<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File number: 0-19861
IMPERIAL CREDIT INDUSTRIES, INC.
CALIFORNIA 95-4054791
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
23550 Hawthorne Boulevard, Building 1, Suite 110, Torrance, California 90505
(310) 791-8020
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest possible date:
Class Shares Outstanding at May 12, 1997
----- ----------------------------------
Common Stock, no par value 38,476,418
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
PART 1 - FINANCIAL INFORMATION PAGE
------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
--------------------
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996................................. 2
Consolidated Statements of Income - Three months ended March 31, 1997 and 1996..................... 3
Consolidated Statements of Cash Flows - Three months ended March 31, 1997 and 1996................. 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 1997............................................................... 5
Notes to Consolidated Financial Statements......................................................... 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 8
-------------------------------------------------------------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEMS 1-5 NOT APPLICABLE
--------------
ITEM 6. EXHIBIT - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE...................................... 28
---------------------------------------------------------------
SIGNATURES........................................................................................... 29
----------
</TABLE>
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------------ -----------
<S> <C> <C>
Cash............................................................................................... $ 29,093 $ 74,247
Interest bearing deposits.......................................................................... 88,670 3,369
Investment in Federal Home Loan Bank stock......................................................... 6,530 17,152
Trading securities, at market...................................................................... 23,734 25,180
Securities available for sale, at market........................................................... 24,180 59,116
Loans held for sale................................................................................ 700,110 940,096
Loans held for investment, net..................................................................... 1,013,359 1,068,599
Purchased and originated servicing rights.......................................................... 6,079 14,887
Capitalized excess servicing fees receivable....................................................... - 23,142
Retained interest in loan and lease securitizations................................................ 33,000 49,548
Interest-only and residual certificates............................................................ - 87,017
Accrued interest on loans.......................................................................... 13,090 13,847
Premises and equipment, net........................................................................ 9,501 12,442
Other real estate owned, net....................................................................... 14,393 12,214
Goodwill........................................................................................... 47,903 38,491
Investment in Southern Pacific Funding Corporation................................................. 48,263 -
Other assets....................................................................................... 38,336 31,292
---------- ----------
Total assets..................................................................................... $2,096,241 $2,470,639
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits........................................................................................... $1,161,357 $1,069,184
Borrowings from Federal Home Loan Bank............................................................. 79,500 140,500
Other borrowings................................................................................... 304,902 694,352
Senior Notes....................................................................................... 219,782 88,209
Convertible subordinated debentures................................................................ - 75,000
Accrued interest payable........................................................................... 14,391 14,034
Accrued income taxes payable....................................................................... 34,351 55,327
Minority interest in consolidated subsidiaries..................................................... 3,654 54,936
Other liabilities.................................................................................. 30,663 39,589
---------- ----------
Total liabilities................................................................................ 1,848,600 2,231,131
---------- ----------
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none issued or outstanding......................... - -
Common stock, no par value. Authorized 80,000,000 shares; 38,476,418
and 38,291,112 shares issued and outstanding at March 31, 1997 and
December 31, 1996, respectively................................................................ 146,767 145,521
Retained earnings................................................................................ 96,014 88,977
---------- ----------
Unrealized gain on securities available for sale, net............................................ 4,860 5,010
---------- ----------
Total shareholders' equity....................................................................... 247,641 239,508
---------- ----------
Total liabilities and shareholders' equity...................................................... $2,096,241 $2,470,639
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUE:
Gain on sale of loans and leases................................................. $ 8,666 $ 21,711
Interest on loans................................................................ 42,930 45,194
Interest on investments.......................................................... 5,625 2,185
Interest on other finance activities............................................. 657 2,141
------- -------
Total interest income.......................................................... 49,212 49,520
Interest expense................................................................. 28,404 36,783
------- -------
Net interest income............................................................ 20,808 12,737
Provision for loan and lease losses.............................................. 2,870 1,500
------- -------
Net interest income after provision for loan and lease losses.................... 17,938 11,237
------- -------
Loan servicing income............................................................ 1,280 2,010
Gain on sale of servicing rights................................................. -- 8,065
Gain on sale of SPFC stock....................................................... 4,306 --
Loss on sale of investment....................................................... (403) --
Equity in net income of Southern Pacific Funding Corporation..................... 6,253 --
Other income..................................................................... 2,255 1,202
------- -------
Total other income............................................................. 13,691 11,277
------- -------
Total revenue................................................................. 40,295 44,225
------- -------
EXPENSES:
Personnel expense................................................................ 10,671 12,435
Amortization of PMSR's and OMSR's................................................ 19 718
Occupancy expense................................................................ 907 1,320
Data processing expense.......................................................... 427 355
Net expenses of other real estate owned.......................................... 757 2,768
Professional services............................................................ 2,588 1,146
FDIC insurance premiums.......................................................... -- 45
Telephone and other communications............................................... 429 907
Restructuring provision -
Exit from mortgage banking operations........................................... -- 3,800
General and administrative expense............................................... 5,336 3,674
------- -------
Total expenses................................................................. 21,134 27,168
------- -------
Income before income taxes, minority interest
and extraordinary item.......................................................... 19,161 17,057
Income taxes..................................................................... 7,976 6,901
Minority interest in income of consolidated subsidiaries......................... 153 1,540
------- -------
Income before extraordinary item................................................. 11,032 8,616
------- -------
Extraordinary item - Loss on early extinguishment
of debt, net of income taxes.................................................... (3,995) --
------- -------
Net Income...................................................................... $ 7,037 $ 8,616
======= =======
PRIMARY AND FULLY DILUTED INCOME PER SHARE:
Income before extraordinary item................................................ $ 0.27 $ 0.24
Extraordinary item - Loss on early extinguishment of debt, net of income taxes.. (0.10) --
------- -------
Net income per common share..................................................... $ 0.17 $ 0.24
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
(IN THOUSANDS) MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 7,037 $ 8,616
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan and lease losses................................. 2,870 1,500
Depreciation........................................................ 1,110 540
Amortization........................................................ 620 170
Accretion of discount............................................... (647) (2,141)
Gain on sale of Southern Pacific Funding Corporation stock.......... (6,151) --
Gain on sale of servicing rights.................................... -- (8,065)
Gain on sale of loans and leases.................................... (8,666) (21,711)
Equity in net earnings of Southern Pacific Funding Corp............. (6,253) --
Loss on sale of OREO............................................... 956 978
Writedowns of other real estate owned............................... 543 --
Net change in loans held for sale................................... 247,461 304,479
Net change in accrued interest on loans............................. 757 (242)
Net change in retained interest in loan and lease securitizations... 16,548 6,177
Net change in interest only and residual certificates............... 87,017 --
Net change in capitalized excess servicing.......................... 23,142 4,859
Net change in purchased and originated servicing rights............. 8,789 (7,451)
Net change in other assets.......................................... 1,632 (12,822)
Net change in other liabilities..................................... (19,241) 9,490
--------- ---------
Net cash provided by operating activities: 357,524 284,377
--------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits............................. (85,301) 132,600
Purchase of servicing rights........................................ -- (2,744)
Proceeds from sale of servicing rights.............................. -- 4,573
Proceeds from sale of other real estate owned....................... 1,761 1,798
Net change in trading securities.................................... 1,446 --
Sale of securities available for sale............................... 36,130 141,197
Net change in loans held for investment............................. 48,122 19,568
Purchases of premises and equipment................................. (2,039) (1,221)
Net change in investment in Southern Pacific Funding Corporation.... (42,010) --
Sales of Federal Home Loan Bank stock............................... 10,622 --
Cash utilized for acquisitions...................................... (14,699) --
--------- ---------
Net (used in) cash provided by investing activities: (45,968) 295,771
--------- ---------
Cash flows from financing activities:
Net change in deposits.............................................. 92,173 (69,083)
Advances from Federal Home Loan Bank................................ 30,000 120,000
Repayments of advances from Federal Home Loan Bank.................. (91,000) (115,000)
Net change in convertible subordinated debentures................... (75,000) --
Net change in other borrowings...................................... (389,450) (425,783)
Proceeds form offering of Senior Notes due 2007..................... 194,500 --
Repayment of Senior Notes due 2004.................................. (73,241) --
Sale of bonds....................................................... -- (111,995)
Net change in minority interest..................................... (51,282) 9,667
Proceeds from sale of SPFC stock.................................... 6,151 --
Proceeds from resale of Senior Notes................................ -- 7,615
Proceeds from exercise of stock options............................. 439 211
--------- ---------
Net cash used in financing activities: (356,710) (584,368)
--------- ---------
Net change in cash..................................................... (45,154) (4,220)
Cash at beginning of year.............................................. 74,247 39,166
--------- ---------
Cash at end of period.................................................. $ 29,093 $ 34,946
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid during the period................................... $ 2,160 $ 1,506
Interest paid during the period....................................... 15,522 39,207
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
NUMBER OF SECURITIES TOTAL
SHARES COMMON RETAINED AVAILABLE SHAREHOLDERS'
OUTSTANDING STOCK EARNINGS FOR SALE, NET EQUITY
------------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. 38,291 $145,521 $88,977 $5,010 $239,508
Exercise of stock options.............. 185 439 -- -- 439
Tax benefit from exercise of...........
stock options....................... -- 807 -- -- 807
Net change in unrealized gain..........
on securities available for sale..... -- -- -- (150) (150)
Net income for period.................. -- -- 7,037 -- 7,037
------ -------- ------- ------ ---------
Balance, March 31, 1997............... 38,476 $146,767 $96,014 $4,860 $247,641
====== ======== ======= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Imperial Credit Industries, Inc. (the "Company" or "ICII"), incorporated in
1986 in the State of California, is 24.5% owned by Imperial Bank. In 1991
Imperial Bank recapitalized the Company to conduct a full service mortgage
banking operation. Since then, the Company has transformed itself from a full
service mortgage banking operation to a diversified commercial and consumer
finance holding company.
The consolidated financial statements include ICII, its wholly owned
subsidiaries and a majority owned consolidated subsidiary (collectively the
"Company"). The wholly-owned subsidiaries include Southern Pacific Thrift and
Loan Association ("SPTL"), Imperial Business Credit, Inc. ("IBC"), Imperial
Credit Advisors, Inc. ("ICAI") and Auto Marketing Network, Inc. ("AMN"). The
majority-owned consolidated subsidiary is Franchise Mortgage Acceptance
Company, LLC ("FMAC"). FMAC is owned two-thirds by the Company and one-third by
the President of FMAC. The Company also has a 49.4% ownership percentage in
Southern Pacific Funding Corporation ("SPFC") (NYSE: SFC). The Company accounts
for this investment using the equity method of accounting. All material
intercompany balances and transactions have been eliminated.
2. DECONSOLIDATION OF SOUTHERN PACIFIC FUNDING CORPORATION AND ICI FUNDING
CORPORATION
During the first quarter of 1997, the Company sold 370,000 shares of the
common stock of Southern Pacific Funding Corporation ("SPFC") reducing its
ownership of SPFC from 51.2% at December 31, 1996 to 49.4% at March 31, 1997.
Therefore, the results of SPFC operations are now accounted for in the Company's
financial statements under the equity method of accounting. The equity
investment in SPFC is carried at cost adjusted for equity in undistributed
earnings.
During the first quarter of 1997, ICII disposed of its common stock interest
in ICI Funding Corporation (ICIFC), a subsidiary engaged in mortgage conduit
operations for Imperial Credit Mortgage Holdings ("ICMH"). At December 31, 1996,
ICII owned 100% of the common stock of ICIFC which represented a 1% economic
interest since ICMH (NYSE: IMH) a former subsidiary and now a separate
publicly held mortgage real estate investment trust, owned all of the nonvoting
preferred stock of ICIFC, which gave ICMH a 99% economic interest in ICIFC. The
Company's disposal of its remaining economic interest in ICIFC concludes its
exit from the mortgage banking business.
3. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
6
<PAGE>
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses for
the periods presented. Actual results could differ significantly from those
estimates. Prior year's consolidated financial statements have been
reclassified to conform to the 1997 presentation.
4. NET INCOME PER SHARE INFORMATION
Net income per common share is computed based on the weighted average number
of shares outstanding during the periods presented plus common stock equivalents
deemed to be dilutive. Common stock equivalents deemed to be dilutive were
calculated based on the average price per share during the periods presented for
primary net income per share and based on the ending stock price per share, if
greater than the average stock price per share, for fully diluted net income per
share for the periods presented. The number of shares used in the computations
give retroactive effect to stock dividends and stock splits for all periods
presented, including the Company's most recent 2-for-1 stock split on October
23, 1996.
The weighted average number of shares including common stock equivalents for
the three months ended March 31, 1997 and 1996 was 40,884,908 and 35,360,806 for
fully diluted income per share, respectively. The weighted average number of
shares including common stock equivalents for the three months ended March 31,
1997 and 1996 was 40,884,820 and 35,271,044 for primary income per share,
respectively.
5. ACCOUNTING PRONOUNCEMENT
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"), which establishes accounting for transfers and servicing of
financial assets and extinguishment of liabilities. This statement specifies
when financial assets and liabilities are to be removed from an entity's
financial statements, the accounting for servicing assets and liabilities and
the accounting for assets that can be contractually prepaid in such a way that
the holder would not recover substantially all of its recorded investment.
Under SFAS 125, an entity recognizes only assets it controls and
liabilities it has incurred, discontinues recognition of assets only when
control has been surrendered, and discontinues recognition of liabilities only
when they have been extinguished. SFAS 125 requires that the selling entity
continue to carry retained interests, including servicing assets, relating to
assets it no longer recognizes. Such retained interests are based on the
relative fair values of the retained interests of the subject assets at the date
of transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service
financial assets that are retained in a transfer of assets in the form of a
servicing asset or liability. The servicing asset or liability is to be
amortized in proportion to, and over the period of, net servicing income or
loss. Servicing assets and liabilities are to be assessed for impairment based
on their fair value.
SFAS 125 modifies the accounting for interest-only strips or retained
interests in securitizations, such as capitalized servicing fees receivable,
that can be contractually prepaid or otherwise settled in such a way that the
holder would not recover substantially all of its recorded investment. In this
case, it requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are to be recorded at
market value.
7
<PAGE>
Under the provisions of SFAS 125, management has determined that mortgage
backed securities retained by the Company as a result of securitization
transactions will be classified as trading securities. All other retained
securities will be classified as available for sale or trading as determined at
the time of securitization.
Changes in market value are included in operations, if classified as
trading securities, or in shareholders' equity as unrealized gains or losses,
net of the related tax effect, if classified as available for sale. SFAS 125 was
effective for the Company on January 1, 1997. The implementation of SFAS 125
did not have a material impact on the Company's financial condition or results
of operations.
6. LOANS HELD FOR SALE
Loans held for sale consisted of the following at March 31, 1997 and
December 31, 1996:
(In thousands)
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------- ---------------
1997 1997
---- ----
<S> <C> <C>
Loans secured by real estate:
Single family 1-4............. $ 5,607 $452,533
Multi-family.................. 248,300 186,391
Commercial.................... 122,554 109,469
-------- --------
376,461 748,393
Leases............................ 19,082 8,547
Auto.............................. 77,326 --
Commercial loans.................. 227,241 183,156
-------- -------
$700,110 $940,096
======== ========
</TABLE>
8
<PAGE>
7. CONSOLIDATING BALANCE SHEET AND INCOME STATEMENTS
The following represents summarized consolidating financial information as of
March 31, 1997 and December 31, 1996, and for the three months ended March 31,
1997 and 1996, with respect to the financial position and operations of the
Company and its wholly-owned and majority-owned subsidiaries. On January 17,
1997, the Company sold $200 million of 9 7/8% senior notes due 2007. The senior
notes are guaranteed by three of the Company's wholly-owned subsidiaries, IBC,
ICAI, and AMN (the "Other Guarantor Subsidiaries"), and the Company's 66 2/3%
owned subsidiary, FMAC. Each of the guarantees is full and unconditional and
joint and several. The separate financial statements and other related
disclosures of the wholly-owned subsidiary guarantors are not presented as
management has determined that such information is not material to investors.
FMAC has filed a Form 10-Q with the SEC as of and for the quarter ended March
31, 1997. None of the subsidiary guarantors are restricted from making
distributions to the Company.
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ---- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash........................................... $ 54,671 $ -- $ 7,219 $ 16,261 $ (49,058) $ 29,093
Interest bearing deposits...................... 5,128 2,630 200 80,712 -- 88,670
Investments in Federal Home Loan Bank stock.... -- -- -- 6,530 -- 6,530
Investment and trading securities.............. 8,568 2,684 863 36,364 (565) 47,914
Loans held for sale............................ 5,607 249,220 19,082 448,180 (21,979) 700,110
Loans held for investment, net................. 115,148 -- 199 944,601 (46,589) 1,013,359
Purchased and originated servicing rights...... -- -- 618 5,461 -- 6,079
Capitalized excess servicing fees receivable... -- -- -- -- -- --
Retained interest in loan and lease
Securitizations.............................. -- 6,601 26,399 -- -- 33,000
Interest-only and residual certificates........ -- -- -- -- -- --
Investment in subsidiaries..................... 223,999 -- -- -- (175,736) 48,263
Goodwill....................................... -- 4,251 13,931 29,721 -- 47,903
Other assets................................... 73,954 8,356 (15,217) 29,283 (21,056) 75,320
-------- -------- -------- ---------- --------- ----------
Total assets................................ $487,075 $273,742 $ 53,294 $1,597,113 $(314,983) $2,096,241
======== ======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits....................................... $ -- $ -- $ -- $1,209,801 $ (48,444) $1,161,357
Borrowings from Federal Home Loan Bank......... -- -- -- 79,500 -- 79,500
Other borrowings............................... -- 259,665 9,738 117,287 (81,788) 304,902
Senior notes................................... 219,782 -- -- -- -- 219,782
Convertible subordinated debentures............ -- -- -- -- -- --
Minority interest in consolidated subsidiaries. 2,856 -- -- -- 798 3,654
Other liabilities.............................. 24,739 2,411 14,695 49,388 (11,828) 79,405
-------- ------- -------- ---------- --------- ----------
Total liabilities.............................. 247,377 262,076 24,433 1,455,976 (141,262) 1,848,600
-------- -------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock................................ -- -- -- -- -- --
Common stock................................... 146,767 5,792 21,501 81,202 (108,495) 146,767
Retained earnings.............................. 88,243 5,874 7,188 59,935 (65,226) 96,014
Unrealized gain on securities available for sale 4,688 -- 172 -- -- 4,860
-------- -------- -------- --------- --------- ----------
Total shareholders' equity.................... 239,698 11,666 28,861 141,137 (173,721) 247,641
-------- -------- -------- ---------- --------- ----------
Total liabilities and shareholders' equity.... $487,075 $273,742 $ 53,294 $1,597,113 $(314,983) $2,096,241
======== ======== ======== ========== ========== ==========
</TABLE>
9
<PAGE>
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash.............................................. $ 5,213 $ -- $ 7,973 $ 64,926 $ (3,865) $ 74,247
Interest bearing deposits......................... -- 2,594 163 -- 612 3,369
Investments in Federal Home Loan Bank stock....... -- -- -- 17,152 -- 17,152
Investment and trading securities................. 8,802 39,349 887 35,824 (566) 84,296
Loans held for sale............................... 4,839 98,915 8,547 853,023 (25,228) 940,096
Loans held for investment, net.................... 34,505 -- 86,214 948,567 (687) 1,068,599
Purchased and originated servicing rights......... -- -- 637 14,250 -- 14,887
Capitalized excess servicing fees receivable...... -- -- -- 23,142 -- 23,142
Retained interest in loan and lease
Securitizations.................................. -- 6,908 19,646 22,994 -- 49,548
Interest-only and residual certificates........... -- -- -- 87,017 -- 87,017
Investment in subsidiaries........................ 269,651 -- -- -- (269,651) --
Goodwill.......................................... -- 4,332 14,115 20,044 -- 38,491
Other assets...................................... 106,601 8,078 (14,981) (10,333) (19,570) 69,795
--------- --------- --------- ----------- ----------- -----------
Total assets.................................. $ 429,611 $ 160,176 $ 123,201 $ 2,076,606 $ (318,955) $ 2,470,639
========= ========= ========= =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits.......................................... $ -- $ -- $ -- $ 1,072,266 $ (3,082) $ 1,069,184
Borrowings from Federal Home Loan Bank............ -- -- -- 140,500 -- 140,500
Other borrowings.................................. 15,363 143,139 88,768 480,103 (33,021) 694,352
Senior notes...................................... 88,209 -- -- -- -- 88,209
Convertible subordinated debentures............... -- -- -- 75,000 -- 75,000
Minority interest in consolidated subsidiaries.... 45,149 -- -- -- 9,787 54,936
Other liabilities................................. 41,382 2,580 9,222 68,854 (13,088) 108,950
--------- --------- --------- ----------- ----------- -----------
Total liabilities................................. 190,103 145,719 97,990 1,836,723 (39,404) 2,231,131
--------- --------- --------- ----------- ----------- -----------
Shareholders' equity:
Preferred stock................................... -- -- -- 9,143 (9,143) --
Common stock...................................... 145,521 5,792 21,501 134,590 (161,883) 145,521
Retained earnings................................. 88,977 8,665 3,525 96,150 (108,340) 88,977
Unrealized gain on securities available for sale.. 5,010 -- 185 -- (185) 5,010
--------- --------- --------- ----------- ----------- -----------
Total shareholders' equity....................... 239,508 14,457 25,211 239,883 (279,551) 239,508
--------- --------- --------- ----------- ----------- -----------
Total liabilities and shareholders' equity....... $ 429,611 $ 160,176 $ 123,201 $ 2,076,606 $ (318,955) $ 2,470,639
========= ========= ========= =========== =========== ===========
</TABLE>
10
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans and leases.......... $ (351) $ 390 $ 5,338 $ 40 $ 3,249 $ 8,666
------- ------- ------- -------- -------- --------
Interest income........................... 5,146 3,342 4,125 36,754 (155) 49,212
Interest expense.......................... 5,209 2,699 1,639 19,012 (155) 28,404
------- ------- ------- -------- -------- --------
Net interest income....................... (63) 643 2,486 17,742 -- 20,808
Provision for loan loss................... -- -- -- 2,870 -- 2,870
------- ------- ------- -------- -------- --------
Net interest income after
provision for loan loss.............. (63) 643 2,486 14,872 -- 17,938
------- ------- ------- -------- -------- --------
Loan servicing income..................... (1,084) 640 936 788 -- 1,280
Equity in net income SPFC................ 6,253 -- -- -- -- 6,253
Gain on sale of SPFC stock............... 4,306 -- -- -- -- 4,306
Dividends received from subsidiaries...... 8,540 -- -- -- (8,540) --
Other income.............................. (562) (403) 1,857 960 -- 1,852
------- ------- ------- -------- -------- --------
Total other income.................... 17,453 237 2,793 1,748 (8,540) 13,691
------- ------- ------- -------- -------- --------
Total revenues........................ 17,039 1,270 10,617 16,660 (5,291) 40,295
------- ------- ------- -------- -------- --------
EXPENSES:
Personnel expense......................... 583 2,598 1,798 5,692 -- 10,671
Amortization of PMSR's and
OMSR's................................. -- -- 19 -- -- 19
Occupancy expense......................... 281 116 110 400 -- 907
Data processing expense................... 287 7 17 116 -- 427
Net expenses of other real estate
owned.................................. 487 -- -- 270 -- 757
General, administrative and other
expense................................ 1,624 1,340 2,333 3,056 -- 8,353
------- ------- ------- -------- -------- --------
Total expenses 3,262 4,061 4,277 9,534 -- 21,134
------- ------- ------- -------- -------- --------
Income (loss) before income taxes, minority
interest and extraordinary item........ 13,777 (2,791) 6,340 7,126 (5,291) 19,161
Income taxes.............................. 2,303 -- 2,677 2,996 -- 7,976
------- ------- ------- -------- -------- --------
Income (loss) before minority interest
and extraordinary item.................. 11,474 (2,791) 3,663 4,130 (5,291) 11,185
Minority interest in income of consolidated
subsidiaries............................ 153 -- -- -- -- 153
------- ------- ------- -------- -------- --------
Income (loss) before extraordinary item.... 11,321 (2,791) 3,663 4,130 (5,291) 11,032
Extraordinary item - Loss on early
extinguishment of debt, net
of income taxes........................ (3,995) -- -- -- -- (3,995)
------- ------- ------- -------- -------- --------
Income (loss) before equity in undistributed
income of subsidiaries.................. 7,326 (2,791) 3,663 4,130 (5,291) 7,037
Equity in undistributed income of
subsidiaries............................ (289) -- -- -- 289 --
------- ------- ------- -------- -------- --------
Net (loss) income......................... $ 7,037 $(2,791) $ 3,663 $ 4,130 $ (5,002) $ 7,037
======= ======= ======= ======== ======== ========
</TABLE>
11
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans and leases......... $ 3,799 $ 5,294 $ 480 $ 10,522 $ 1,616 $ 21,711
------- ------- ------- -------- -------- --------
Interest income.......................... 4,724 730 15 44,464 (413) 49,520
Interest expense......................... 6,245 699 193 29,641 5 36,783
------- ------- ------- -------- -------- --------
Net interest income...................... (1,521) 31 (178) 14,823 (418) 12,737
Provision for loan losses................ -- -- -- 1,500 -- 1,500
------- ------- ------- -------- -------- --------
Net interest income after
Provision for loan loss............ (1,521) 31 (178) 13,323 (418) 11,237
------- ------- ------- -------- -------- --------
Loan servicing income.................... 1,205 282 404 119 -- 2,010
Dividends received from subsidiaries..... -- -- -- -- -- --
Gain (loss) on sale of servicing rights.. 6,723 -- -- -- 1,342 8,065
Other income............................. 50 -- 645 507 -- 1,202
------- ------- ------- -------- -------- --------
Total other income.................. 7,978 282 1,049 626 1,342 11,277
------- ------- ------- -------- -------- --------
Total revenues...................... 10,256 5,607 1,351 24,471 2,540 44,225
------- ------- ------- -------- -------- --------
EXPENSES:
Personnel expense........................ 4,138 1,918 740 5,639 -- 12,435
Amortization of PMSR's and
OMSR's................................ 401 -- 51 266 -- 718
Occupancy expense........................ 804 57 44 415 -- 1,320
Data processing expense.................. 248 1 1 105 -- 355
Net expenses of other real estate
owned................................. 2,000 -- -- 768 -- 2,768
General, administrative and other
expense............................... 5,803 608 (101) 3,262 -- 9,572
------- ------- ------- -------- -------- --------
Total expenses..................... 13,394 2,584 735 10,455 -- 27,168
------- ------- ------- -------- -------- --------
(Loss) income before income taxes and
minority interest..................... (3,138) 3,023 616 14,016 2,540 17,057
Income taxes (125) -- 255 5,699 1,072 6,901
------- ------- ------- -------- -------- --------
(Loss) Income before minority interest
and extraordinary item................ (3,013) 3,023 361 8,317 1,468 10,156
Minority interest in income of
consolidated subsidiaries............. 1,540 -- -- -- -- 1,540
------- ------- ------- -------- -------- --------
(Loss) Income before equity in
undistributed income of subsidiaries.. (4,553) 3,023 361 8,317 1,468 8,616
Equity in undistributed income of
subsidiaries.......................... 13,169 -- -- -- (13,169) --
------- ------- ------- -------- -------- --------
Net income............................... $ 8,616 $ 3,023 $ 361 $ 8,317 $(11,701) $ 8,616
======= ======= ======= ======== ======== ========
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Imperial Credit Industries, Inc. (the "Company" or "ICII"), with consolidated
assets of $2.1 billion, is a diversified commercial and consumer finance holding
company, organized in 1986 with its headquarters located in Torrance,
California. Its principal business activities consist of the operation of four
wholly owned subsidiaries; Southern Pacific Thrift and Loan ("SPTL"), a thrift
and loan company specializing in business and consumer lending, Imperial
Business Credit Inc. ("IBC"), a commercial leasing company specializing in
lending to small businesses, Imperial Credit Advisors, Inc. ("ICAI"), a
management advisory services company overseeing the investment activities of a
real estate investment trust and Auto Marketing Network, Inc. ("AMN"), a sub-
prime auto lender engaged in financing the purchase of new and used motor
vehicles. The Company is a majority owner of a subsidiary, Franchise Mortgage
Acceptance Co. LLC. ("FMAC"), a franchise lending company specializing in
lending to business franchises. In addition, the Company owns a 49.4% ownership
percentage in Southern Pacific Funding Corporation ("SPFC"), a company providing
sub-prime residential mortgage lending (NYSE symbol: SFC).
ACQUISITION
On March 14, 1997, ICII acquired for $750,000 all of the outstanding shares
of Auto Marketing Network, Inc. ("AMN") of Boca Raton, Florida, a sub prime auto
lender. AMN is a nationally recognized specialty finance company engaged in
financing the purchase of new and used motor vehicles. ICII, also advanced AMN
$11.5 million to repay amounts owed pursuant to operating lines of credit and
for working capital purposes. The acquisition was recorded using the purchase
method of accounting. Goodwill of approximately $14.7 million was recorded. The
acquisition of AMN is consistent with the Company's general financing strategy:
the loans AMN originates will be pooled and securitized for sale in the
secondary market. Since the date of acquisition through the quarter ending March
31, 1997, AMN originated $16.1 million in sub-prime auto loans.
DECONSOLIDATION OF SUBSIDIARIES
During the first quarter ending March 31, 1997, the Company reduced its
percentage ownership in Southern Pacific Funding Corporation ("SPFC"), a
majority owned subsidiary providing non-conforming residential lending (NYSE
symbol: SFC) from 51.2% at December 31, 1996 to 49.4% at March 31, 1997. As a
result, commencing with the three months ended March 31, 1997, SPFC's financial
statements will no longer be consolidated with those of ICII. Under Generally
Accepted Accounting Principles ("GAAP"), when a subsidiary's ownership
percentage is reduced to below 50%, consolidation is no longer required.
Accordingly, the Company's investment in SPFC is reflected in the Company's
statement of condition as a separate line item entitled "Investment in Southern
Pacific Funding Corporation" and in the statement of income as "Equity in net
income of Southern Pacific Funding Corporation." The income from SPFC will
represent the Company's percentage ownership in the unconsolidated subsidiary's
net income. For the three months ended March 31, 1997, the equity in net income
of SPFC was $6.3 million.
During the first quarter of 1997, ICII disposed of its common stock interest
in ICI Funding Corporation "ICIFC," a subsidiary engaged in mortgage conduit
operations for Imperial Credit Mortgage Holdings, Inc. ("ICMH"). At December 31,
1996, ICII owned 100% of the common stock of ICIFC which represented a 1%
economic interest since ICMH (NYSE: IMH) a former subsidiary and now a
separate publicly held mortgage real estate investment trust, owned all of the
nonvoting preferred stock of ICIFC, which gave ICMH a 99% economic interest in
ICIFC. The Company's disposal of its remaining economic interest in ICIFC
concludes its exit from the mortgage banking business.
13
<PAGE>
FRANCHISE LENDING
For the three months ended March 31, 1997, FMAC originated or acquired $133.4
million of franchise loans as compared to $100.5 million for the same period
last year. For the three months ended March 31,1997 and 1996 there were no loan
securitizations. At March 31, 1997, FMAC had total assets of $273.7 million.
FMAC's total revenues and net income (loss) for the three months ended March
31, 1997 were $1.3 million and ($2.8) million as compared to $5.6 million and
$3.0 million for the same period last year, respectively.
BUSINESS FINANCE LENDING
Imperial Business Credit. IBC leases business equipment including copying,
------------------------
data processing, communication, printing and manufacturing equipment exclusively
to business users. For the three months ended March 31, 1997, IBC originated
$30.1 million and securitized $97.9 million of leases.
Coast Business Credit. CBC is an asset-based lender specializing in lending
---------------------
to middle market manufacturing and high-technology businesses. As of March 31,
1997, CBC had total loan commitments of $589.0 million, of which $318.0 million
of loans were outstanding.
Loan Participation and Investment Group. LPIG was formed in September 1995 to
---------------------------------------
invest in and purchase syndicated commercial loan participations in the
secondary market originated by commercial banks. As of March 31, 1997, LPIG had
total loan commitments of $115.1 million of which $161.2 million of loans were
outstanding.
Auto Lend Group. Auto Lend was formed in September 1996 to finance automobile
---------------
dealership inventories. As of March 31, 1997, Auto Lend had total loan
commitments of $28.8 million of which $9.4 million of loans were outstanding.
Commercial Equipment leasing
IBC's lease originations totaled $30.1 million for the three months ended
March 31, 1997 as compared to $14.4 million for the same period last year. IBC
securitized $97.9 million of leases during the three months ended March 31, 1997
as compared to $19.2 million for the same period last year. At March 31, 1997,
IBC had total assets of $48.5 million. IBC's total revenues and net income for
the three months ended March 31, 1997 were $8.9 million and $3.3 million as
compared to $1.1 million and $0.2 million for the same period last year,
respectively.
14
<PAGE>
Asset Based Lending
At March 31, 1997, CBC's loan portfolio represented lending relationships
with approximately 111 customers, with an average total loan per customer of
$2.8 million. During 1996, CBC executed an expansion plan which has increased
its customer base outside of California. CBC now operates three loan production
centers in California and additional loan production centers in Boston,
Minneapolis, Atlanta, Portland, Chicago and Seattle. At March 31, 1997 and
December 31, 1996, CBC had outstanding loans totaling $318.0 million and $288.5
million, of which $125.3 million and $115.6 million were outstanding to
technology companies, respectively. CBC had open unused commitments of $270.9
million at March 31, 1997.
Loan Participation and Investment Group
At March 31, 1997, loan participations held by LPIG ranged in
size from approximately $0.9 million to approximately $9.4 million, as compared
to approximately $0.6 million to $10.0 million at March 31, 1996, respectively.
As of March 31, 1997, LPIG committed to fund approximately $115.1 million of
senior secured loan participation commitments. Loans outstanding under LPIG's
participation commitments at March 31, 1997 totaled $161.2 million.
Auto Lend Group
Auto Lend had $28.8 million of commitments and $9.4 million of loans
outstanding at March 31, 1997. SPTL believes that Auto Lend's products offer
synergistic opportunities, when offered in connection with SPTL's sub-prime auto
lending ability, to provide car dealers a complete financing package. See
"Consumer Lending, Sub prime Auto Lending."
COMMERCIAL MORTGAGE LENDING
Income Property Lending Division
For the three months ended March 31, 1997 and 1996, IPLD funded approximately
$75.9 million and $56.4 million in loans, respectively.
CONSUMER LENDING
Sub-prime Auto Lending
ALD originated $16.3 and $5.4 million in sub-prime auto loans during the
three months ended March 31, 1997, and 1996, respectively. The Company currently
originates sub-prime auto loans through three Northern California retail offices
and is expanding its activities to Central California and areas outside
California.
On March 14, 1997, ICII acquired for $750,000 all of the outstanding shares
of Auto Marketing Network, Inc. ("AMN") of Boca Raton, Florida, a sub prime auto
lender. AMN is a nationally recognized specialty finance company engaged in
financing the purchase of new and used motor vehicles. ICII also advanced AMN
$11.5 million to repay amounts owed pursuant to operating lines of credit and
for working capital purposes. The acquisition was recorded using the purchase
method of accounting. Goodwill of approximately $14.7 million was recorded. The
acquisition of AMN is consistent with the Company's general financing strategy:
the loans AMN originates will be pooled and securitized for sale in the
secondary market. Since the date of acquisition through the quarter ending
March 31, 1997, AMN originated $16.1 million in sub prime auto loans.
Home Improvement Loans and Other Consumer Credit
During the three months ended March 31, 1997 and 1996, CCD originated $4.1
million and $3.9 million in loans, respectively.
15
<PAGE>
SECURITIZATION TRANSACTIONS
During the three months ended March 31, 1997, the Company completed lease
securitizations totaling $97.9 million. The Company has retained interests in
loan and lease securitizations representing the excess of the total amount of
loans sold in the securitization over the amounts represented by interests in
the security sold to investors. The retained interests in the loan and lease
securitizations were $33.0 million and $49.5 million at March 31, 1997 and
December 31, 1996, respectively. At March 31, 1997 and December 31, 1996, the
Company's consolidated balance sheet reflected Capitalized Excess Servicing Fees
Receivable of none and $23.1 million, respectively. At March 31, 1997 and
December 31, 1996, the Company's consolidated balance sheet reflected Interest
Only and Residual Certificates of none and $87.0 million, respectively. The
decline in Capitalized Excess Servicing Fees Receivable and Interest Only and
Residual Certificates resulted from the deconsolidation of SPFC and ICIFC.
SERVICING RIGHTS
When the Company purchases servicing rights from others, or loans which
include the associated servicing rights, the price paid for the servicing
rights, net of amortization based on assumed prepayment rates, is included on
the consolidated balance sheet as "Purchased and Originated Servicing Rights",
("PMSR's" and "OMSR's"). For the quarter ended March 31, 1997, PMSR's and
OMSR's outstanding were $6.1 million, consisting of $5.5 million at SPTL and
$600,000 at ICAI. At December 31, 1996, PMSR's and OMSR's were $14.9 million,
consisting of $5.5 million at SPTL, $600,000 at ICAI and $8.8 million at ICIFC.
During the quarter ending March 31, 1997, the Company disposed of its ownership
interest in ICIFC and, therefore, ICIFC is no longer consolidated.
FUNDING
Lines of Credit
Until 1995, apart from equity and debt offerings in the capital markets, the
Company's primary sources of financing were warehouse lines of credit at ICII
and deposits with SPTL. Typically, ICII would borrow funds under its warehouse
lines in connection with its wholesale loan originations and purchases, while
SPTL used its deposits and borrowings from the Federal Home Loan Bank of San
Francisco ("FHLB") to finance its lending activities. In connection with its
diversification strategy, the Company believes that lower cost financing is
available through credit lines, repurchase facilities, whole loan sales and
securitization programs established by IBC and FMAC.
The Company continues to rely on FDIC insured deposits generated by SPTL and
third party warehouse lines of credit and securitizations. At March 31, 1997,
SPTL had total deposits of approximately $1.2 billion (excluding deposits of
ICII maintained with SPTL).
ICII and its subsidiaries had various revolving warehouse lines of credit
available at March 31, 1997, as follows: (In thousands)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE COMMITMENT OUTSTANDING INDEX
---- ---------- ----------- -----
<S> <C> <C> <C> <C>
Greenwich Capital Financial (AMN)....... 6.94% $125,000 $ 82,275 Libor+125bp's
Banco Santander (FMAC).................. 7.69% 50,000 45,577 Libor+225bp's
Sanwa Bank (FMAC)....................... 7.04% 15,000 6,110 Eurodollars + 200 bp's
CS First Boston(FMAC)................... 7.04% 200,000 161,202 Libor + 125bp's
CoreStates Bank, N.A. (IBC)............. 7.86% 10,000 7,452 Libor+230bp's
Conti (IBC)............................. 7.69% 100,000 2,286 Libor+250bp's
-------- --------
$ 500,000 $ 304,902
========= =========
</TABLE>
16
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Income for the three months ended March 31, 1997 before extraordinary items
was $11.0 million or $0.27 per share, as compared to $8.6 million or $0.24 per
share for the same period last year. Net income including a $4.0 million
extraordinary item representing a loss on the early retirement of debt for the
first quarter ending March 31, 1997 was $7.0 million or $0.17 per share.
EXTRAORDINARY ITEM
During the first quarter 1997, the Company successfully issued a 9.875% Senior
Note offering due 2007, totaling $200.0 million. A portion of the proceeds from
the offering was used to repurchase $69.8 million of the outstanding 9.75%
Senior Notes, due 2004. The effect of the extraordinary item relating to the
early retirement of debt was a loss of $4.0 million or $0.10 per share for the
quarter. The Company expects to utilize the remaining proceeds for capital
contributions to subsidiaries, strategic acquisitions, investments and for
general corporate purposes.
RETURN ON EQUITY
Return on equity ("ROE") based on the Company's core net income (defined as
net income excluding gain on sale of SPFC stock, gain on sale of servicing
rights, the restructuring provision for the Company's exit from the mortgage
banking business, and the extraordinary item, net of income taxes, relating to
the early retirement of debt) was 14.23% for the first quarter ended March 31,
1997, as compared to ROE of 26.28% for the quarter ended March 31, 1996. The
lower ROE relates to the Company's excess corporate liquidity that has not been
fully deployed. The Company's strong capital position provides it with excellent
opportunities to reduce risk and improve corporate performance and profitability
in the future through opportunistic acquisitions and future capital redeployment
opportunities.
DECONSOLIDATION OF SUBSIDIARIES
During the first quarter ending March 31, 1997, the Company reduced its
ownership percentage in SPFC from 51.2% at December 31, 1996 to 49.4% at March
31, 1997. As a result, commencing with the three months ended March 31, 1997,
the financial statements of SPFC will no longer be consolidated with those of
ICII. The income from SPFC will be accounted for by the equity method of
accounting in accordance with Generally Accepted Accounting Principles. For the
three months ended March 31, 1997, the equity in net income of SPFC was $6.3
million.
In addition, the Company disposed of its common stock interest in ICI Funding
Corporation ("ICIFC"), a company engaged in mortgage conduit operations for
Imperial Credit Mortgage Holdings, Inc. ("ICMH") (AMEX symbol: IMH). As a
result, commencing with the three months ended March 31, 1997, the financial
statements of ICIFC will no longer be consolidated with those of ICII. The
Company's disposal of its remaining economic interest in ICIFC concludes its
exit from the conforming residential mortgage banking business.
17
<PAGE>
As a result of the deconsolidation of SPFC and ICIFC; gain on sale of
loans, net interest income, other income and, general and administrative
expenses are not comparable to the prior year. Therefore, the following income
statements presents gain on sale of loans, net-interest income, other income and
general and administrative expenses for the Company as if SPFC had been
accounted for as an equity investment and ICII's common stock interest in ICIFC
had been disposed for all periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Gain on sale of loans $ 8,666 $11,100
Interest income 49,212 35,257
Interest expense 28,404 24,068
------- -------
Net interest income 20,808 11,189
Provision for loan and lease losses 2,870 1,500
------- -------
Net interest income after provision for
loan and lease losses 17,938 9,689
Other income:
Loan servicing income 1,280 2,053
Gain on sale of Servicing rights - 8,065
Gain on sale of SPFC stock 4,306 -
Loss on sale of investment (403) -
Equity in net income of SPFC 6,253 6,849
Other income 2,255 1,204
------- -------
Total other income $13,691 $18,171
------- -------
Total revenue 40,295 38,960
------- -------
General and Administrative expense
Personnel expense 10,671 9,552
Amortization of PMSR's and OMSR's 19 718
Occupancy expense 907 1,103
Data processing expense 427 348
Net expenses of other real estate owned 757 2,768
General and Administrative expense 8,353 8,340
------- -------
Total expenses $21,134 $22,829
------- -------
Income before income taxes, minority
interest and extraordinary item 19,161 16,131
Income taxes 7,976 6,518
Minority interest in income of
consolidated subsidiaries 153 997
------- -------
Income before extraordinary item 11,032 8,616
Extraordinary item - Loss on early
extinguishment of debt, net (3,995) -
------- -------
Net income $ 7,037 $ 8,616
======= =======
</TABLE>
REVENUES
Total revenues for the Company during the first quarter ended March 31,
1997 were $40.3 million, a decrease of $3.9 million or 8.9% from the $44.2
million reported for the same period in 1996.
18
<PAGE>
Gain on sale/Loan & Lease Securitization and sales
Gain on sale of loans and leases decreased $13.0 million to $8.7 million
during the first quarter of 1997 from $21.7 million for the same period last
year. The decrease in gain on sale of loans and leases was primarily
attributable to the deconsolidation of SPFC and ICIFC, partially offset by an
increase in gain on sale of leases for IBC.
Loan and Lease Originations
During the first quarter ending March 31, 1997, the Company originated $275.8
million in loans and leases as compared to $562.8 million for the same period
last year. The decrease in originations for the quarter ending March 31, 1997 as
compared to the same period last year primarily resulted from the
deconsolidation of SPFC and the inclusion of ICII's loan originations prior to
the Company's exit from the mortgage banking business during the quarter ended
March 31, 1996. Excluding SPFC's and ICII's loan originations from the same
period last year, originations would have increased $95.2 million when
comparing the first quarter 1997 to the same period last year.
During the first quarter ending March 31, 1997, the Company originated
loans/leases at SPTL, IBC, FMAC and ICII of $96.2 million, $30.1 million, $133.4
million and none, as compared to $65.7 million, $100.5 million, $14.4 million
and $297.3 million, respectively, for the same period last year. Originations
for the quarter ending March 31, 1997 for the newly acquired AMN since the date
of acquisition were $16.1 million.
Interest Income and Expense
Interest income decreased $308,000 to $49.2 million for the first quarter of
1997 from $49.5 million for the same period last year. The decrease in interest
income was primarily attributable to the deconsolidation of SPFC and ICIFC for
the quarter ending March 31, 1997. Excluding interest income for SPFC and ICIFC
from the first quarter of 1996, interest income increased by $13.9 million for
the quarter ending March 31, 1997, when compared to the same period last year.
The increase in interest on loans was primarily attributable to an overall
increase in the yield on outstanding loan and lease products.
Interest expense decreased $8.4 million to $28.4 million for the first quarter
of 1997 from $36.8 million for the same period last year. The decrease in
interest expense primarily resulted from the deconsolidation of SPFC and ICIFC
for the quarter ending March 31, 1997, partially offset by higher borrowing
costs and increased outstanding average balances of warehouse lines of credit.
Excluding interest expense for SPFC and ICIFC from the first quarter of 1996,
interest expense for the current period ending March 31, 1997 increased $4.3
million, when comparing to the same period last year.
Net Interest Income and Margin
Net interest income and margin continued to improve for the first quarter of
1997. Net interest income increased by $8.1 million to $20.8 million for the
first quarter 1997 from $12.7 million for the same period last year. Excluding
net interest income for SPFC and ICIFC from the first quarter of 1996, net
interest income increased by $9.6 million for the quarter ending March 31, 1997,
when compared to the same period last year. Net interest margin at SPTL
increased to 4.28% for the first quarter 1997, an increase of 60 basis points
from the same period last year.
19
<PAGE>
The improvement in SPTL's net interest margin is primarily the result of the
Company's emphasis on the origination of higher yielding loan and lease
products.
SALE OF SPFC STOCK
During the three months ended March 31, 1997, the Company sold 370,000 shares
of its common stock in SPFC. As a result of the sale, the Company recorded a
pre tax gain of $4.3 million.
OTHER INCOME ITEMS
Loan servicing income totaled $1.3 million for the first quarter of 1997 as
compared to income of $2.0 million for the same period last year. The decrease
in loan servicing income was primarily attributable to two factors: the sale of
substantially all of the Company's residential conforming mortgage loan
servicing portfolio in the first quarter of 1996, and continuing foreclosure and
liquidation costs associated with servicing the remaining residential conforming
mortgage loan portfolio.
During the prior year's quarter ended March 31, 1996, mortgage loan servicing
rights relating to $2.6 billion of loans were sold resulting in a gain on sale
of servicing rights of $8.1 million as compared to no sale of servicing rights
for the current quarter ended March 31, 1997.
Other income totaled $2.3 million during the first quarter of 1997 as
compared to $1.2 million for the same period in 1995. Other income includes fee
income generated from the Company's advisory contract with Imperial Credit
Mortgage Holdings, Inc. (AMEX symbol: IMH) during the quarter.
EXPENSES
Total expenses for the Company during the quarter ended March 31, 1997 were
$21.1 million, a decrease of $6.1 million from the $27.2 million reported for
the same period in 1996. The decrease was primarily attributable to the
deconsolidation of SPFC and ICIFC. Excluding total expenses for SPFC and ICIFC
from the first quarter of 1996, total expenses decreased by $1.4 million for the
quarter ending March 31, 1997, when compared to the same period last year. This
decrease primarily resulted from the Company's exit from the mortgage banking
business in 1996.
Personnel expenses decreased to $10.7 million for the three months ended
March 31, 1997 as compared to $12.4 million for the same period of the previous
year. This decrease was primarily the result of the deconsolidation of SPFC and
ICIFC. Excluding personnel expenses for SPFC and ICIFC from the three months
ended March 31, 1996, personnel expense increased from $9.6 million to $10.7
million for the quarter ending March 31, 1997. The increase in personnel expense
excluding SPFC and ICIFC results from the Company's acquisition and expansion
activities throughout 1996 and during the first quarter of 1997.
Amortization of PMSR's and OMSR's decreased to $19,000 for the three months
ended March 31, 1997 as compared to $718,000 for the same period last year. The
decrease was primarily the result of the deconsolidation of SPFC and ICIFC and
from the sale in the prior years quarter ending March 31, 1996 of substantially
all of the Company's servicing rights on conforming residential mortgage loans
generated by the former mortgage banking operations.
Occupancy expense decreased to $907,000 for the three months ended March 31,
1997 as compared to $1.3 million for the same period of the previous year. The
decrease primarily results from the deconsolidation of SPFC and ICIFC and from
the Company's exit from the mortgage banking business in 1996.
20
<PAGE>
Net expenses of OREO decreased to $757,000 for the three months ended March
31, 1997 as compared to $2.8 million for the same period last year. The
decrease in net expense of OREO was primarily the result of reduced levels of
OREO writedowns on the existing OREO properties.
In the prior year's quarter ending March 31, 1996, the Company recorded a
$3.8 million restructuring charge representing the costs anticipated to be
incurred in connection with the Company's exit from the conforming mortgage
business. For the period ending March 31, 1997, there was no additional
restructuring charge required.
All other general and administrative expenses, including the Federal Deposit
Insurance Corporation ("FDIC") insurance premium, data processing, professional
services, and telephone and other communications expense, increased to $8.8
million for the three months ended March 31, 1997 as compared to $6.1 million
for the same period last year. Excluding SPFC and ICIFC for the quarter ending
March 31, 1996, such expenses were $4.9 million in the prior year. The overall
increase in general and administrative expenses was primarily attributable to
the Company's acquisition and expansion activities throughout 1996 and during
the first quarter of 1997.
ASSET QUALITY
Loan loss provision and Nonaccrual Loans and Leases
As a result of the growth in the loan portfolio and the change in its product
mix, the Company continued to add to the allowance for loan and lease losses.
The provision for loan and lease losses increased $1.4 million to $2.9 million
for the first quarter of 1997 from $1.5 million for the same period last year.
The increase in the loan and lease loss provision for the first quarter of 1997
was primarily the result of the continuing change in the composition of the
Company's investment loan portfolio to higher yielding loan products.
Nonaccrual loans and leases as of March 31, 1997 and December 31, 1996 remained
essentially stable at $51.6 million and $50.1 million or 4.98% and 4.60% of
gross loans held for investment, respectively.
The balance of nonaccrual loans relating to the former mortgage banking
operations included $19.6 million and $19.9 million of loans for March 31, 1997
and December 31, 1996, respectively. The Company periodically reviews the
allowance for loan and lease losses in connection with the overall loan and
lease portfolio. Based on the Company's charge-off experience and relatively
stable nonaccrual loans, the current balance of the allowance for loan and lease
losses is sufficient in relation to the amount of risk in the loan and lease
portfolio. The Company believes that the allowance for loan and lease losses is
adequate.
21
<PAGE>
The Company's activity in the allowance for loan and lease losses was as
follows:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
BEGINNING BALANCE AS OF-DECEMBER 31, 1996 AND 1995... $19,999 $13,729
Provision for loan and lease losses.................. 2,870 1,500
Business acquisitions................................ 4,864 -
Lease sales.......................................... (2,000) -
Deconsolidation of ICIFC............................. (687) -
------- -------
25,046 15,229
------- -------
LOANS CHARGED OFF
Mortgage............................................. (591) (464)
Multifamily.......................................... (161) (836)
Commercial........................................... (36) (3)
Leases............................................... (677) (370)
Consumer............................................. (557) (248)
------- -------
TOTAL................................................ (2,022) (1,921)
------- -------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF
Mortgage............................................. 61 25
Leases............................................... 175 -
Consumer............................................. 50 3
------- -------
TOTAL................................................ 286 28
------- -------
Net charge-offs...................................... (1,736) (1,893)
------- -------
ENDING BALANCE AS OF MARCH 31, 1997 AND 1996........ $23,310 $13,336
======= =======
</TABLE>
22
<PAGE>
Loans held for investment consisted of the following at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single Family 1-4 $ 339,597 $ 375,476
Multi-Family -- 2,527
Commercial 4,522 11,011
---------- ----------
344,119 389,014
Leases 9,548 99,717
Installment loans 59,517 34,248
Franchise loans 118,385 115,910
Asset based loans 314,063 288,528
Commercial 204,893 173,932
---------- ----------
Total 1,050,525 1,101,349
Unearned income (7,305) (6,336)
Deferred loan fees (6,551) (6,415)
---------- ----------
Total 1,036,669 1,088,598
Allowance for loan losses (23,310) (19,999)
---------- ----------
Total $1,013,359 $1,068,599
========== ==========
</TABLE>
The Company's loans held for investment are primarily comprised of first and
second lien mortgages secured by residential and income producing real property
in California, leases secured by equipment, asset based loans to middle market
companies mainly in California, and loans to experienced franchisees of
nationally recognized restaurant concepts. As a result, the loan portfolio has a
high concentration in the same geographic region. Although the Company has a
diversified portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the economy of California.
23
<PAGE>
The following table sets forth the amount of non performing assets
attributable to the Company's former mortgage banking operations and to all of
its other lending activities.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1997 1996
---------------------- -----------------------
FORMER FORMER
ALL OTHER MORTGAGE ALL OTHER MORTGAGE
LENDING BANKING LENDING BANKING
ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans:
One to four family................. $ 24,497 $ 19,616 $ 24,711 $ 19,928
Commercial property................ 2,153 -- 3,052 --
Multi-family property.............. 1,967 -- 1,421 --
Leases and installment............. 3,384 -- 997 --
---------- ---------- ---------- ----------
Total nonaccrual loans................. 32,001 19,616 30,181 19,928
Other real estate owned:
One to four family................. 8,840 2,601 6,639 3,508
Commercial property................ 2,436 -- 1,200 --
Multi-family property.............. 516 -- 867 --
---------- ---------- ---------- ----------
Total other real estate owned.......... 11,792 2,601 8,706 3,508
Loans with modified terms:.............
One to four family................. 800 -- 800 --
Commercial property................ -- -- 456 --
Multi-family property.............. -- -- -- --
---------- ---------- ---------- ----------
Total loans with modified terms........ 800 -- 1,256 --
Total non performing assets............ $ 44,593 $ 22,217 $ 40,143 $ 23,436
========== ========== ========== ==========
Total loans and OREO................... 1,839,565 36,325 2,015,031 40,955
Total NPA's as a percentage of
Loans and OREO...................... 2.42% 61.16% 1.99% 57.22%
</TABLE>
There are no loans over 90 days past due accruing interest at March 31,
1997 or December 31, 1996, respectively.
On an ongoing basis, management monitors the loan portfolio and evaluates
the adequacy of the allowance for loan and lease losses. In determining the
adequacy of the allowance for loan losses, management considers such factors as
historical loan loss experience, underlying collateral values, evaluations made
by bank regulatory authorities, assessment of economic conditions and other
appropriate data to identify the risks in the loan portfolio.
Loans deemed by management to be uncollectible are charged to the allowance
for loan and lease losses. Recoveries on loans previously charged off are
credited to the allowance. Provisions for loan and lease losses are charged to
expense and credited to the allowance in amounts deemed appropriate by
management based upon its evaluation of the known and inherent risks in the loan
portfolio. Future additions to the allowance for loan losses may be necessary.
24
<PAGE>
INFLATION
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with Generally Accepted Accounting Principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Inflation
affects the Company primarily through its effect on interest rates, since
interest rates normally increase during periods of high inflation and decrease
during periods of low inflation. During periods of increasing interest rates,
demand for loans and a borrower's ability to qualify for mortgage financing in a
purchase transaction may be adversely affected. During periods of decreasing
interest rates borrowers are more likely to refinance their existing loans which
may negatively impact the Company's investments in capitalized excess servicing
assets.
REGULATORY MATTERS
SPTL's Capital Ratios
The following table presents SPTL's actual capital ratios and the
corresponding minimum and well capitalized capital ratio requirements under the
(i) California Leverage limitation, (ii) FDIC Risk-based Capital and Tier 1
Capital regulations and (iii) the FDIC Leverage ratio regulation as of March 31,
1997.
<TABLE>
<CAPTION>
MINIMUM WELL CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(IN THOUSANDS EXCEPT FOR RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
California Leverage Limitation... $140,069 11.58% $ 60,490 5.00% $ -- --%
Risk-based Capital............... 176,987 12.13% 116,759 8.00% 145,949 10.00%
Risk-based Tier 1 Capital........ 125,047 8.57% 58,380 4.00% 87,569 6.00%
FDIC Leverage Ratio.............. 125,047 8.61% 58,065 4.00% 72,581 5.00%
</TABLE>
On September 30, 1996 SPTL entered into a Memorandum of Understanding with
the FDIC and the Department of Corporations. This agreement requires that SPTL
shall (i) have and retain qualified management, (ii) adopt and implement
comprehensive risk management policies, programs and systems, (iii) take all
reasonable and good faith steps to ensure future compliance with all applicable
laws and regulations, (iv) develop a credit review program, (v) update the
lending, investments and audit policies, and (vi) provide quarterly progress
reports to the FDIC and the Department of Corporations. This agreement will
remain in effect until terminated by the FDIC. As of March 31, 1997, SPTL's
Management believes that it has completed a significant portion of the terms and
conditions of the agreement.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Senior Note Offering/Repurchase of Debt
During the first quarter of 1997, the Company completed a cash tender offer
and consent solicitation for all $90 million principal amount of its 9.75%
Senior Notes due 2004 at $1,040 per Senior Note. In January 1997, the Company
successfully completed a 9.875% Senior Note offering due 2007, totaling $200.0
million. A portion of the proceeds from the offering was used to repurchase
$69.8 million of the outstanding 9.75% Senior Notes. The remaining proceeds will
be used to make capital contributions to subsidiaries, strategic acquisitions,
investments, and for general corporate purposes. The effective interest rate on
the tendered notes was approximately 10.8% after amortization of original issue
discount and deferred bond issue costs. The effective interest rate on the new
notes is approximately 10.4% after the amortization of deferred bond issue
costs. The effective interest rate on the new notes is approximately 10.4% after
the amortization of deferred bond issue costs. The Company engaged in the tender
offer and new issuance in order to obtain a more favorable debt covenant
package, and to raise new capital to support its growing businesses.
The Company's principal liquidity requirements result from the need for the
Company to fund mortgage loans originated or acquired for purposes of sale or
investment. In addition, the Company, as a loan servicer, requires funding to
make advances of delinquent principal and interest payments and escrow balances,
and as basic working capital.
SPTL obtains the necessary liquidity to fund its own lending activities
through deposits and, if necessary through borrowings from the FHLB. At March
31, 1997 and December 31, 1996, SPTL had available lines of credit from the FHLB
equal to $85.5 million and $212.7 million, respectively. The FHLB advances are
secured by the investment in stock of FHLB and certain real estate loans with a
carrying value of $348.8 million and $228.5 million at March 31, 1997 and
December 31, 1996, respectively. The highest FHLB advance outstanding during the
quarter ending March 31, 1997 was $140.5 million, with an average outstanding
balance of $98.9 million. The outstanding balance of FHLB advances was $79.5
million at March 31, 1997. Since December 31, 1991, SPTL has increased its
deposits as necessary so that deposits, together with cash, liquid assets and
FHLB borrowings have been sufficient to provide the funding for its loans held
for sale and investment. During the three months ended March 31, 1997, SPTL's
deposit portfolio which consists mostly of certificate accounts increased
approximately $100 million to $1.2 billion from $1.1 billion at December 31,
1996.
SPTL has been able to acquire new deposits through its local marketing
strategies as well as domestic money markets. Additionally, SPTL maintains
liquidity in the form of cash and interest bearing deposits with financial
institutions. SPTL tracks on a daily basis all new loan applications by
office and, based on historical closing statistics, estimates expected fundings.
Cash management systems at SPTL allow SPTL to anticipate both funding and sales
and adjust deposit levels and short-term investments against the demands of the
Company's lending activities.
The Company has an ongoing need for capital to finance its lending
activities. This need is expected to increase as the volume of the Company's
loan and lease originations and acquisitions increases. The Company's primary
cash requirements include the funding of (i) loan and lease originations and
acquisitions pending their pooling and sale, (ii) points and expenses paid in
connection with the acquisition of wholesale loans, (iii) fees and expenses
incurred in connection with its securitization programs, (iv)
overcollateralization or reserve account requirements in connection with loans
and leases pooled and sold, (v) ongoing administrative and other operating
expenses, (vi) interest and principal payments under ICII's $220 million
principal amount of Senior Notes due 2004 and 2007 (the "Notes") and (vii) the
costs of the Company's warehouse credit and repurchase facilities with certain
financial institutions. The Company has financed its activities through
repurchase facilities, warehouse lines of credit from financial institutions,
including SPTL, public offerings of capital stock of ICII and SPFC, the issuance
of the Notes, the issuance of convertible securities, and securitizations. The
Company believes that such sources will be sufficient to fund the Company's
liquidity requirements for the foreseeable future. Any future financing may
involve the issuance of additional Common Stock or other securities, including
securities convertible into or exercisable for Common Stock.
26
<PAGE>
The Company currently pools and sells through securitization a substantial
portion of the loans or leases which it originates or purchases, other than
loans held by SPTL for investment. Accordingly, adverse changes in the
securitization market could impair the Company's ability to originate, purchase
and sell loans or leases on a favorable or timely basis. Any such impairment
could have a material adverse effect upon the Company's business and results of
operations. In addition, the securitization market for many types of assets is
relatively undeveloped and may be more susceptible to market fluctuations or
other adverse changes than more developed capital markets. Finally, any delay in
the sale of a loan or lease pool could cause the Company's earnings to fluctuate
from quarter to quarter.
In a securitization, the Company recognizes a gain on sale of the loans or
leases securitized upon the closing of the securitization, but does not receive
all of the cash representing such gain until it receives the excess servicing
fees, which are payable over the actual life of the loans or leases securitized.
As a result, such transactions may not generate cash flows to the Company for an
extended period.
In addition, in order to gain access to the secondary market for loans and
leases, the Company has relied on monoline insurance companies to provide
guarantees on outstanding senior interests in the trusts to which such loans and
leases are sold to enable it to obtain an "AAA/Aaa" rating for such interests.
Any unwillingness of the monoline insurance companies to guarantee the senior
interests in the Company's loan or lease pools could have a material adverse
effect on the Company's financial position and results of operations.
The Company is dependent upon its ability to access warehouse credit and
repurchase facilities, in addition to its ability to continue to pool and sell
loans and leases in the secondary market, in order to fund new originations and
purchases. The Company has warehouse lines of credit and repurchase facilities
under which it had available an aggregate of approximately $195.1 million in
financing at March 31, 1997. The Company expects to be able to maintain existing
warehouse lines of credit and repurchase facilities (or to obtain replacement or
additional financing) as current arrangements expire or become fully utilized;
however, there can be no assurance that such financing will be obtainable on
favorable terms. To the extent that the Company is unable to arrange new
warehouse lines of credit and repurchase facilities, the Company may have to
curtail its loan origination and purchasing activities, which could have a
material adverse effect on the Company's operations and financial position.
The Company believes that SPTL, together with liquidity available at ICII and
its subsidiaries, will adequately fund the Company's lending activities. Under
applicable regulations, dividends and loans from SPTL to ICII and its other
subsidiaries are subject to various limitations. Since December 31, 1992, ICII's
liquidity needs have included $51 million to make capital contributions to SPTL.
The combination of cash from operations, including servicing sales, and the net
proceeds received by the Company from its Senior Note offerings have allowed the
Company to meet its required liquidity needs for 1995 and 1996. These available
sources, in addition to the proceeds received from the Company's secondary stock
offering in April, 1996 and the completion of the Company's offering of SPFC
stock in June, 1996 have allowed the Company to meet the capital resource needs
for at least the next 12 months.
27
<PAGE>
ISSUANCE OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share". SFAS 128 supersedes APB Opinion No. 15, "Earnings per Share" ("APB 15")
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. SFAS will replace the presentation of primary EPS with
a presentation of basic EPS, and fully diluted EPS with diluted EPS. SFAS 128
will also require dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator of the diluted EPS computation. This statement shall be effective
for financial statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company has
determined that this statement will have no significant impact on the financial
position, or results of operations, or income per share for 1997.
In February 1997,the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards ("SFAS") No. 129, "Disclosure of Information
about Capital Structure". This statement requires disclosures about capital
structures that had been included in a number of previously existing separate
statements and opinions. SFAS 129 requires an entity to explain, in summary
form within the financial statements, pertinent rights and privileges of the
various securities outstanding such as; dividend and liquidation preferences,
participation rights, call prices and dates, conversion or exercise prices or
rates and pertinent dates, sinking fund requirements, unusual voting rights and
significant terms of contracts to issue additional shares. An entity is also to
disclose within the financial statements the number of shares issued upon
conversion, exercise, or satisfaction of required conditions during at least the
most recent annual period. In addition, with respect to preferred stock, an
entity is to disclose within the financial statements; liquidation preferences
of the stock, the aggregate or per share amounts at which preferred stock may be
called or subject to redemption and the aggregate and per-share amount of
arrearages in cumulative preferred dividends. This statement shall be effective
for the financial statements for both interim and annual periods ending after
December 15, 1997. At this time the Company has determined that this Statement
will have no significant impact on its financial position or results of
operations for 1997.
28
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBIT
IMPERIAL CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF EARNING PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
- ---------------------------
Income before extraordinary items $ 11,032 $ 8,616
----------- -----------
Extraordinary item - Early extinguishment of debt,
net of income taxes (3,995) --
----------- -----------
Net income $ 7,037 $ 8,616
=========== ===========
Average number of shares outstanding 38,418 32,128
Net effect of dilutive stock options- based on treasury stock
method using average market price 2,467 3,143
----------- -----------
Total average shares 40,885 35,271
=========== ===========
PRIMARY EARNINGS PER SHARE:
- ---------------------------
Income before extraordinary item $ 0.27 $ 0.24
----------- -----------
Extraordinary item - Loss on early extinguishment of debt, net
of income taxes (0.10) --
----------- -----------
Net income per common share $ 0.17 $ 0.24
=========== ===========
FULLY DILUTED EARNINGS PER SHARE:
- ---------------------------------
Income before extraordinary item $ 11,032 $ 8,616
----------- -----------
Extraordinary item - Loss on early extinguishment of debt,
net of income taxes (3,995) --
----------- -----------
Net Income $ 7,037 $ 8,616
=========== ===========
Average number of shares outstanding 38,418 32,128
Net effect of dilutive stock options- based on treasury stock
method using average market price 2,467 3,233
----------- -----------
Total average shares 40,885 35,361
=========== ===========
FULLY DILUTED EARNINGS PER SHARE:
- ---------------------------------
Income before extraordinary item $ 0.27 $ 0.24
----------- -----------
Extraordinary item - Loss on early extinguishment of debt,
net of income taxes (0.10) --
----------- -----------
Net Income $ 0.17 $ 0.24
=========== ===========
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPERIAL CREDIT INDUSTRIES, INC.
Date: May 14, 1997 By: /s/ Kevin Villani
--------------------------------
Kevin Villani
Executive Vice President and CFO
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 29,093 74,247
<INT-BEARING-DEPOSITS> 88,670 3,369
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 23,734 25,180
<INVESTMENTS-HELD-FOR-SALE> 24,180 59,116
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 1,713,469 2,008,695
<ALLOWANCE> 23,310 19,999
<TOTAL-ASSETS> 2,096,241 2,470,639
<DEPOSITS> 1,161,357 1,069,184
<SHORT-TERM> 384,402 834,852
<LIABILITIES-OTHER> 83,059 163,886
<LONG-TERM> 219,782 163,209
0 0
0 0
<COMMON> 146,767 145,521
<OTHER-SE> 96,014 88,977
<TOTAL-LIABILITIES-AND-EQUITY> 2,096,241 2,470,639
<INTEREST-LOAN> 42,930 45,194
<INTEREST-INVEST> 5,625 2,185
<INTEREST-OTHER> 657 2,141
<INTEREST-TOTAL> 49,212 49,520
<INTEREST-DEPOSIT> 17,145 15,039
<INTEREST-EXPENSE> 28,404 36,783
<INTEREST-INCOME-NET> 20,808 12,737
<LOAN-LOSSES> 2,870 1,500
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 21,287 28,708
<INCOME-PRETAX> 19,161 17,057
<INCOME-PRE-EXTRAORDINARY> 11,032 8,616
<EXTRAORDINARY> 3,995 0
<CHANGES> 0 0
<NET-INCOME> 7,037 8,616
<EPS-PRIMARY> .17 .24
<EPS-DILUTED> .17 .24
<YIELD-ACTUAL> 4.28 3.68
<LOANS-NON> 51,617 50,109
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 19,999 13,729
<CHARGE-OFFS> 2,022 1,921
<RECOVERIES> 286 28
<ALLOWANCE-CLOSE> 23,310 13,336
<ALLOWANCE-DOMESTIC> 23,310 13,336
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
