the common stock owned by the Bank (representing approximately 23% of all
outstanding common stock as of June 30, 1998) in ICII.
Total assets of the entities comprising IFG approximated $245.6 million at June
30, 1998. Revenues of IFG, including interest income and noninterest income
would have approximated $23.6 million for the six months ended June 30, 1998.
The contribution agreement, as currently contemplated, calls for the Company to
contribute to IFG the following: net assets approximating the Company's net
investment in ICII, the Company's investment in Crown American Bank and Imperial
Trust Company, and approximately $11.8 million in cash (totaling $75.4 million
at June 30, 1998).
The Company's pro forma leverage, Tier 1, and total capital ratios at June 30,
1998, reflecting the spin off of IFG were 8.20%, 9.06% and 10.31%, respectively.
EARNINGS PERFORMANCE
Net Interest Income:
The Company's operating results depend primarily on net interest income. Net
interest income is the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities. Net interest margin
is net interest income expressed as a percentage of average interest-earning
assets. Net interest income increased to $65.1 million for the three months
ended June 30, 1998, from $47.8 million for the same period of the prior year.
The increase in net interest income was primarily due to the growth in loans.
Growth in the average balances of securities available for sale and Fed funds
sold also contributed to the increase in net interest income. Total average
earning assets increased to $4.4 billion for the three months ended June 30,
1998, compared with $3.1 billion for the three months ended June 30, 1997.
<TABLE>
<CAPTION>
================================================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $90,146 $68,495 $174,216 $127,228
Interest expense 25,077 20,656 48,510 39,228
- ----------------------------------------------------------------------------------------------------------------
Net interest Income $65,069 $47,839 $125,706 $ 88,000
- ----------------------------------------------------------------------------------------------------------------
Net interest margin 5.93% 6.12% 6.07% 5.98%
================================================================================================================
</TABLE>
The Company's net interest margin decreased to 5.93% for the second quarter of
1998 from 6.12% for the second quarter of 1997. The decrease in the net
interest margin for the current quarter is largely due to a decline in the yield
on commercial loans. While the overall pricing of loan products remained fairly
stable, the Company did experience a reduction in yield on selected loan
products, and the yield on commercial loans was negatively impacted during the
second quarter by an increase in nonaccrual loans. The net interest margin was
favorably impacted by a modest reduction in the Company's cost of funds due in
large part to the growth in noninterest-bearing deposits. On a year-to-date
basis, the net interest margin increased to 6.07% for the first half of 1998
compared with 5.98% for the first half of 1997. The increase in the year-to-
date net interest margin is due to growth in loans and other earning assets.
Additional information concerning interest-earning assets and interest-bearing
liabilities and the yields and rates thereon for the three months and six months
ended June 30, 1998, is provided in Table 1-Average Balances, Yields and Rates
Paid on page 21 of this Form 10-Q.
In conformity with banking industry practice, payments for accounting, courier
and other deposit-related services provided to the Company's Financial Services
Group depositors are recorded as noninterest expense. If these deposits were
treated as interest-bearing and the payments reclassified as interest expense,
the Company's reported net interest income and noninterest expense would have
been reduced by $6.9 million and $12.8 million, respectively, for the three
3
<PAGE>
months and six months ended June 30, 1998, and by $4.3 million and $7.9 million,
respectively, for the three months and six months ended June 30, 1997. The net
interest margin for the three months ended June 30, 1998 and 1997, would have
been 5.30% and 5.57%, respectively. The net interest margin for the six months
ended June 30, 1998 and 1997, would have been 5.45% and 5.44%, respectively
Noninterest Income:
Noninterest income increased to $35.5 million for the three months ended June
30, 1998, from $16.0 million for the second quarter of 1997. For the first six
months of 1998, noninterest income increased to $53.6 million from $32.1 million
for the prior year. The table below provides the major components of noninterest
income for the periods indicated:
<TABLE>
<CAPTION>
=============================================================================================================================
Three months ended Six months ended
June 30, June 30,
(In Thousands) 1998 1997 1998 1997
=============================================================================================================================
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 1,686 $ 1,314 $ 3,118 $ 2,717
Trust fees 2,094 1,740 4,185 3,717
Gain on origination and sale of loans 1,452 1,505 2,536 2,019
Equity in net income of Imperial Credit Industries, Inc. 3,815 3,544 6,699 5,005
Other service charges and fees 3,870 2,675 6,785 4,953
Merchant and credit card fees 1,631 798 3,106 1,497
International income and fees 3,469 2,631 6,409 4,750
Gain on securities available for sale 8 123 12 356
Gain on trading instruments 163 478 371 1,096
Gain on exercise and sale of equity warrants 16,617 809 17,040 2,543
Appreciation of donated Imperial Credit Industries, Inc.
common stock - - - 2,816
Other income 696 342 3,343 619
- -----------------------------------------------------------------------------------------------------------------------------
Total $35,501 $15,959 $53,604 $32,088
=============================================================================================================================
</TABLE>
Noninterest income for the second quarter of 1998 includes gains totaling $16.6
million from the exercise and sale of equity warrants. Excluding gains on
equity warrants, noninterest income increased 24.7% to $18.9 million for the
second quarter of 1998 from $15.2 million for the second quarter of 1997.
Noninterest income for the first half of 1998 increased to $36.6 million,
excluding $17.0 million in gains on equity warrants, from $26.7 million for the
first half of 1997, excluding gains on equity warrants and $2.8 million
recognized on the appreciation of ICII stock donated to not-for-profit
organizations in the first quarter of 1997. The Company continues to experience
growth in fee-based service income including: merchant card processing fees,
international income, fees derived from the sale of nonproprietory mutual funds,
factoring fees, trust fees and service charges on deposits. The increases in
fee income were related to higher volumes in the respective operations. The
Company's equity in the earnings of ICII increased slightly for the second
quarter of 1998 to $3.8 million from $3.5 million for the prior year. For the
first six months of 1998, equity in the earnings of ICII increased to $6.7
million from $5.0 million for the prior year. In the first quarter of 1997,
ICII recorded an extraordinary loss due to the early retirement of debt which
resulted in an after-tax loss of approximately $4.0 million. The Company's
pretax share of this loss was $1.0 million. The increases in fee income and in
the equity in ICII's net income were offset in part by decreases in gains on
trading instruments and gains on the sale of securities available for sale.
Noninterest Expense:
Noninterest expense totaled $59.1 million for the three months ended June 30,
1998, compared with $40.8 million for the three months ended June 30, 1997.
Noninterest expense for the first half of 1998 totaled $109.2 million compared
with $80.5 million for the first half of 1997. The table below provides detail
of noninterest expense by category for the periods indicated:
4
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Three months ended Six months ended
June 30, June 30,
(In Thousands) 1998 1997 1998 1997
===================================================================================================================
<S> <C> <C> <C> <C>
Salary and employee benefits $33,189 $21,839 $ 61,900 $41,510
Net occupancy expense 2,646 2,309 4,969 4,521
Furniture and equipment 2,583 1,607 4,800 2,988
Data processing 2,455 1,884 4,655 3,759
Customer services 6,878 4,273 12,784 7,879
Professional and legal fees 2,799 2,468 5,098 4,296
Business development 1,597 1,753 2,724 2,650
Charitable donations 164 51 307 3,727
Other expense 6,763 4,609 11,920 9,177
- -------------------------------------------------------------------------------------------------------------------
Total $59,074 $40,793 $109,157 $80,507
===================================================================================================================
</TABLE>
The increase in noninterest expense for the current quarter and year-to-date
compared with the prior year occurred primarily in salary and benefits expense,
customer services expense and other noninterest expense. The increase in salary
and benefits expense is primarily the result of the Company's growth. The
number of full-time equivalent staff increased 28% to 1,146 at June 30, 1998,
compared with 898 at June 30, 1997. The increase in staff reflects additions to
lending and deposit personnel at existing offices, the opening of two loan
production offices and Imperial Bank Arizona, and additions to operations staff
to support the Company's growth. Benefits expense for the second quarter of
1998 includes $5.0 million of commissions associated with the exercise and sale
of equity warrants. Excluding commissions related to warrants, salaries and
benefits expense increased 31% for the second quarter of 1998 compared to the
second quarter of 1997. The Company's expansion has also led to increases in
occupancy, furniture and equipment expenses.
Customer services expense increased to $6.9 million for the second quarter of
1998 from $4.3 million for the prior year. For the first half of 1998, customer
services expense totaled $12.8 million compared with $7.9 million for the same
period of 1997. The Company pays certain accounting and courier expenses on
behalf of its Financial Services Group depositors. The increase in customer
services expense is directly related to the growth in Financial Services Group
demand deposits. The average balance of these demand deposits increased
approximately $633.1 million for the six months ended June 30, 1998, compared
with the comparable period of 1997.
Other noninterest expense for the second quarter of 1998 totaling $6.8 million
includes $660,000 of amortization related to the Company's investment in low
income housing tax credits. The Company's gross investment in low income
housing tax credits increased to $8.1 million at June 30, 1998, from $2.6
million at December 31, 1997. Other noninterest expense for the current quarter
and year-to-date also reflects increases in travel, supplies and telephone
expenses related to the Company's growth.
The increases in noninterest expense discussed above were partially offset by a
reduction in contributions expense. Contributions expense for the first half of
1997 included a $3.7 million donation of ICII stock to not-for-profit
organizations.
Income Taxes:
The Company recorded income tax expense of $10.8 million and $7.5 million,
respectively, for the quarters ended June 30, 1998 and 1997. Income tax expense
was $20.2 million and $12.7 million, respectively, for the six months ended June
30, 1998 and 1997. The Company's effective tax rate was 40.3% for the six month
period ended June 30, 1998, and 40.0% for the six month period ended June 30,
1997.
5
<PAGE>
LOANS
The following table provides a summary of loans by category for the periods
indicated:
<TABLE>
<CAPTION>
=================================================================================================================================
(In Thousands) June 30, 1998 December 31, 1997 June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Percent Balance Percent Balance Percent
Commercial $2,808,458 87.28% $2,350,438 84.29% $1,885,317 80.02%
Loan Secured by real estate: -
Real estate term loans 196,352 6.10 232,954 8.35 321,460 13.64
Interim construction loans 183,203 5.69 174,767 6.27 123,975 5.26
Consumer loans 29,676 0.93 30,449 1.09 25,511 1.08
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Loans 3,217,689 100.00% 2,788,608 100.00% 2,356,263 100.00%
Less Allowance for loan losses (58,007) (51,143) (42,567)
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans $3,159,682 $2,737,465 $2,313,696
=================================================================================================================================
</TABLE>
The Company continued to experience strong loan demand in its core California
markets during the second quarter of 1998 and the relative distribution by
industry type remained consistent with year end 1997. The out-of-state loan
production offices opened in 1996 and 1997 also contributed to the Company's
loan growth. Management expects loan growth to continue through 1998 and into
1999 although at a more moderate pace.
ASSET QUALITY
Nonaccrual Loans, Restructured Loans and Real Estate Owned:
Nonaccrual loans, which includes loans 90 days or more past due, totaled $25.9
million at June 30, 1998, compared with $10.6 million at December 31, 1997, and
$7.9 million at June 30, 1997. Nonaccrual loans as a percentage of total loans
outstanding were 0.81% at June 30, 1998, 0.38% at December 31, 1997, and 0.34%
at June 30, 1997. Loans totaling $21.4 million were placed on nonaccrual status
during the three months ended June 30, 1998. The increase in nonaccrual loans
was partially offset by gross charge-offs totaling $3.9 million, payoffs
totaling $2.3 million, loans brought current totaling $592,000 and loans
transferred to OREO totaling $915,000. The increase in nonaccrual loans during
the second quarter of 1998 comprises $19.8 million of commercial loans,
including one $5.9 million loan, and two real estate loans totaling $1.6
million. For the six months ended June 30, 1998, nonaccrual loans increased by
$28.8 million. The increase in the balance of nonaccrual loans was partially
offset by gross charge-offs totaling $5.4 million, payoffs totaling $3.5
million, loans brought current totaling $3.7 million and loans transferred to
OREO totaling $915,000. At June 30, 1998, the Company had loans totaling $1.1
million that were past due 90 days or more and still accruing interest. The
majority of these loans were government-guaranteed Small Business Administration
("SBA") loans. When a loan reaches nonaccrual status, any interest accrued but
uncollected is reversed and charged against current income.
Restructured loans, loans that have had their original terms modified, totaled
$23.7 million, $24.0 million and $24.1 million at June 30, 1998, December 31,
1997, and June 30, 1997, respectively. The net decrease in restructured loans
since December 31, 1997, reflects payments received totaling $1.1 million offset
in part by the addition of one commercial loan.
Real estate and other assets owned ("OREO") include properties acquired through
foreclosure or through full or partial satisfaction of loans. The difference
between the fair value of the collateral, less the estimated costs of disposal,
and the loan balance at the time of transfer to OREO is reflected in the
allowance for loan losses as a charge-off. Any subsequent declines in the fair
value of the property after the date of transfer are recorded through a
provision for writedowns on OREO. OREO net of valuation allowances totaled $3.3
million, $3.3 million and $3.0 million at June 30, 1998, December 31, 1997, and
June 30, 1997, respectively. For the six months ended June 30, 1998, four
properties were added to OREO and six properties were sold. A net loss of
$67,000 was recognized on the sales.
The following table provides information on nonaccrual loans, restructured loans
and real estate and other assets owned as indicated:
6
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
June 30, March 31, Dec. 31, Sept. 30, June 30,
(In Thousands) 1998 1998 1997 1997 1997
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial $25,039 $ 9,802 $ 8,675 $ 6,250 $ 5,782
Real estate 831 2,353 1,903 2,685 2,136
Consumer 49 99 - 301 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans $25,919 $12,254 $10,578 $ 9,236 $ 7,918
===================================================================================================================================
Restructured loans $23,652 $23,129 $23,970 $25,549 $24,144
===================================================================================================================================
Real estate and other assets owned:
Real estate and other assets owned, gross $ 4,343 $ 4,073 $ 4,373 $ 3,547 $ 3,817
Less valuation allowance (1,089) (1,089) (1,089) (1,089) (833)
- -----------------------------------------------------------------------------------------------------------------------------------
Real estate and other assets owned, net $ 3,254 $ 2,984 $ 3,284 $ 2,458 $ 2,984
- -----------------------------------------------------------------------------------------------------------------------------------
Total $52,825 $38,367 $37,832 $37,243 $35,046
===================================================================================================================================
</TABLE>
All loans on nonaccrual status are considered to be impaired; however, not all
impaired loans are on nonaccrual status. Impaired loans on accrual status must
meet the following criteria: all payments must be current and the loan
underwriting must support the debt service requirements. Factors that contribute
to a performing loan being classified as impaired include: a below market
interest rate, delinquent taxes and debts to other lenders that cannot be
serviced out of existing cash flow.
The following table contains information for loans deemed impaired:
<TABLE>
<CAPTION>
===========================================================================================================
Net
Carrying Specific Net
(In Thousands) Value Allowance Balance
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1998
Loans with specific allowances $61,302 $(12,692) $48,610
Loans without specific allowances 15,187 - 15,187
- -----------------------------------------------------------------------------------------------------------
Total $76,489 $(12,692) $63,797
===========================================================================================================
December 31, 1997
Loans with specific allowances $85,612 $(11,881) $73,731
Loans without specific allowances 7,374 - 7,374
- -----------------------------------------------------------------------------------------------------------
Total $92,986 $(11,881) $81,105
===========================================================================================================
Impaired loans were classified as follows:
<CAPTION>
===========================================================================================================
June 30, December 31,
(In Thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current $50,570 $79,109
Past due - 3,299
Nonaccrual 25,919 10,578
- -----------------------------------------------------------------------------------------------------------
Total $76,489 $92,986
===========================================================================================================
</TABLE>
Loans classified as impaired totaled $76.5 million at June 30, 1998, compared to
$93.0 million at December 31, 1997. During the first half of 1998, $44.8 million
of loans were newly classified as impaired. The increase in impaired loans was
offset by the receipt of payments on impaired loans totaling $49.4 million,
charge-offs totaling $6.6 million, loans removed from impaired status totaling
$4.3 million and loans transferred to OREO of $915,000. The Company's average
recorded investment in impaired loans for the six months ended June 30, 1998,
was $83.4 million. Interest income totaling approximately $4.0 million was
collected on impaired loans during the six months ended June 30, 1998.
7
<PAGE>
Allowance and Provision for Loan Losses:
The allowance for loan losses is maintained at a level considered appropriate by
management and is based on an ongoing assessment of the risks inherent in the
loan portfolio. The allowance for loan losses is increased by the provision for
loan losses which is charged against current period operating results, and is
decreased by the amount of net charge-offs during the period. The Company's
determination of the level of the allowance for loan losses, and
correspondingly, the provision for loan losses is based upon various judgments
and assumptions, including general economic conditions (especially in
California), loan growth, loan portfolio composition and concentrations, prior
loan loss experience, collateral value, identification of problem and potential
problem loans and other relevant data to identify the risks in the loan
portfolio. While management believes that the allowance for loan losses is
adequate at June 30, 1998, future additions to the allowance will be subject to
continuing evaluation of inherent risk in the loan portfolio.
At June 30, 1998, the allowance for loan losses equaled $58.0 million, or 1.80%
of total loans, compared with $51.1 million, or 1.83% of total loans, at
December 31, 1997, and $42.6 million, or 1.81% of total loans, at June 30,
1997. The following table summarizes changes in the allowance for loan losses.
<TABLE>
<CAPTION>
====================================================================================================================================
Six months ended June 30, (In Thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 51,143 $ 36,051
====================================================================================================================================
Loans charged off:
Commercial (13,791) (2,394)
Real estate (329) (1,115)
Consumer (47) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans charged off $(14,167) $ (3,511)
====================================================================================================================================
Recoveries of loans previously charged off:
Commercial 911 545
Real estate 153 1,696
Consumer 1 13
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans recoveries $ 1,065 $ 2,254
====================================================================================================================================
Net loans charged off (13,102) (1,257)
Provision for loan losses 19,966 7,773
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 58,007 $ 42,567
====================================================================================================================================
Loans outstanding, end of period $3,217,689 $2,356,263
====================================================================================================================================
Average loans outstanding $3,094,609 $2,194,731
====================================================================================================================================
Ratio of net charge-offs to average loans /(1)/ 0.85% 0.12%
Ratio of allowance for loan losses to average loans 1.87 1.94
Ratio of allowance for loan losses to loans outstanding at June 30 1.80 1.81
Ratio of allowance for loan losses to nonaccrual loans 224 538
Ratio of provision for loan losses to net charge-offs 152 618
====================================================================================================================================
/(1)/ Annualized
</TABLE>
The provision for loan losses for the six months ended June 30, 1998 and 1997,
totaled $20.0 million and $7.8 million, respectively. The increase in the
provision for loan losses compared with the prior year reflects loan growth and
net charge-offs recorded in the second quarter of 1998. Charge-offs for the
second quarter of 1998 include $7.0 million related to one commercial loan. The
average balance of the Company's loan portfolio increased by $899.9 million, or
41%, for the six months ended June 30, 1998, compared with the comparable period
of the prior year. As a percentage of average loans outstanding, annualized net
charge-offs were 0.85% for the first half of 1998 compared with 0.12% for the
first half of 1997.
8
<PAGE>
Securities:
Securities available for sale increased to $755.8 million at June 30, 1998, from
$669.3 million at December 31, 1997. Federal funds sold and securities purchased
under resale agreements increased to $1.5 billion at June 30, 1998, from $765.0
million at December 31, 1997. The increase in these balances is a function of
the growth in deposits. Noninterest-bearing demand deposits increased to $3.6
billion at June 30, 1998, from $2.4 billion at December 31, 1997. The growth in
demand balances occurred primarily in real estate services deposits which
increased to $2.5 billion at June 30, 1998, from $1.4 billion at December 31,
1997. The remaining increase in demand balances is due to growth in commercial
deposits.
Other Borrowings:
Short-term borrowings increased to $136.0 million at June 30, 1998, from $55.9
million at December 31, 1997. Increases of $95.1 million in borrowed funds
backed by Treasury, Tax and Loan ("T,T&L") deposits and $8.9 million in
commercial paper were offset in part by a $23.9 million decrease in Federal
funds purchased and reverse repurchase balances.
ASSET/LIABILITY MANAGEMENT
Liquidity:
Liquidity management involves the Company's ability to meet the cash flow
requirements of its lending and deposit businesses. For the Company, as with
most commercial banking institutions, this involves an ongoing process of
managing the cash inflows and outflows associated with a commercial deposit
base. The Company's ability to acquire new deposits at pricing levels consistent
with management's targets is largely based upon its financial condition and
capital base.
The Company's liquid assets consist of cash and cash equivalents and investment
securities, excluding those pledged as collateral. The majority of the Company's
securities portfolio is held as available for sale. Available for sale
securities can be sold in response to liquidity needs or used as collateral
under reverse repurchase agreements. It is the Company's policy to maintain a
minimum liquidity ratio (liquid assets to deposits) of 20% and to limit gross
loans to no more than 80% of deposits. At June 30, 1998, the Company's liquidity
ratio was 40% and the loan to deposit ratio was 58%.
The overall liquidity position of the Company has been enhanced by a sizable
base of demand deposits resulting from the Company's longstanding relationships
with the real estate services industry which have provided a relatively stable
and low cost funding base. Total demand deposits averaged $2.3 billion for the
quarter ended June 30, 1998, compared with $1.4 billion for the same period of
1997. For the six months ended June 30, 1998, approximately 37% of average total
deposits were from the real estate services industry compared to 28% of average
total deposits for the same period of 1997. The Company's average demand
deposits and average shareholders' equity funded approximately 53% and 47%,
respectively, of average total assets for the six months ended June 30, 1998 and
1997.
These funding sources are augmented by payments of principal and interest on
loans, the routine liquidation of securities from the trading and available for
sale portfolios, Federal funds sold and securities purchased under resale
agreements. For the six months ended June 30, 1998, the Company experienced a
net cash outflow from its investing activities of approximately $1.3 billion.
The net outflow related to investing activities can be attributed to growth in
the Company's loan portfolio, an outflow of $415.4 million, and a $753.0 million
increase in Federal funds sold. The outflow in investing activities was offset
by the $1.5 billion net cash provided by the Company's financing activities. Net
cash inflows from financing activities for the six months ended June 30, 1998,
included net increases in deposits totaling $1.4 billion, and $80.1 million
provided by an increase in short-term borrowings.
Interest Rate Sensitivity Management:
The primary objective of the asset liability management process is to manage the
Company's exposure to interest rate fluctuations while maintaining adequate
levels of liquidity and capital. In order to manage its interest rate
sensitivity, the Company has adopted policies which attempt to limit the change
in pretax net interest income assuming various interest rate scenarios. This is
accomplished by adjusting the repricing characteristics of the Company's assets
and liabilities as
9
<PAGE>
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 pretax 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 net interest income and
the net interest margin by simulating various interest rate scenarios over
future time periods. Through the use of these simulations, the Company can
approximate the impact these projected rate changes may have on its entire on
and off-balance sheet position, on any particular segment of the balance sheet,
and overall profitability.
Cumulative interest sensitivity gap represents the difference between interest-
earning assets and interest-bearing liabilities maturing or repricing, whichever
is earlier, at a given point in time. At June 30, 1998, the Company maintained a
positive one year gap of approximately $2.5 billion; meaning its interest rate
sensitive assets exceeded its interest rate sensitive liabilities. This positive
cumulative gap position indicates that the Company is asset sensitive and
positioned for increased net interest income during a period of rising interest
rates but also exposed to an adverse impact on net interest income in a falling
rate environment. At June 30, 1997, the Company maintained a positive one year
gap of approximately $742.0 million.
The Company's net interest margin is sensitive to sudden changes in interest
rates. In addition, the Company's interest-earning assets, primarily its loans,
are tied to the prime rate, an index which tends to react more slowly to changes
in market rates than other money market indices such as LIBOR (London Interbank
Offered Rate). The rates paid for the Company's interest-bearing liabilities,
however, do correlate with LIBOR. This mismatch creates a spread relationship
risk between the Company's Prime based assets and LIBOR correlated liabilities.
The Company has developed strategies to protect both net interest income and net
interest margin from significant movements in interest rates. These strategies
involve purchasing interest rate floors and caps with strike prices that
generally adjust quarterly and are approximately 125 basis points below or above
(depending on the instrument) current market rates at the time the floors and
caps were purchased. At June 30, 1998, the Company owned exchange traded floors
totaling $4.8 billion that expire as follows: $1.0 billion per quarter for the
third and fourth quarters of 1998, $1.3 billion in the first quarter of 1999
and $1.5 billion in the second quarter of 1999. The floors provide the Company
protection in the event that the three-month LIBOR rate drops below their
respective strike prices. The floors have an average strike price of 4.88%. The
unrealized gain on the floors approximated $241,000 at June 30, 1998. The
unamortized premium relating to the floors was $311,000 at June 30, 1998.
In March 1998, the Company purchased an over the counter interest rate cap with
a notional value outstanding of $1.0 billion at June 30, 1998. The cap provides
protection in the event that the three-month LIBOR increases above the 8.33%
strike price of the cap and expires during the first quarter of 2001. The
unrealized gain on this cap at June 30, 1998, approximated $43,000. The
unamortized premium paid for the cap approximated $444,000 at June 30, 1998.
In the first quarter of 1997, the Company sold $27.0 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. In order to minimize the interest rate risk of paying out a
fixed rate for ten years, the Company executed an interest rate swap transaction
with a notional value of $27.0 million in the first quarter of 1997. The
interest rate swap requires the Company to pay a rate of three-month LIBOR less
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. The
unrealized gain on this swap at June 30, 1998, approximated $573,000.
In April 1997, the Company issued $75.0 million of 9.98% capital securities (the
"Capital Securities") and entered into three fixed for floating interest rate
swaps with a total notional value of $75.0 million in order to convert the
Capital Securities to a floating rate. The swaps require the Company to pay
three-month LIBOR and receive a fixed rate of 7.18% on $25.0 million, 7.186% on
$25.0 million and 7.187% on the remaining $25.0 million. The maturity and fixed
payment due dates on the swaps coincide with the call date and payment dates of
the Capital Securities. The unrealized gain on the swaps approximated $6.9
million at June 30, 1998.
In June 1998, the Company entered into two fixed for floating interest rate
swaps with a total notional value of $5.0 million. The swaps require the
Company to pay three-month LIBOR and receive a fixed rate of 5.95%. The swaps
10
<PAGE>
mature in June 1999. Concurrently, the Company entered into interest rate swaps
with its subsidiary, Crown American Bank. The notional amount, maturity and
payment due dates on the swaps coincide with the original swaps, however, the
payment terms require the Company to pay a fixed rate of 5.95% and receive
three-month LIBOR. The purpose of the swaps is to convert a similar amount of
one-year fixed rate time certificates of deposit acquired on behalf of Crown
American Bank as part of a $35.0 million time deposit acquisition program to a
floating rate. There was no unrealized gain on the swaps at June 30, 1998.
CAPITAL SECURITIES
On April 23, 1997, Imperial Capital Trust I (the "Trust"), a statutory business
trust and wholly-owned subsidiary of the Company, issued in a private placement
transaction $75.0 million of 9.98% Capital Securities which represent undivided
preferred beneficial interests in the assets of the Trust. The Company is the
owner of all the beneficial interests represented by the common securities of
the Trust (the "Common Securities"), 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.
The Indenture for the Capital Securities includes provisions that restrict the
payment of dividends under certain conditions and changes in ownership of the
Trust. The Indenture also includes provisions relating to the payment of
expenses associated with the issuance of the Capital Securities. The Company was
in compliance with the provisions of the Indenture at June 30, 1998.
The Company used $30.0 million of the net proceeds from the sale of the Junior
Subordinated Debentures to make an additional investment in the Bank during
1997. An additional $37.2 million investment was made in the Bank in January
1998. The remainder of the proceeds will be used for general corporate purposes
or may be used for additional capital contributions to the Bank or to pursue
investment opportunities. The Capital Securities qualify as Tier I capital under
the capital guidelines of the Federal Reserve. The net principal balance of the
Capital Securities was $73.3 million at June 30, 1998.
CAPITAL
Until 1997, the primary source of new capital for the Company, has been retained
earnings from operations, with the exception of its long-term debt offering in
1979, and the exercise of employee stock options. On April 23, 1997, Imperial
Capital Trust, a wholly-owned subsidiary of the Company, issued in a private
placement transaction $75.0 million of 9.98% capital securities. See - "Capital
Securities." At June 30, 1998, shareholders' equity totaled $389.4 million, an
11% increase over the $352.0 million reported at December 31, 1997. In the first
six months of 1998, the Company recorded an additional $2.4 million of
shareholders' equity from the exercise of employee stock options. The Company
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 shareholders' equity, approximated $4.6 million in for the first
six months of 1998.
Management is committed to maintaining capital at a level sufficient to assure
shareholders, customers and regulators that the Company and its bank
subsidiaries are financially sound. The Company and its bank subsidiaries are
subject to risk-based capital regulations adopted by the federal banking
regulators in January 1990. These guidelines are used to evaluate capital
adequacy and are based on an institution's asset risk profile and off-balance
sheet exposures. The risk-based capital guidelines assign risk weightings to
assets both on and off-balance sheet and place increased emphasis on common
equity. Federal law requires each Federal banking agency to take prompt
corrective action to resolve problems of insured depository institutions
including, but not limited to, those that fall below one or more prescribed
capital ratios. According to the regulations, 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 shareholders'
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, 1998, were 10.25% and
11.57%, respectively, compared to 9.67% and 11.06%, respectively, at June 30,
1997. The Capital Securities discussed above qualify as Tier I capital and
therefore contributed to the increase in the Company's capital ratios compared
with the prior year.
11
<PAGE>
CAPITAL RATIOS FOR IMPERIAL BANCORP AND IMPERIAL BANK/(1)/
<TABLE>
<CAPTION>
===============================================================================================================================
June 30, 1998
- -------------------------------------------------------------------------------------------------------------------------------
To be Well Capitalized
For Capital Adequacy Under Prompt Corrective
(In Thousands) Actual Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
Company $ 514,394 11.57% $355,533 8.00% $444,417 10.00%
Bank 473,230 10.83% 349,523 8.00% 436,904 10.00%
Tier I Capital (to risk-weighted assets):
Company $ 455,578 10.25% $177,767 4.00% $266,650 6.00%
Bank 418,581 9.58% 174,762 4.00% 262,142 6.00%
Leverage (to average assets):
Company $ 455,578 9.32% $146,600 3.00% $244,333 5.00%
Bank 418,581 8.74% 143,607 3.00% 239,344 5.00%
===============================================================================================================================
</TABLE>
/(1)/ Includes common shareholders equity (excluding unrealized gains on
securities available for sale) less goodwill and other disallowed
intangibles
Risk-weighted assets for the Company and the Bank were $4,444 million and $4,369
million, respectively, at June 30, 1998. Average assets for the Company and the
Bank were $4,887 million and $4,787 million, respectively, at June 30, 1998.
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 9.32% at June 30,
1998, compared to 8.61% at June 30, 1997, well in excess of minimum regulatory
requirements.
In anticipation of the spin off of IFG, Imperial Bancorp contributed $67.2
million of the proceeds from the Capital Securities to the Bank as additional
capital to ensure that the Bank's risk-based capital ratios continue to meet the
well capitalized criteria. The Company will evaluate the capital needs of the
Bank following the spin off to determine whether additional capital is
required.
The Company's pro forma leverage, Tier 1, and total capital ratios at June 30,
1998, reflecting the spin off of IFG were 8.20%, 9.06% and 10.31%, respectively.
YEAR 2000
To fulfill the Company's business responsibility and ensure compliance with
regulatory requirements, the Company has established a year 2000 readiness
program with the objective of having the Company year 2000 compliant by mid-
1999. The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computers that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. The Company's year 2000 readiness
program is managed by an enterprise-wide Program Office ("Office") under the
guidance of the Company's Management Committee. The Office is staffed with
representatives from each of the Company's primary business units. Within some
business units, the Office representative is supported by a business unit year
2000 project team. The Company has conducted a comprehensive review of its
computer systems. All systems have been evaluated and classified as critical,
important or ordinary. All hardware has been tested, with those requiring
upgrades or replacement identified. All vendor readiness efforts are being
monitored. The Office presently believes that, with updates and upgrades to
existing software and/or minimal conversions to new software, the year 2000 will
not pose significant operational problems for the Company's computer systems.
Based on its identification and analysis of necessary year 2000 updates and
enhancements, the Company anticipates that it will incur costs of approximately
$5 million related to the year 2000 project.
12
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 130 - REPORTING COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company adopted the
applicable provisions of SFAS No. 130 effective January 1, 1998. Total
comprehensive income is disclosed in a footnote to the interim financial
statements for each period presented. See Note 5 on page 20 of this Form 10-Q.
SFAS NO. 131 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS Statement No.
14, "Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It amends SFAS
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
SFAS No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It requires reconciliation's of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for segments
to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. However, SFAS No. 131
does not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable.
SFAS No. 131 also requires that a public business enterprise report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The Company adopted the applicable provisions of SFAS No. 131
effective January 1, 1998. Segment disclosures will be presented in the
financial statements for the year ended December 31, 1998.
13
<PAGE>
SFAS NO. 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires recognition of all derivatives as either assets or liabilities in the
statement of financial condition and the measurement of those instruments at
fair value. Recognition of changes in fair value will be recognized into income
or as a component of other comprehensive income depending upon the type of the
derivative and its related hedge, if any. SFAS No. 133 is effective for the
Company beginning January 1, 2000.
14
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
====================================================================================================================================
Imperial Bancorp and Subsidiaries June 30, December 31,
(In Thousands, Except Share Data) 1998 1997
====================================================================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks $ 531,807 $ 316,600
Trading instruments 28,536 35,782
Securities available for sale 755,830 669,266
Securities held to maturity (market value of $3,980 and $4,026 for 1998 and 1997, respectively) 3,980 4,026
Federal funds sold and securities purchased under resale agreements 1,518,000 765,000
Loans held for sale (market value of $9,068 and $4,120 for 1998 and 1997, respectively) 8,441 3,763
Loans:
Loans, net of unearned income and deferred loan fees 3,217,689 2,788,608
Less allowance for loan losses (58,0007) (51,143)
- ------------------------------------------------------------------------------------------------------------------------------------
Total net loans $3,159,682 $2,737,465
====================================================================================================================================
Premises and equipment, net 26,277 23,091
Accrued interest receivable 25,128 22,212
Real estate and other assets owned, net 3,254 3,284
Current income taxes receivable 2,896 6,086
Deferred tax asset 5,216 355
Investment in Imperial Credit Industries, Inc. 81,700 75,001
Other assets 71,945 64,348
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $6,222,692 $4,726,279
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $3,564,484 $2,378,830
Savings 24,932 23,375
Money market 956,467 939,086
Time - under $100,000 200,743 128,543
Time - $100,000 and over 800,309 704,764
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $5,546,935 $4,174,598
====================================================================================================================================
Accrued interest payable 6,079 5,205
Short-term borrowings 135,974 55,915
Long-term borrowings:
Floating rate notes and fixed rate debentures 3,234 3,257
Capital securities of subsidiary trust:
Company-obligated mandatorily redeemable capital securities of
subsidiary trust holding solely junior subordinated deferrable
interest debentures of the Company, net 73,343 73,314
Other liabilities 67,727 61,966
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $5,833,292 $4,374,255
====================================================================================================================================
Shareholders' equity:
Common Stock - no par, 50,000,000 shares authorized; 39,756,670
shares at June 30, 1998 and 39,236,034 shares at
December 31, 1997, issued and outstanding 243,204 236,186
Unrealized gain on securities available for sale, net of tax 2,098 1,682
Retained earnings 144,098 114,156
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 389,400 $ 352,024
====================================================================================================================================
Total liabilities and shareholders' equity $6,222,692 $4,726,279
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
==============================================================================================================================
Three months ended Six months ended
Imperial Bancorp and Subsidiaries June 30, June 30,
(In Thousands, Except Per Share Data) 1998 1997 1998 1997
==============================================================================================================================
<S> <C> <C> <C> <C>
Interest income:
Loans $73,309 $55,494 $143,352 $104,663
Trading instruments 242 263 592 881
Securities available for sale 9,555 7,793 18,897 14,301
Securities held to maturity 70 73 140 146
Federal funds sold and securities purchased under resale agreements 6,722 4,651 10,843 6,893
Loans held for sale 248 221 392 344
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income $90,146 $68,495 $174,216 $127,228
==============================================================================================================================
Interest expense:
Deposits 21,689 18,165 42,046 35,520
Short-term borrowings 1,724 1,180 3,107 2,318
Long-term borrowings 1,664 1,311 3,357 1,390
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense $25,077 $20,656 $ 48,510 $ 39,228
==============================================================================================================================
Net interest income 65,069 47,839 125,706 88,000
Provision for loan losses 14,127 4,427 19,966 7,717
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $50,942 $43,412 $105,740 $ 80,283
==============================================================================================================================
Noninterest income:
Service charges on deposit accounts 1,686 1,314 3,118 2,717
Trust fees 2,094 1,740 4,185 3,717
Gain on origination and sale of loans 1,452 1,505 2,536 2,019
Equity in net income of Imperial Credit Industries, Inc. 3,815 3,544 6,699 5,005
Other service charges and fees 3,870 2,675 6,785 4,953
Merchant and credit card fees 1,631 798 3,106 1,497
International income and fees 3,469 2,361 6,409 4,750
Gain on securities available for sale 8 123 12 356
Gain on trading instruments 163 748 371 1,096
Gain on exercise and sale of equity warrants 16,617 809 17,040 2,543
Appreciation of donated Imperial Credit Industries, Inc. common stock - - - 2,816
Other income 696 342 3,343 619
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $35,501 $15,959 $ 53,604 $ 32,088
==============================================================================================================================
Noninterest expense:
Salary and employee benefits 33,189 21,839 61,900 41,510
Net occupancy expense 2,646 2,309 4,969 4,521
Furniture and equipment 2,583 1,607 4,800 2,988
Data processing 2,455 1,884 4,655 3,759
Customer services 6,878 4,273 12,784 7,879
Professional and legal fees 2,799 2,468 5,098 4,296
Business development 1,597 1,753 2,724 2,650
Charitable donations 164 51 307 3,727
Other expense 6,763 4,609 11,920 9,177
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $59,074 $40,793 $109,157 $ 80,507
==============================================================================================================================
Income from continuing operations before income taxes 27,369 18,578 50,187 31,864
Income tax provision 10,802 7,487 20,245 12,741
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $16,567 $11,091 $ 29,942 $ 19,123
==============================================================================================================================
Loss from operations of discontinued operations, net of tax - 132 - 210
- ------------------------------------------------------------------------------------------------------------------------------
Net income $16,567 $10,959 $ 29,942 $ 18,913
==============================================================================================================================
Basic earnings per share from continuing operations $0.42 $0.29 $0.76 $0.50
Diluted earnings per share from continuing operations $0.40 $0.27 $0.72 $0.47
Basic earnings per share $0.42 $0.28 $0.76 $0.49
Diluted earnings per share $0.40 $0.27 $0.72 $0.47
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
=======================================================================================================
Imperial Bancorp and Subsidiaries (Unaudited)
Six months ended June 30, (In Thousands) 1998 1997
=======================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,942 $ 18,913
Adjustments for noncash charges (credits):
Depreciation and amortization (12,765) (3,828)
Accretion of purchase loan discount - (37)
Provision for loan losses 19,966 7,717
Provision for other real estate owned - 64
Equity in net income of Imperial Credit Industries, Inc. (6,699) (5,005)
Gain on exercise and sale of stock warrants (17,040) (2,543)
(Gain) loss on sale of real estate and other assets owned 67 (364)
Loss on sale of premises and equipment 17 9
(Benefit) provision for deferred taxes (572) -
Gain on securities available for sale (12) (356)
Net change in trading instruments 7,246 36,285
Net change in loans held for sale (4,678) (1,554)
Net change in accrued interest receivable (2,916) (5,942)
Net change in accrued interest payable 874 1,236
Net change in income taxes receivable 3,190 4,206
Net change in other liabilities 5,789 10,576
Net change in other assets (11,814) (13,822)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 10,595 $ 45,555
=======================================================================================================
Cash flows from investing activities:
Proceeds from securities held to maturity 46 48
Proceeds from sale of securities available for sale 2,102,556 2,159,857
Proceeds from maturities of securities available for sale 418,465 285,981
Purchase of securities available for sale (2,603,135) (2,682,050)
Proceeds from exercise and sale of equity warrants 5,940 2,543
Net change in Federal funds sold and securities
purchased under resale agreements (753,000) (178,000)
Net change in loans (415,443) (288,612)
Capital expenditures (6,543) (4,492)
Proceeds from sale of real estate and other assets owned 884 508
Proceeds from sale of premises and equipment 12 133
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities $(1,250,218) $ (704,084)
=======================================================================================================
Cash flows from financing activities:
Net change in demand deposits, savings, and
money market accounts 1,204,592 616,883
Net change in time deposits 167,745 (18,535)
Net change in short-term borrowings 80,059 77,451
Retirement of long-term borrowings (23) (19)
Net change in capital securities of subsidiary 29 73,284
Proceeds from exercise of employee stock options 2,428 676
Other - (18)
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 1,454,830 $ 749,722
- -------------------------------------------------------------------------------------------------------
Net change in cash and due from banks $ 215,207 $ 91,193
- -------------------------------------------------------------------------------------------------------
Cash and due from banks, beginning of year $ 316,600 $ 325,014
- -------------------------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 531,807 $ 416,207
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<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, 1998, the Company owned 8.9 million shares, or approximately 23% 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) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $47,636 $37,992
Taxes refunded - 424
Taxes paid 17,614 8,791
Significant noncash transactions:
Loans transferred to OREO 915 1,482
Net change in unrealized gain on securities, net of taxes 416 824
Donation of Imperial Credit Industries, Inc. common stock - 3,362
======================================================================================
</TABLE>
NOTE (4) PRO FORMA FINANCIAL INFORMATION OF IMPERIAL BANCORP
The pro forma impact of the spin off of IFG on selected income statement items
is reflected as if the spin off had occurred at the beginning of the period
presented. Selected balance sheet items are reflected as if the spin off had
occurred at the end of the period presented.
18
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
For the six months ended
June 30, 1998
(In Thousands, Except Share Data) Actual Pro Forma
===============================================================================
Pro Forma Earnings Summary:
Interest income $ 174,216 $ 165,330
Interest expense 48,510 48,297
- --------------------------------------------------------------------------------
Net interest income 125,706 117,033
Provision for loan losses 19,966 19,270
- --------------------------------------------------------------------------------
Net interest income after provision for loan losses 105,740 97,763
Noninterest income 46,905 38,843
Equity in net income of ICII 6,699 -
Other noninterest expense 109,157 97,326
- --------------------------------------------------------------------------------
Income from continuing operations before income taxes 50,187 39,280
Income tax provision 20,245 15,647
- --------------------------------------------------------------------------------
Income from continuing operations $ 29,942 $ 23,633
================================================================================
Pro forma earnings per share:
Basic earnings per share from continuing
operations $ 0.76 $ 0.60
Diluted earnings per share from continuing
operations $ 0.72 $ 0.57
Weighted average number of shares:
Basic 39,535,396 39,535,396
Diluted 41,389,169 41,389,369
================================================================================
<CAPTION>
===============================================================================
At June 30, 1998
(In Thousands) Actual Pro Forma
================================================================================
Pro forma balance sheet summary:
<S> <C> <C>
Cash $ 531,807 $ 523,859
Investments 2,314,787 2,300,339
Loans, net 3,159,682 3,025,406
Investment in ICII 81,700 -
Other assets 134,716 218,246
- --------------------------------------------------------------------------------
Total assets $ 6,222,692 $ 6,067,850
================================================================================
Deposits $ 5,546,935 $ 5,509,455
Short-term borrowings 135,974 135,974
Long-term borrowings 76,577 76,577
Other liabilities 73,806 31,802
- --------------------------------------------------------------------------------
Total liabilities $ 5,833,292 $ 5,753,808
- --------------------------------------------------------------------------------
Total shareholders' equity 389,400 314,042
- --------------------------------------------------------------------------------
Total liabilities & shareholders' equity $ 6,222,692 $ 6,067,850
================================================================================
</TABLE>
19
<PAGE>
NOTE (5) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company adopted the
applicable provisions of SFAS No. 130 effective January 1, 1998. The following
table provides a summary of total comprehensive income for the six months
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
====================================================================================================================================
Three months ended Six months ended
Consolidated Statement of Comprehensive Income June 30, June 30,
(In Thousands) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 16,567 $ 10,959 $29,942 $18,913
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized holding gains (269) 596 416 824
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 16,298 $ 11,555 $30,358 $19,737
====================================================================================================================================
</TABLE>
20
<PAGE>
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID (1)
<TABLE>
<CAPTION>
=====================================================================================================================
Three months ended June 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
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 -net of unearned income
and deferred loan fees (2) $3,209,633 $73,309 (3) 9.16% $2,258,437 $55,494 (3) 9.86%
Trading account securities 18,729 242 5.18% 16,422 263 6.42%
Securities available for sale 671,693 9,555 5.71% 514,046 7,793 6.08%
Securities held to maturity 3,992 70 7.03% 4,163 73 7.03%
Federal funds sold and securities
purchased under resale agreement 489,254 6,722 5.51% 335,566 4,651 5.56%
Loans held for sale 9,846 248 10.10% 8,769 221 10.11%
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $4,403,147 $90,146 8.21% $3,137,403 $68,495 8.76%
=====================================================================================================================
Allowance for loan losses (57,032) (39,404)
Cash 337,698 257,053
Other assets 204,028 174,239
---------- ----------
Total assets $4,887,841 $3,529,291
========== ==========
Interest-bearing liabilities:
Savings $ 26,190 $ 165 2.53% $ 21,292 $ 133 2.51%
Money market 940,796 7,873 3.36% 680,841 5,402 3.18%
Time-under $100,000 185,037 2,610 5.66% 169,356 2,454 5.81%
Time-$100,000 and over 813,122 11,041 5.45% 746,400 10,176 5.47%
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,965,145 $21,689 4.43% $1,617,889 $18,165 4.50%
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings 123,538 1,724 5.60% 88,564 1,180 5.34%
Long-term borrowings 76,568 1,664 8.72% 60,008 1,311 8.76%
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $2,165,251 $25,077 4.65% $1,766,461 $20,656 4.69%
=====================================================================================================================
Demand deposits 2,265,377 1,383,614
Other liabilities 78,616 72,616
Shareholders' equity 378,597 306,600
---------- ----------
$4,887,841 $3,529,291
========== ==========
Net interest income/Net interest margin $65,069 5.93% $47,839 6.12%
======= ===== ======= =====
(1) The yields are not presented on a tax equivalent basis as the effects are
not material.
(2) Average loan balance includes nonaccrual loans.
(3) Includes net loan fee income and amortization of $6.8 million and $4.3
million, respectively, for the three months ended June 30, 1998 and 1997.
=====================================================================================================================
</TABLE>
21
<PAGE>
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID (1) (Continued)
<TABLE>
<CAPTION>
====================================================================================================================================
Six months ended June 30, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 -net of unearned income
and deferred loan fees (2) $3,094,609 $143,352 (3) 9.34% $2,194,731 $104,663 (3) 9.62%
Trading account securities 22,414 592 5.33% 27,674 881 6.42%
Securities available for sale 653,923 18,897 5.83% 483,629 14,301 5.96%
Securities held to maturity 4,006 140 7.05% 4,176 146 7.05%
Federal funds sold and securities
purchased under resale agreements 395,275 10,843 5.53% 252,015 6,893 5.52%
Loans held for sale 7,558 392 10.46% 6,824 344 10.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $4,177,785 $174,216 8.41% $2,969,049 $127,228 8.64%
===================================================================================================================================
Allowance for loan losses (54,580) (38,232)
Cash 324,269 265,092
Other assets 202,226 168,916
---------- ----------
Total assets $4,649,700 $3,364,825
========== ==========
Interest-bearing liabilities:
Savings $ 25,770 $ 325 2.54% $ 19,462 $ 241 2.50%
Money market 912,839 15,357 3.39% 638,067 9,857 3.12%
Time-under $100,000 185,938 4,843 5.25% 172,026 4,918 5.77%
Time-$100,000 and over 779,242 21,521 5.57% 758,221 20,504 5.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposit $1,903,789 $ 42,046 4.45% $1,587,776 $35,520 4.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 112,700 3,107 5.56% 88,550 2,318 5.28%
Long-term borrowings 76,569 3,357 8.84% 32,383 1,390 8.66%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $2,093,058 $ 48,510 4.67% $1,708,709 $39,228 4.63%
===================================================================================================================================
Demand deposits 2,115,086 1,288,609
Other liabilities 72,713 68,277
Shareholders' equity 368,843 299,230
---------- ----------
$4,649,700 $3,364,825
========== ==========
Net interest income/Net interest margin $125,706 6.07% $ 88,000 5.98%
======== ===== ========= =====
(1) The yields are not presented on a tax equivalent basis as the effects are
not material.
(2) Average loan balance includes nonaccrual lonas.
(3) Includes net loan fee income and amortization of $12.9 million and $7.3
million, respectively, for the six months ended June
30, 1998 and 1997.
===================================================================================================================================
</TABLE>
22
<PAGE>
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME
Changes in the Company's net interest income are a function of both changes in
interest rates and changes in the average balance of interest-earning assets and
interest-bearing liabilities. The following table sets forth information
regarding changes in interest income and interest expense for the years
indicated. The total change is segmented into the change attributable to
variations in volume (changes in average balances multiplied by old rate) and
the change attributable to variations in interest rates (changes in rates
multiplied by old balances). The change in interest income and interest expense
attributable to both rate and volume (changes in rate multiplied by changes in
volume) is classified as rate/volume. Nonaccrual loans are included in average
loans used to compute this table. The table is not presented on a tax equivalent
basis as the effects are not material.
<TABLE>
<CAPTION>
===============================================================================
Three months ended June 30, 1998 over 1997
(In Thousands) Volume Rate Rate/Volume Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $23,435 $(3,921) $(1,701) $17,813
Trading instruments 36 (51) (5) (20)
Securities available for sale 2,397 (482) (153) 1,762
Securities held to maturity (3) - - (3)
Federal Funds sold and securities
purchased under resale agreements 2,136 (41) (24) 2,071
Loans held for sale 28 - - 28
- -------------------------------------------------------------------------------
Total interest income $28,029 $(4,495) $(1,883) $21,651
===============================================================================
Savings (41) 1 72 32
Money market 2,068 296 106 2,470
Time-under $100,000 228 (65) (6) 157
Time-$100,000 and over 912 (41) (6) 865
- -------------------------------------------------------------------------------
Total deposits $ 3,167 $ 191 $ 166 $ 3,524
- -------------------------------------------------------------------------------
Short-term borrowings 467 56 21 544
Long-term borrowings 363 (7) (3) 353
- -------------------------------------------------------------------------------
Total interest expense $ 3,997 $ 240 $ 184 $ 4,421
===============================================================================
Change in net interest income $24,032 $(4,735) $(2,067) $17,230
===============================================================================
</TABLE>
23
<PAGE>
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME (CONTINUED)
<TABLE>
<CAPTION>
================================================================================
Six months ended June 30, 1998 over 1997
(In Thousands) Volume Rate Rate/Volume Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $21,634 $(1,511) $18,565 $38,688
Trading account securities (85) (76) (127) (288)
Securities available for sale 2,539 (164) 2,221 4,596
Securities held to maturity (3) - (3) (6)
Federal Funds sold and securities
purchased under resale agreements 1,975 10 1,964 3,949
Loans held for sale 20 5 24 49
- -------------------------------------------------------------------------------
Total interest income $26,080 $(1,736) $22,644 $46,988
===============================================================================
Savings (41) 2 123 84
Money market 2,139 442 2,918 5,499
Time-under $100,000 201 (220) (55) (74)
Time-$100,000 and over 287 220 510 1,017
- -------------------------------------------------------------------------------
Total deposits $ 2,586 $ 444 $ 3,496 $ 6,526
- -------------------------------------------------------------------------------
Short-term borrowings 319 62 408 789
Long-term borrowings 956 15 996 1,967
- -------------------------------------------------------------------------------
Total interest expense $ 3,861 $ 521 $ 4,900 $ 9,282
===============================================================================
Change in net interest income $22,219 $(2,257) $17,744 $37,706
===============================================================================
</TABLE>
TABLE 3 - SECURITIES
(a) Securities Held to Maturity
A summary of securities held to maturity as of June 30, 1998, and December 31,
1997, is provided below:
<TABLE>
<CAPTION>
================================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1998
Industrial development bonds $3,980 $ - $ - $3,980
- --------------------------------------------------------------------------------
Total $3,980 $ - $ - $3,980
================================================================================
December 31, 1997
Industrial development bonds $4,026 $ - $ - $4,026
- --------------------------------------------------------------------------------
Total $4,026 $ - $ - $4,026
================================================================================
</TABLE>
24
<PAGE>
TABLE 3 - SECURITIES (CONTINUED)
(b) Securities Available for Sale
A summary of the amortized cost and estimated fair value of securities available
for sale as of June 30, 1998, and December 31, 1997, is provided as follows:
<TABLE>
<CAPTION>
========================================================================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1998
U.S. Treasury and federal agencies $662,348 $ 3,577 $ - $665,925
Mutual funds 76,127 - - 76,127
Other securities 13,735 43 - 13,778
- ------------------------------------------------------------------------------------------------------------------------
Total $752,210 $ 3,620 $ - $755,830
========================================================================================================================
December 31, 1997
U.S. Treasury and federal agencies $612,903 $ 2,378 $ (74) $615,207
Mutual funds 37,532 - - 37,532
Other securities 15,928 599 - 16,527
- ------------------------------------------------------------------------------------------------------------------------
Total $666,363 $ 2,977 $ (74) $669,266
========================================================================================================================
</TABLE>
Gross gains and losses realized on the sale of securities available for sale
during the six months ended June 30, 1998, were $16,500 and $4,900,
respectively. For the same period of 1997, these amounts were $419,000 and
$63,000, respectively.
TABLE 4 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
====================================================================================================================================
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as a percentage of:/(1)/
Average shareholders' equity 17.55% 14.34% 16.37% 12.75%
Average total assets 1.36% 1.25% 1.30% 1.13%
Average earning assets 1.51% 1.40% 1.45% 1.28%
Average shareholders' equity as a percentage of:
Average assets 7.75% 8.69% 7.93% 8.89%
Average loans 11.80% 13.58% 11.92% 13.63%
Average deposits 8.95% 10.21% 9.18% 10.40%
Shareholders' equity at period end as a percentage of:
Total assets at period end - - 6.26% 7.52%
Total loans at period end - - 12.10% 13.21%
Total deposits at period end - - 7.02% 8.77%
====================================================================================================================================
/(1)/ Annualized
</TABLE>
25
<PAGE>
EXHIBITS
PART I
COMPUTATION OF EARNINGS PER SHARE
Imperial Bancorp ("the Company") has outstanding certain employee stock options,
which options have been determined to be common stock equivalents for purposes
of computing earnings per share.
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") for the fiscal year ended December 31,
1997, and for all prior periods presented.
SFAS No. 128 replaces primary EPS with basic EPS and fully diluted EPS with
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from issuance of common
stock that then shared in earnings.
<TABLE>
<CAPTION>
====================================================================================================================================
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
For the three months ended June 30, Per-share Per-share
(In Thousands, Except Share Data) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to shareholders:
Income from continuing operations $16,567 39,712,590 $0.42 $11,091 38,760,933 $0.29
Loss from discontinued operation,
net of tax - - 132 0.01
------- ----- ------- -----
Net income $16,567 $0.42 $10,959 $0.28
Effect of dilutive securities
Incremental shares from outstanding
common stock options 1,745,943 1,700,289
---------- ----------
Diluted EPS
Income available to shareholders:
Income from continuing operations $16,567 41,458,533 $0.40 $11,091 40,461,222 $0.27
Income from continuing operations
Loss from discontinued operation,
net of tax - - 132 -
------- ----- ------- -----
Net income $16,567 $0.40 $10,959 $0.27
====================================================================================================================================
</TABLE>
26
<PAGE>
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
====================================================================================================================================
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
For the three months ended June 30, Per-share Per-share
(In Thousands, Except Share Data) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to shareholders:
Income from continuing operations $29,942 39,535,396 $0.76 $19,123 38,572,050 $0.50
Loss from discontinued operation,
net of tax - - 210 0.01
------- ----- -------- -----
Net income $29,942 $0.76 $18,913 $0.49
Effect of dilutive securities
Incremental shares from outstanding
common stock options 1,853,773 1,810,989
---------- ----------
Diluted EPS
Income available to shareholders:
Income from continuing operations $29,942 41,389,169 $0.72 $19,123 40,383,039 $0.47
Income from continuing operations
Loss from discontinued operation,
net of tax - - 210 -
------- ----- ------- -----
Net income $29,942 $0.72 $18,913 $0.47
====================================================================================================================================
</TABLE>
The weighted average number of shares used to compute earnings per share was
retroactively adjusted to reflect a three-for-two stock split effected in the
first quarter of 1998.
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.
ITEM 5. OTHER INFORMATION
No events have transpired which would make response to this item
appropriate.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
27.1 Restated Financial Data
Schedules for June 30,
1997 and September 30,
1997
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.
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, hereunto duly authorized.
IMPERIAL BANCORP
Dated: August 13, 1998 By: /s/ Christine M. McCarthy
----------------------------
Christine M. McCarthy
Executive Vice President and
Chief Financial Officer
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 531,807
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,518,000
<TRADING-ASSETS> 28,536
<INVESTMENTS-HELD-FOR-SALE> 755,830
<INVESTMENTS-CARRYING> 3,980
<INVESTMENTS-MARKET> 3,980
<LOANS> 3,217,689
<ALLOWANCE> 58,007
<TOTAL-ASSETS> 6,222,692
<DEPOSITS> 5,546,935
<SHORT-TERM> 135,974
<LIABILITIES-OTHER> 73,806
<LONG-TERM> 76,577
0
0
<COMMON> 243,204
<OTHER-SE> 146,196
<TOTAL-LIABILITIES-AND-EQUITY> 6,222,692
<INTEREST-LOAN> 143,352
<INTEREST-INVEST> 19,037
<INTEREST-OTHER> 11,827
<INTEREST-TOTAL> 174,216
<INTEREST-DEPOSIT> 42,046
<INTEREST-EXPENSE> 48,510
<INTEREST-INCOME-NET> 125,706
<LOAN-LOSSES> 19,966
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 109,157
<INCOME-PRETAX> 50,187
<INCOME-PRE-EXTRAORDINARY> 29,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,942
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 6.07
<LOANS-NON> 25,919
<LOANS-PAST> 0
<LOANS-TROUBLED> 23,652
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 51,143
<CHARGE-OFFS> 14,167
<RECOVERIES> 1,065
<ALLOWANCE-CLOSE> 58,007
<ALLOWANCE-DOMESTIC> 58,007
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 SEP-30-1997
<CASH> 416,207 434,403
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 535,000 680,700
<TRADING-ASSETS> 28,602 63,825
<INVESTMENTS-HELD-FOR-SALE> 664,252 673,413
<INVESTMENTS-CARRYING> 4,145 4,085
<INVESTMENTS-MARKET> 4,145 4,085
<LOANS> 2,356,263 2,525,629
<ALLOWANCE> 42,567 46,871
<TOTAL-ASSETS> 4,135,836 4,517,186
<DEPOSITS> 3,548,625 3,936,494
<SHORT-TERM> 122,348 110,503
<LIABILITIES-OTHER> 75,946 65,596
<LONG-TERM> 77,720 76,556
0 0
0 0
<COMMON> 231,275 232,618
<OTHER-SE> 79,922 95,419
<TOTAL-LIABILITIES-AND-EQUITY> 4,135,836 4,517,186
<INTEREST-LOAN> 104,663 165,821
<INTEREST-INVEST> 14,447 24,083
<INTEREST-OTHER> 8,118 11,697
<INTEREST-TOTAL> 127,228 201,601
<INTEREST-DEPOSIT> 35,520 53,421
<INTEREST-EXPENSE> 39,228 59,756
<INTEREST-INCOME-NET> 88,000 141,845
<LOAN-LOSSES> 7,717 14,785
<SECURITIES-GAINS> 356 359
<EXPENSE-OTHER> 80,507 122,393
<INCOME-PRETAX> 31,864 55,801
<INCOME-PRE-EXTRAORDINARY> 19,123 33,307
<EXTRAORDINARY> (210) 479
<CHANGES> 0 0
<NET-INCOME> 18,913 33,786
<EPS-PRIMARY> 0.50 0.86<F1>
<EPS-DILUTED> 0.47 0.82
<YIELD-ACTUAL> 5.98 6.11
<LOANS-NON> 7,918 9,236
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 24,144 25,549
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 36,051 36,051
<CHARGE-OFFS> 3,511 6,587
<RECOVERIES> 2,254 2,565
<ALLOWANCE-CLOSE> 42,567 46,871
<ALLOWANCE-DOMESTIC> 42,567 46,871
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
<F1>Restatement of earnings per share data for the six months ended June 30, 1997,
and nine months ended September 30, 1997, to reflect the adoption of SFAS No.
128, "Earnings Per Share." Earnings per share data is for continuing
operations.
</FN>
</TABLE>
