<PAGE>
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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 SEPTEMBER 30, 1998
COMMISSION FILE NUMBER: 0-19861
IMPERIAL CREDIT INDUSTRIES, INC.
CALIFORNIA 95-4054791
---------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
IDENTIFICATION NUMBER) IDENTIFICATION NUMBER)
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:
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING AT NOVEMBER 11, 1998
----- ---------------------------------------
<S> <C>
Common Stock, no par value 36,840,276
</TABLE>
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<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
-------------------------------
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
-------------------- ----
<S> <C>
Consolidated Balance Sheets September 30, 1998 and December 31, 1997.................... 2
Consolidated Statements of Operations - Three and nine months ended
September 30, 1998 and 1997............................................................ 3
Consolidated Statements of Cash Flows - Nine months ended September 30, 1998 and 1997.... 4
Consolidated Statement of Changes in Shareholders' Equity
-- Nine months ended September 30, 1998................................................ 5
Notes to Consolidated Financial Statements............................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 15
-------------------------------------------------------------------------------------
PART II -- OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings........................................................................ 35
ITEM 2. Changes in Securities.................................................................... 35
ITEM 3. Defaults Upon Senior Securities.......................................................... 35
ITEM 4. Submission of Matters to a Vote of Security Holders...................................... 35
ITEM 5. Other Information........................................................................ 35
ITEM 6. Exhibit -- Statement Regarding Computation of Earnings Per Share......................... 36-37
Signatures............................................................................... 38
</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>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash...................................................................... $ 283,938 $ 45,379
Interest bearing deposits................................................. 14,187 103,738
Investment in Federal Home Loan Bank stock................................ 4,586 5,646
Securities held for trading, at market.................................... 70,993 120,905
Securities available for sale, at market.................................. 69,937 100,917
Loans and leases held for sale............................................ 330,897 153,469
Loans and leases held for investment, net................................. 1,310,193 1,232,912
Purchased and originated servicing rights................................. 4,677 4,731
Retained interest in loan and lease securitizations....................... 23,208 22,895
Accrued interest receivable............................................... 11,099 9,687
Premises and equipment, net............................................... 10,444 7,583
Other real estate owned, net.............................................. 10,121 10,905
Goodwill, net............................................................. 38,418 35,607
Investment in Southern Pacific Funding Corporation........................ -- 65,303
Investment in Franchise Mortgage Acceptance Company....................... 60,192 53,099
Other assets.............................................................. 31,735 47,091
Net assets of discontinued AMN operations................................. 50,687 74,522
---------- ----------
Total assets........................................................... $2,325,312 $2,094,389
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................................................................. $1,711,397 $1,156,022
Borrowings from Federal Home Loan Bank.................................... 20,000 45,000
Other borrowings.......................................................... 20,544 144,841
Remarketed Par Securities................................................. 70,000 70,000
Senior Notes.............................................................. 219,847 219,813
Accrued interest payable.................................................. 22,231 21,484
Accrued income taxes payable.............................................. 5,917 76,048
Minority interest in consolidated subsidiaries............................ 3,086 3,174
Other liabilities......................................................... 26,768 34,074
---------- ----------
Total liabilities...................................................... 2,099,790 1,770,456
---------- ----------
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none issued or outstanding.. -- --
Common stock, no par value. Authorized 80,000,000 shares; 36,840,276
and 38,791,439 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively........................................ 128,711 147,109
Retained earnings......................................................... 94,619 174,898
Shares held in deferred executive compensation plan....................... 2,165 --
Unrealized gain on securities available for sale, net..................... 27 1,926
---------- ----------
Total shareholders' equity............................................. 225,522 323,933
---------- ----------
Total liabilities and shareholders' equity............................. $2,325,312 $2,094,389
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
REVENUE: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gain on sale of loans and leases.............................................. $ 3,807 $20,973 $ 12,652 $ 57,736
--------- ------- --------- --------
Interest on loans and leases.................................................. 51,811 44,700 149,227 133,008
Interest on investments....................................................... 8,856 9,959 19,294 17,001
Interest on other finance activities.......................................... 1,183 750 4,844 2,142
--------- ------- --------- --------
Total interest income...................................................... 61,850 55,409 173,365 152,151
Interest on deposits.......................................................... 24,055 18,615 62,253 52,699
Interest on other borrowings.................................................. 1,100 5,880 4,494 18,548
Interest on long term debt.................................................... 7,618 7,554 22,726 18,423
--------- ------- --------- --------
Total interest expense..................................................... 32,773 32,049 89,473 89,670
--------- ------- --------- --------
Net interest income........................................................ 29,077 23,360 83,892 62,481
Provision for loan and lease losses........................................... 9,500 3,400 16,800 9,650
--------- ------- --------- --------
Net interest income after provision for loan and lease losses................. 19,577 19,960 67,092 52,831
--------- ------- --------- --------
Loan servicing income......................................................... 3,326 2,437 9,112 5,055
(Loss) gain on sale of securities............................................. (571) 16,678 (564) 20,581
Equity in net income of Southern Pacific Funding Corporation.................. -- 6,432 12,739 19,363
Equity in net income of Franchise Mortgage Acceptance Company................. 507 -- 7,093 --
Investment banking fees....................................................... 2,175 -- 13,142 --
Asset management fees......................................................... 2,207 858 4,987 3,674
Loss on impairment of securities.............................................. (120,138) -- (120,138) --
Mark to market on securities and loans held for sale.......................... (42,063) (136) (40,528) (141)
Other income (expense)........................................................ 7,407 (824) 9,940 655
--------- ------- --------- --------
Total other (expense) income............................................... (147,150) 25,445 (104,217) 49,187
--------- ------- --------- --------
Total revenue................................................................. (123,766) 66,378 (24,473) 159,754
--------- ------- --------- --------
EXPENSES:
Personnel expense............................................................. 17,785 14,860 45,598 34,617
Amortization of PMSR's and OMSR's............................................. 437 206 1,138 431
Occupancy expense............................................................. 1,604 1,052 4,308 2,941
Data processing expense....................................................... 500 515 1,300 1,320
Net (income) expense of other real estate owned............................... (671) 1,146 (742) 5,383
Professional services......................................................... 3,344 1,731 7,971 7,803
Telephone and other communications............................................ 1,479 636 2,637 1,611
Amortization of Goodwill...................................................... 585 657 1,901 1,862
Provision for loss on repurchase of former mortgage banking operations loans.. 4,750 -- 4,750 --
General and administrative expense............................................ 9,519 9,500 20,166 18,796
--------- ------- --------- --------
Total expenses............................................................. 39,332 30,303 89,027 74,764
--------- ------- --------- --------
(Loss) income before income taxes, minority interest, discontinued
operations, and extraordinary item.......................................... (163,098) 36,075 (113,500) 84,990
Income taxes.................................................................. (64,516) 13,319 (46,155) 31,711
Minority interest in (loss) income of consolidated subsidiaries............... (1,808) 4,901 (1,574) 9,555
--------- ------- --------- --------
(Loss) income before discontinued operations.................................. (96,774) 17,855 (65,771) 43,724
Loss from discontinued operations of AMN (net of income taxes of $926,000).... (1,390) (3,266) (3,232) (4,030)
Loss from discontinued operations of AMN, including provision of
$3.7 million for operating income during phase-out period (less applicable
income taxes of $7.5 million)............................................... (11,276) -- (11,276) --
--------- ------- --------- --------
(Loss) income before extraordinary item....................................... (109,440) 14,589 (80,279) 39,694
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes................................................... -- -- -- (3,995)
--------- ------- --------- --------
Net (loss) income.......................................................... $(109,440) $14,589 $ (80,279) $ 35,699
========= ======= ========= ========
BASIC INCOME PER SHARE:
(Loss) income before discontinued operations.................................. $ (2.50) $ 0.46 $ (1.70) $ 1.13
Loss from discontinued operations, net of income taxes........................ (0.04) (0.08) (0.08) (0.10)
Loss on disposal of AMN, net of income taxes.................................. (0.29) -- (0.29) --
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes................................................... -- -- -- (0.10)
--------- ------- --------- --------
Net (loss) income per common share, basic..................................... $ (2.83) $ 0.38 $ (2.07) $ 0.93
========= ======= ========= ========
DILUTED INCOME PER SHARE:
(Loss) income before discontinued operations.................................. $ (2.50) $ 0.44 $ (1.70) $ 1.07
Loss from discontinued operations, net of income taxes........................ (0.04) (0.08) (0.08) (0.10)
Loss on disposal of AMN, net of income taxes.................................. (0.29) -- (0.29) --
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes................................................... -- -- -- (0.10)
--------- ------- --------- --------
Net (loss) income per common share, diluted................................... $ (2.83) $ 0.36 $ (2.07) $ 0.87
========= ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income from continuing operations................................................ $ (65,771) $ 43,724
Adjustments to reconcile net income (loss) from continuing operations to net cash (used in)
provided by operating activities:
Cash used in discontinued operations of AMN............................................... (4,861) (164,301)
Provision for loan and lease losses....................................................... 16,800 9,650
Loss on impairment of securities.......................................................... 120,138 --
Mark to market on securities and loans held for sale...................................... 40,528 141
Provision for loss on repurchase of former mortgage banking operations.................... 4,750 --
Depreciation.............................................................................. 2,600 2,981
Amortization of goodwill.................................................................. 1,901 1,862
Amortization of servicing rights.......................................................... 1,138 431
Accretion of discount..................................................................... (4,844) (2,142)
Gain on sale of loans and leases.......................................................... (12,652) (57,736)
Gains on sale of SPFC stock............................................................... -- (9,488)
Loss (gains) on sale of IMH stock......................................................... 204 (11,496)
Equity in net earnings of SPFC............................................................ (12,739) (19,363)
Equity in net earnings of FMAC............................................................ (7,093) --
Loss on sale of OREO...................................................................... 501 4,345
(Recovery) writedowns on OREO............................................................. (1,515) 166
Originations of loans held for sale....................................................... (514,900) (905,400)
Sales and collections on loans held for sale.............................................. 322,650 1,374,642
Purchase of trading securities............................................................ (39,210) --
Sale of trading securities................................................................ 79,751 --
Net change in accrued interest receivable................................................. (1,412) (3,694)
Net change in retained interest in loan and lease securitizations......................... (4,713) 13,358
Other, net................................................................................ (50,777) (54,900)
--------- ----------
Net cash (used in) provided by operating activities......................................... (129,526) 222,780
--------- ----------
Cash flows from investing activities:
Net change in interest bearing deposits................................................... 89,551 (188,037)
Sales of securities available for sale.................................................... 8,309 27,955
Purchases of securities available for sale................................................ (16,827) --
Proceeds from sale of Impac Mortgage Holdings stock....................................... 415 11,950
Redemption of stock in Federal Home Loan Bank............................................. 1,209 12,679
Purchase of securities held to maturity................................................... -- (2,748)
Net change in loans held for investment................................................... (101,711) (114,699)
Proceeds from sale of other real estate owned............................................. 9,428 2,651
Purchases of premises and equipment....................................................... (5,769) (3,744)
Proceeds from sale of SPFC stock.......................................................... -- 13,707
--------- ----------
Net cash used in investing activities....................................................... (15,395) (240,286)
--------- ----------
Cash flows from financing activities:
Net increase in deposits.................................................................. 555,375 175,225
Advances from Federal Home Loan Bank...................................................... 44,500 50,000
Repayments of advances from Federal Home Loan Bank........................................ (69,500) (170,500)
Net change in other borrowings............................................................ (124,297) (210,597)
Proceeds from issuance of Senior Notes due 2007........................................... -- 194,500
Proceeds from offering of Remarketed Par Securities....................................... -- 68,075
Repayments of Senior Notes due 2004....................................................... -- (73,241)
Retirement of common stock................................................................ (23,499) --
Net change in minority interest........................................................... (88) (43,787)
Proceeds from exercise of stock options................................................... 989 1,053
--------- ----------
Net cash provided by (used in) financing activities......................................... 383,480 (9,272)
--------- ----------
Net change in cash.......................................................................... 238,559 (26,778)
Cash at beginning of period................................................................. 45,379 74,247
--------- ----------
Cash at end of period....................................................................... $ 283,938 $ 47,469
========= ==========
</TABLE>
4
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES HELD UNREALIZED
IN DEFERRED GAIN (LOSS) ON
NUMBER OF EXECUTIVE SECURITIES TOTAL
SHARES COMMON RETAINED COMPENSATION AVAILABLE SHAREHOLDERS'
OUTSTANDING STOCK EARNINGS PLAN FOR SALE, NET EQUITY
----------- ----- -------- ---- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997............. 38,791 $147,109 $174,898 $ -- $ 1,926 $323,933
Exercise of stock options.............. 228 989 -- -- -- 989
Retirement of stock.................... (2,415) (23,499) -- -- -- (23,499)
Purchase of stock for deferred
executive compensation plan.......... (148) (2,165) -- -- -- (2,165)
Shares held in deferred executive
compensation plan.................... 148 -- -- 2,165 -- 2,165
Issuance of stock for Statewide
Documentation, Inc. acquisition...... 236 5,000 -- -- -- 5,000
Tax benefit from exercise of stock
options.............................. -- 1,277 -- -- -- 1,277
Decrease in unrealized gain on
Securities available for sale, net... -- -- -- -- (1,899) (1,899)
Net loss for the nine months ended
September 30, 1998................... -- -- (80,279) -- -- (80,279)
------ -------- -------- ------ ------- --------
Balance, September 30, 1998............ 36,840 $128,711 $ 94,619 $2,165 $ 27 $225,522
====== ======== ======== ====== ======= ========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Imperial Credit Industries, Inc., was incorporated in 1986 in the State of
California. The consolidated financial statements include Imperial Credit
Industries, Inc. ("ICII"), and its wholly or majority owned consolidated
subsidiaries, (collectively the "Company"). The wholly-owned subsidiaries
include but are not limited to Southern Pacific Bank ("SPB"), Imperial Business
Credit Inc. ("IBC"), Imperial Credit Commercial Asset Management Corporation,
("ICCAMC"), and Imperial Credit Asset Management, Inc. ("ICAM"). Imperial
Capital Group, LLC ("ICG") is a majority owned consolidated subsidiary which is
approximately 60% owned by the Company and approximately 40% owned by ICG's
management. All material intercompany balances and transactions with
consolidated subsidiaries have been eliminated.
2. 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. 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, 1997.
In preparing the consolidated 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 1998 presentation.
3. NET (LOSS) INCOME PER SHARE INFORMATION
The following table reconciles the number of shares used in the
computations of basic and diluted (loss) income per share for the third quarter
and nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
FOR THE FOR THE NINE MONTHS
QUARTER ENDED SEPTEMBER 30, PERIOD ENDED SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average common shares outstanding during the
period used to compute basic income (loss) per share........... 38,604,536 38,720,693 38,699,267 38,550,218
Assumed common shares issued on exercise of stock
options........................................................ -- 2,163,449 -- 2,252,826
---------- ---------- ---------- ----------
Number of common shares used to compute diluted income
(loss) per share............................................... 38,604,536 40,884,142 38,699,267 40,803,044
========== ========== ========== ==========
</TABLE>
4. COMPREHENSIVE INCOME
The Company's comprehensive income is comprised of net income plus the
change in the unrealized gain (loss) on securities available for sale, net for
all periods reported. Comprehensive (loss) income for the three and nine months
ended September 30, 1998 totaled ($106.6) million and ($82.2) million, as
compared to $8.1 million and $31.0 million for the same periods last year,
respectively. Accumulated other comprehensive income, consisting of the
unrealized gain on securities available for sale at September 30, 1998 and
September 30, 1997 totaled $27,000 and $268,000 respectively.
5. ACCOUNTING PRONOUNCEMENTS
In October 1998, the Financial Accounting Standards Board "FASB" issued
Statement No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
an amendment of FASB Statement No. 65." Statement No. 134 amends Statement No.
65, "Accounting for Certain Mortgage Banking Activities" to conform the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the
6
<PAGE>
securitization of other types of assets by a nonmortgage banking enterprise.
After the securitization of a mortgage loan held for sale, any retained
mortgage-backed securities shall be classified in accordance with the provisions
of Statement 115. However, a mortgage banking enterprise must classify as
trading any retained mortgage-backed securities that it commits to sell before
or during the securitization process. Statement No. 134 is effective for the
first quarter beginning after December 15, 1998 and enterprises may reclassify
mortgage-backed securities and other beneficial interests retained after the
securitization of mortgage loans held for sale from the trading category, except
for those with sales commitments in place when the Statement is initially
applied. Management is in the process of determining the impact, if any,
adoption will have on the consolidated financial statements.
6. DISCONTINUED OPERATIONS
During the third quarter ended September 30, 1998, management determined to
cease operations at Auto Marketing Network, Inc. ("AMN"). Accordingly, a
disposal plan was formulated, whereby daily operations of AMN were terminated
in two months. It is management's plan to sell remaining assets within one year.
Losses from AMN's discontinued operations were as follows: (In thousands)
<TABLE>
<CAPTION>
Period From
Period From July 1, 1998 to Three months
August 1, 1998 to July 31, 1998 Ended
September 30, 1998 (measurement date) September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Loss from discontinued operations $ - $1,390 $3,266
Loss on disposal of AMN 11,276 - -
------- ------ ------
Net loss from discontinued operations $11,276 $1,390 $3,266
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Period From
Period From January 1, 1998 to Nine months
August 1, 1998 to July 31, 1998 Ended
September 30, 1998 (measurement date) September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Loss from discontinued operations $ - $3,232 $4,030
Loss on disposal of AMN 11,276 - -
------- ------ ------
Net loss from discontinued operations $11,276 $3,232 $4,030
======= ====== ======
</TABLE>
The loss on disposal of AMN included charges (net of taxes) for the
following items: $5.6 million for securities valuation, $1.3 million for the
disposition of furniture and equipment, $5.3 million for estimated future
servicing obligations to a third party servicer, $1.3 million in liquidation
allowances for nonaccrual loans and repossessed autos, $2.0 million in severance
pay, occupancy and general and administrative expenses. The charges listed above
were partially offset by the estimated net interest income on loans and
securities for the next year (disposition period) of $4.2 million.
The net assets of AMN discontinued operations were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------
1998
----
<S> <C>
Loans held for sale $12,269
Loans held for investment, net 4,641
Securities held for sale 7,593
Retained interests in loans 13,195
Income taxes receivable 11,435
Other net assets 1,554
-------
$50,687
=======
</TABLE>
AMN's warehouse lines of credit of $16.2 million are classified as other
borrowings in the consolidated financial statements at September 30, 1998.
Total nonperforming AMN loans were $3.8 million as of September 30, 1998 as
compared to $22.7 million at December 31, 1997. AMN's allowance for loan losses
was $3.6 million at September 30, 1998 as compared to $11.1 million at December
31, 1997. AMN originated $2.7 million and $10.8 million in sub-prime auto loans
for the operating periods from July 1, 1998 to July 31, 1998 and January 1, 1998
to July 31, 1998, respectively.
7. LOSSES ON EQUITY INVESTMENTS
As a result of the decline in the United States and global financial and
equity markets, the market values of the Company's equity holdings have declined
substantially, resulting in a pre-tax loss of $120.1 million. The Company
recorded pre-tax losses of $24.5 million and $13.0 million related to an other
than temporary decline in the market value of equity investments in Impac
Mortgage Holdings, Inc. ("IMH"), AMEX: IMH, and Imperial Credit Commercial
Mortgage Investment Corp. ("ICCMIC"), Nasdaq:ICMI, respectively. This loss also
includes the pre-tax write-off of $82.6 million, which represents the Company's
total investment in SPFC. As of September 30, 1998, the Company owned 47.0% of
SPFC's common stock. On October 1, 1998, SPFC filed a petition for bankruptcy
with the U.S. Bankruptcy Court for the District of Oregon, and then ceased loan
origination activity.
7
<PAGE>
8. LOANS HELD FOR SALE
Loans held for sale consisted of the following at September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------- ----------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single family 1-4.................................................. $ 99,908 $ 13,169
Multi-family....................................................... 51,096 68,294
-------- --------
151,004 81,463
Automobile loans...................................................... 136,434 --
Installment loans..................................................... 9,703 --
Leases................................................................ 8,440 13,561
Commercial loans...................................................... 25,316 58,445
-------- --------
$330,897 $153,469
======== ========
</TABLE>
As of September 30, 1998 and December 31, 1997, loans held for sale in the
discontinued operations at AMN were $12.3 million and $9.1 million,
respectively.
9. STOCK REPURCHASE PROGRAM
In November 1997, the Company announced a share repurchase program to
buyback 5% or approximately 1.9 million shares of the Company's outstanding
shares of common stock. As of September 30, 1998, the Company has completed the
original stock repurchase program at an average price of $10.62. In September
1998, the Company announced an additional repurchase program to buyback up to
10% or approximately 3.7 million shares of the Company's outstanding shares of
common stock. As of November 11, 1998, the Company has repurchased 500,000
common shares at an average price of $6.63 under the additional repurchase
program.
As of November 11, 1998 the Company, through its trustee, has also acquired
273,706 common shares under its deferred executive compensation plan at an
average price of $10.85.
10. LOAN AND LEASE COMMITMENTS
At September 30, 1998, the Company's consolidated lending commitments were
as follows: (In thousands)
<TABLE>
<CAPTION>
ICII COMMITMENT FUNDED UNFUNDED
TYPE OF LENDING COMMITMENT BUSINESS UNIT AMOUNT AMOUNT COMMITMENT
- -------------------------- ------------- ------ ------ ----------
<S> <C> <C> <C> <C>
Loan and unused line commitments SPB $1,983,390 $977,513 $1,005,877
Standby letters of credit SPB 2,238 238 2,000
Commercial letters of credit SPB 2,364 2,364 --
---------- --------- ----------
$1,987,992 $980,115 $1,007,877
========== ========= ==========
</TABLE>
8
<PAGE>
11. CONSOLIDATING FINANCIAL INFORMATION
The following represents summarized consolidating financial information as
of September 30, 1998 and December 31, 1997, and for the nine months ended
September 30, 1998 and 1997, with respect to the financial position, results of
operations and cash flows of the Company and its wholly-owned and majority-owned
subsidiaries. On January 17, 1997, the Company sold $200 million of 9.875%
Senior Notes due 2007. As of September 30, 1998, the 9.875% Senior Notes are
guaranteed by seven of the Company's wholly-owned subsidiaries, IBC, ICAI,
ICARI, ICCAMC, ICW, SDI and AMN (the "Guarantor Subsidiaries"). As of September
30, 1998, the non-guarantor subsidiaries are SPB, ICG and ICCTI. Franchise
Mortgage Acceptance Corporation ("FMAC") was a guarantor subsidiary through
September 30, 1997. Each of the guarantees is full and unconditional and joint
and several. The summarized consolidated financial information is presented in
lieu of separate financial statements and other related disclosures of the
wholly-owned subsidiary guarantors as management has determined that such
information is not material to investors. None of the subsidiary guarantors are
restricted from making distributions to the Company.
CONSOLIDATING CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
------
Cash................................................. $ (731) $ 1,294 $ 283,490 $ (115) $ 283,938
Interest bearing deposits............................ 12,994 659 534 -- 14,187
Investment in Federal Home Loan Bank stock........... -- -- 4,586 -- 4,586
Trading and available for sale securities............ 88,624 7,385 44,895 26 140,930
Loans and leases held for sale....................... 1,902 27,211 301,784 -- 330,897
Loans and leases held for investment, net............ 62,676 (9,173) 1,291,690 (35,000) 1,310,193
Investment in FMAC................................... 60,192 -- -- -- 60,192
Purchased and originated servicing rights............ -- -- 4,677 -- 4,677
Retained interest in loan and lease securitizations.. -- 23,208 -- -- 23,208
Investment in subsidiaries........................... 291,440 -- -- (291,440) --
Goodwill............................................. -- 17,516 20,902 -- 38,418
Net assets of discontinued operations................ -- 50,687 -- -- 50,687
Other assets......................................... 48,179 (2,864) 18,960 (876) 63,399
-------- -------- ---------- --------- ----------
Total assets....................................... $565,276 $115,923 $1,971,518 $(327,405) $2,325,312
======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits............................................. -- -- 1,711,512 (115) 1,711,397
Borrowings from FHLB................................. -- -- 20,000 -- 20,000
Other borrowings..................................... 1,220 19,324 35,875 (35,875) 20,544
Remarketed Par Securities............................ 72,165 (2,165) -- -- 70,000
Senior notes......................................... 219,847 -- -- -- 219,847
Minority interest in consolidated subsidiaries....... 946 1,942 137 61 3,086
Other liabilities.................................... 45,576 8,571 6,662 (5,893) 54,916
-------- -------- ---------- --------- ----------
Total liabilities.................................. 339,754 27,672 1,774,186 (41,822) 2,099,790
-------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock...................................... -- 12,000 -- (12,000) --
Common stock......................................... 128,711 134,781 113,275 (248,056) 128,711
Retained earnings.................................... 94,619 (58,530) 84,057 (25,527) 94,619
Shares held in executive deferred compensation plan.. 2,165 -- -- -- 2,165
Unrealized gain on securities available for sale..... 27 -- -- -- 27
-------- -------- ---------- --------- ----------
Total shareholders' equity......................... 225,522 88,251 197,332 (285,583) 225,522
-------- -------- ---------- --------- ----------
Total liabilities and shareholders' equity......... $565,276 $115,923 $1,971,518 $(327,405) $2,325,312
======== ======== ========== ========= ==========
</TABLE>
9
<PAGE>
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
------
Cash................................................. $ 13,229 $ 1,451 $ 43,318 $ (12,619) $ 45,379
Interest bearing deposits............................ 31,390 1,149 71,199 -- 103,738
Investment in Federal Home Loan Bank stock........... -- -- 5,646 -- 5,646
Trading and available for sale securities............ 107,671 14,222 99,929 -- 221,822
Loans and leases held for sale....................... 12,138 14,592 126,739 -- 153,469
Loans and leases held for investment, net............ 78,922 11,135 1,197,430 (54,575) 1,232,912
Investment in SPFC................................... 65,303 -- -- -- 65,303
Investment in FMAC................................... 53,099 -- -- -- 53,099
Purchased and originated servicing rights............ -- -- 4,731 -- 4,731
Retained interest in loan and lease securitizations.. -- 22,895 -- -- 22,895
Investment in subsidiaries........................... 281,454 -- -- (281,454) --
Goodwill............................................. -- 13,229 22,378 -- 35,607
Net assets of discontinued operations................ -- 74,522 -- -- 74,522
Other assets......................................... 59,911 (8,185) 26,473 (2,933) 75,266
-------- -------- ---------- --------- ----------
Total assets....................................... $703,117 $145,010 $1,597,843 $(351,581) $2,094,389
======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits............................................. $ -- $ -- $1,189,841 $ (33,819) $1,156,022
Borrowings from FHLB................................. -- -- 45,000 -- 45,000
Other borrowings..................................... -- 30,250 151,528 (36,937) 144,841
Remarketed Par Securities............................ 72,165 (2,165) -- -- 70,000
Senior notes......................................... 219,813 -- -- -- 219,813
Minority interest in consolidated subsidiaries....... 946 20 111 2,097 3,174
Other liabilities.................................... 86,260 (449) 45,166 629 131,606
-------- -------- ---------- --------- ----------
Total liabilities.................................. 379,184 27,656 1,431,646 (68,030) 1,770,456
-------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock...................................... -- 12,000 -- (12,000) --
Common stock......................................... 147,109 127,305 87,177 (214,482) 147,109
Retained earnings.................................... 174,898 (21,951) 79,020 (57,069) 174,898
Unrealized gain on securities available for sale..... 1,926 -- -- -- 1,926
-------- -------- ---------- --------- ----------
Total shareholders' equity......................... 323,933 117,354 166,197 (283,551) 323,933
-------- -------- ---------- --------- ----------
Total liabilities and shareholders' equity......... $703,117 $145,010 $1,597,843 $(351,581) $2,094,389
======== ======== ========== ========= ==========
</TABLE>
10
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans and leases....................... $ 46 $ 3,977 $ 8,629 $ -- $ 12,652
--------- -------- -------- ------- ---------
Interest income........................................ 23,132 8,531 145,053 (3,351) 173,365
Interest expense....................................... 22,751 547 69,526 (3,351) 89,473
--------- -------- -------- ------- ---------
Net interest income.................................... 381 7,984 75,527 -- 83,892
Provision for loan and lease losses.................... 4,500 1,300 11,000 -- 16,800
--------- -------- -------- ------- ---------
Net interest (expense) income after provision for
loan and lease losses............................... (4,119) 6,684 64,527 -- 67,092
--------- -------- -------- ------- ---------
Loan servicing (expense) income........................ (489) 3,847 5,754 -- 9,112
Loss on sale of securities............................. (198) (50) (316) -- (564)
Equity in net income of SPFC........................... 12,739 -- -- -- 12,739
Equity in net income of FMAC........................... 7,093 -- -- -- 7,093
Investment banking fees................................ -- -- 13,142 -- 13,142
Asset management fees.................................. -- 4,987 -- -- 4,987
Loss on impairment of securities....................... (120,138) -- -- -- (120,138)
Mark to market on securities and loans held for sale... (7,087) (13,688) (19,753) -- (40,528)
Other income (expense)................................. 178 (181) 9,943 -- 9,940
--------- -------- -------- ------- ---------
Total other income................................... (107,902) (5,085) 8,770 -- (104,217)
--------- -------- -------- ------- ---------
Total revenues.................................... (111,975) 5,576 81,926 -- (24,473)
--------- -------- -------- ------- ---------
EXPENSES:
Personnel expense...................................... 3,847 6,952 34,799 -- 45,598
Amortization of servicing rights....................... -- -- 1,138 -- 1,138
Occupancy expense...................................... 956 714 2,638 -- 4,308
Data processing expense................................ 393 20 887 -- 1,300
Net income of other real estate owned.................. (524) (55) (163) -- (742)
Professional services.................................. 2,567 1,648 3,756 -- 7,971
Telephone and other communications..................... 261 334 2,042 -- 2,637
Amortization of goodwill............................... -- 713 1,188 -- 1,901
Provision for loan repurchases......................... 4,750 -- -- 4,750
General and administrative expense..................... 1,942 2,649 15,575 -- 20,166
--------- -------- -------- ------- ---------
Total expenses....................................... 14,192 12,975 61,860 -- 89,027
--------- -------- -------- ------- ---------
(Loss) income before income taxes, minority interest,
discontinued operations and extraordinary item........ (126,167) (7,399) 20,066 -- (113,500)
Income taxes........................................... (56,203) (32) 10,080 -- (46,155)
Minority interest in (loss) income of Consolidated
subsidiaries.......................................... -- (78) 39 (1,535) (1,574)
--------- -------- -------- ------- ---------
(Loss) income before discontinued operations........... (69,964) (7,289) 9,947 1,535 (65,771)
Loss from discontinued operations, net of income taxes. -- (3,232) -- -- (3,232)
Loss on disposal of AMN, net of income taxes........... -- (11,276) -- -- (11,276)
--------- -------- -------- ------- ---------
(Loss) income before equity in undistributed
income of subsidiaries and extraordinary item......... (69,964) (21,797) 9,947 1,535 (80,279)
Equity in undistributed (loss) income of subsidiaries.. (10,315) -- -- 10,315 --
--------- -------- -------- ------- ---------
Net (loss) income.................................... $ (80,279) $(21,797) $ 9,947 $11,850 $ (80,279)
========= ======== ======== ======= =========
</TABLE>
11
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE:
(Loss) gain on sale of loans and leases.............. $(2,637) $ 6,737 $ 53,636 $ -- $ 57,736
------- ------- -------- -------- --------
Interest income...................................... 20,713 6,423 129,307 (4,292) 152,151
Interest expense..................................... 18,365 2,410 73,187 (4,292) 89,670
------- ------- -------- -------- --------
Net interest income.................................. 2,348 4,013 56,120 -- 62,481
Provision for loan and lease losses.................. -- 625 9,025 -- 9,650
------- ------- -------- -------- --------
Net interest income after provision for loan
and lease losses................................. 2,348 3,388 47,095 -- 52,831
------- ------- -------- -------- --------
Loan servicing (expense) income...................... (1,960) 2,831 4,184 5,055
Gain on sale of securities........................... 18,713 411 891 566 20,581
Equity in net income of SPFC......................... 19,363 -- -- -- 19,363
Asset management fees................................ -- 3,674 -- -- 3,674
Other (expense) income............................... (1,942) 1,409 1,047 -- 514
------- ------- -------- -------- --------
Total other income................................. 34,174 8,325 6,122 566 49,187
------- ------- -------- -------- --------
Total revenues.................................. 33,885 18,450 106,853 566 159,754
------- ------- -------- -------- --------
EXPENSES:
Personnel expense.................................... 2,100 6,241 26,276 -- 34,617
Amortization of servicing rights..................... -- 431 -- -- 431
Occupancy expense.................................... 823 418 1,700 -- 2,941
Data processing expense.............................. 427 270 623 -- 1,320
Net expense of other real estate owned............... 3,548 -- 1,835 -- 5,383
Professional services................................ 2,659 747 4,397 -- 7,803
Telephone and other communications................... 170 334 1,107 -- 1,611
Amortization of goodwill............................. -- 717 1,145 -- 1,862
General and administrative expense................... 3,526 7,081 8,189 -- 18,796
------- ------- -------- -------- --------
Total expenses..................................... 13,253 16,239 45,272 -- 74,764
------- ------- -------- -------- --------
Income before income taxes, minority interest,
discontinued operations, equity in undistributed
income of subsidiaries and extraordinary item....... 20,632 2,211 61,581 566 84,990
Income taxes......................................... 16,588 934 13,950 239 31,711
Minority interest in income of consolidated
subsidiaries........................................ - - - 9,555 9,555
------- ------- -------- -------- --------
Income (loss) before discontinued operations and
extraordinary item.................................. 4,044 1,277 47,631 (9,228) 43,724
Loss from discontinued operations.................... -- (4,030) -- -- (4,030)
------- ------- -------- -------- --------
Income (loss) before equity in undistributed
income of subsidiaries and extraordinary item....... 4,044 (2,753) 47,631 (9,228) 39,694
Equity in undistributed income of subsidiaries....... 35,650 -- -- (35,650) --
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes.......................... (3,995) -- -- -- (3,995)
------- ------- -------- -------- --------
Net income (loss).................................. $35,699 $(2,753) $ 47,631 $(44,878) $ 35,699
======= ======= ======== ======== ========
</TABLE>
12
<PAGE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NON-
----
GUARANTOR GUARANTOR
--------- ---------
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
Activities............................................. $ 18,077 $(31,480) $(104,706) $(11,417) $(129,526)
-------- -------- --------- -------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits............... 18,396 489 71,200 (534) 89,551
Purchase of securities available for sale............. (16,827) -- -- -- (16,827)
Proceeds from sale of OREO............................ 817 8,385 226 -- 9,428
Net change in loans held for investment............... 11,269 20,074 (105,127) (27,927) (101,711)
Net change in investment in Subsidiaries.............. (22,467) -- -- 22,467 --
Other, net............................................ (1,935) 8,162 (2,464) 401 4,164
-------- -------- --------- -------- ---------
Net cash (used in) provided by investing activities..... (10,747) 37,110 (36,165) (5,593) (15,395)
-------- -------- --------- -------- ---------
Cash flows from financing activities:
Net increase in deposits.............................. -- -- 521,671 33,704 555,375
Advances from Federal Home Loan Bank.................. -- -- 44,500 -- 44,500
Repayments of advances from Federal Home
Loan Bank........................................... -- -- (69,500) -- (69,500)
Net change in other borrowings........................ 1,220 (10,926) (115,653) 1,062 (124,297)
Retirement of common stock............................ (23,499) -- -- -- (23,499)
Other, net............................................ 989 (78) 26 (36) 901
-------- -------- --------- -------- ---------
Net cash (used in) provided by financing activities..... (21,290) (11,004) 381,044 34,730 383,480
-------- -------- --------- -------- ---------
Net change in cash.................................... (13,960) (5,374) 240,173 17,720 238,559
Cash at beginning of period........................... 13,229 6,668 43,318 (17,836) 45,379
-------- -------- --------- -------- ---------
Cash at end of period................................. $ (731) $ 1,294 $ 283,491 $ (116) $ 283,938
======== ======== ========= ======== =========
</TABLE>
13
<PAGE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NON-
----
GUARANTOR GUARANTOR
--------- ---------
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................................. $(61,182) $(198,943) $ 514,127 $(31,222) $ 222,780
-------- --------- --------- -------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits............... (59,512) 163 (128,688) -- (188,037)
Net change in loans held for investment............... (83,910) 85,749 (167,855) 51,317 (114,699)
Proceeds from sale of SPFC stock...................... 13,707 -- -- -- 13,707
Redemption of Federal Home Loan Bank stock............ -- -- 12,679 -- 12,679
Net change in investment in Subsidiaries.............. 90,298 -- -- (90,298) --
Other, net............................................ (19,196) 141 19,575 35,544 36,064
-------- --------- --------- -------- ---------
Net cash (used in) provided by investing activities..... (58,613) 86,053 (264,289) (3,437) (240,286)
-------- --------- --------- -------- ---------
Cash flows from financing activities:
Net change in deposits................................ 1,063 -- 174,162 -- 175,225
Advances from Federal Home Loan Bank.................. -- -- 50,000 -- 50,000
Repayments of advances from Federal Home
Loan Bank........................................... -- -- (170,500) -- (170,500)
Net change in other borrowings........................ (15,363) 113,169 (325,754) 17,351 (210,597)
Proceeds from offering of Senior Notes................ 194,500 -- -- -- 194,500
Repurchase of Senior Notes............................ (73,241) -- -- -- (73,241)
Proceeds from offering of Remarketed Par Securities... 68,075 -- -- -- 68,075
Net change in minority interest....................... (44,400) -- -- 613 (43,787)
Other, net............................................ 1,053 -- (12,754) 12,754 1,053
-------- --------- --------- -------- ---------
Net cash provided by (used in) financing activities..... 131,687 113,169 (284,846) 30,718 (9,272)
-------- --------- --------- -------- ---------
Net change in cash.................................... 11,892 279 (35,008) (3,941) (26,778)
Cash at beginning of period........................... 5,213 7,973 64,755 (3,694) 74,247
-------- --------- --------- -------- ---------
Cash at end of period................................. $ 17,105 $ 8,252 $ 29,747 $ (7,635) $ 47,469
======== ========= ========= ======== =========
</TABLE>
14
<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 $2.3 billion as of September 30, 1998, is a diversified
commercial lending, financial services and investment holding company, organized
in 1986 with its headquarters located in Torrance, California. The Company's
principal business activities are primarily conducted through its wholly and
majority owned subsidiaries including; Southern Pacific Bank ("SPB"), Imperial
Business Credit Inc. ("IBC"), Imperial Credit Commercial Asset Management
Corporation ("ICCAMC"), Imperial Credit Asset Management, Inc. ("ICAM") and
Imperial Capital Group, LLC ("ICG").
The Company's core business has remained consistent in that it
originates loans and leases funded primarily by deposits and secondarily by
warehouse lines of credit, repurchase facilities, asset backed securitizations
and whole loan sales in the secondary market. The Company's business strategy
currently emphasizes:
. Holding the majority of the loans and leases originated by the Company
for investment, except for those loans originated by SPB for sale.
. Investing in and managing businesses in high margin niche segments of
the financial services industry.
. Adhering to conservative, disciplined underwriting and credit risk
management standards.
. Originating loans and leases on a wholesale basis, where possible.
. Maintaining business and financial flexibility to take advantage of
changing market conditions with respect to funding alternatives and the
opportunistic expansion or contraction of its various financial
services businesses.
The Company diversified its business lines to include investment
products and asset management services by focusing on the creation or
acquisition of additional businesses in the financial services industry in order
to reduce its sole dependency on residential and commercial mortgage lending.
The Company now operates as a diversified commercial lending, financial services
and investment holding company providing financial services products in the
following sectors: business lending, asset management services and investment
banking and brokerage services.
Continued below is a discussion of the Company's significant
businesses, for a discussion of the consolidated results of operations for the
Company, see Management's Discussion and Analysis of Financial Condition and
Results of Operations "Results of Operations."
BUSINESS LENDING
The Company's largest subsidiary is SPB, a $1.9 billion industrial loan
company, which operates four of the Company's core businesses, Coast Business
Credit is an asset based lender; the Income Property Lending Division, a
multifamily and commercial loan originator; and the Loan Participation and
Investment Group, an investor in syndicated bank loan participations. SPB also
owns a mortgage lending subsidiary, Princap Mortgage Warehouse, Inc. which
provides warehouse loans to third party residential mortgage loan originators.
Each of these businesses is primarily funded by the FDIC insured deposits of
SPB.
COAST BUSINESS CREDIT ("CBC")
At September 30, 1998, CBC's outstanding loan portfolio had increased
28% to $622.0 million from the $484.8 million outstanding at December 31, 1997.
CBC had total loan commitments at September 30, 1998 of approximately $1.1
billion, leaving $443.5 million in outstanding unfunded commitments. CBC has
historically concentrated its lending efforts in the technology industry. At
September 30, 1998 loans to technology companies represented 30.2% or $188.0
million of CBC's outstanding loan portfolio as compared to 41.6% or $201.8
million at December 31, 1997, respectively. At September 30, 1998, CBC had
lending relationships with approximately 170 customers, with an average total
outstanding loan balance of $3.7 million. The average yield on CBC's outstanding
loan portfolio was 13.06% and 13.18% for the three and nine months ended
September 30, 1998. CBC had no delinquent loans at September 30, 1998 or
December 31, 1997.
15
<PAGE>
During 1997 CBC executed an expansion plan, which has increased its customer
base outside of California. CBC now operates four loan production centers in
California and additional loan production centers in Atlanta, Baltimore, Boston,
Chicago, Cleveland, Detroit, Minneapolis, Phoenix, Portland, Providence, and
Seattle.
Total revenue and expenses from CBC for the nine months ended September 30,
1998 were $29.7 million and $13.7 million as compared to $18.8 million and $8.9
million for the same period of the prior year, respectively.
INCOME PROPERTY LENDING DIVISION ("IPLD")
At September 30, 1998, IPLD's outstanding balance of loans held for sale had
increased 107.4% to $123.2 million from $59.4 million outstanding at December
31,1997. For the three and nine months ended September 30, 1998, the IPLD
division of SPB originated approximately $96.9 million and $268.5 million in
multifamily and commercial loans, as compared to $58.6 million and $206.8
million for the same periods last year, respectively. For the three and nine
months ended September 30, 1998, IPLD sold $73.7 million and $263.7 million in
multifamily and commercial loans as compared to $203.1 million for the three and
nine months ended September 30, 1997. The average yield on IPLD's outstanding
loan portfolio was 11.67% and 9.74% for the three and nine months ended
September 30, 1998. IPLD had loans 30 days or more delinquent of $2.9 million
and $2.8 million at September 30, 1998.and December 31, 1997, respectively.
IPLD operates 24 loan origination offices in California, Washington, Oregon,
Colorado, Texas, Arizona, Illinois, Minnesota, Michigan, Ohio, Georgia,
Massachusetts, Florida and New Jersey.
Total revenue and expenses from IPLD for the nine months ended September 30,
1998 were $13.8 million and $7.5 million as compared to $23.4 million and $4.7
million for the same periods of the prior year, respectively.
The decline in revenues at IPLD for the nine months ended September 30, 1998
resulted primarily from a decrease in margin on loans originated. Subsequent to
September 30, 1998, the margins on IPLD originated loans increased to historical
levels.
PRINCAP MORTGAGE WAREHOUSE
In October 1997, SPB acquired substantially all of the assets of PrinCap
Mortgage Warehouse, Inc. and PrinCap Mortgage Backed, L.P. and contributed such
assets to its PMW Mortgage Warehouse, Inc. subsidiary ("PrinCap"). The
acquisition was accounted for as a purchase, and the purchase price of $123.7
million was allocated to the net assets acquired based on their fair value
resulting in goodwill of approximately $6.8 million. PrinCap's primary business
is residential mortgage warehouse lending to medium-sized brokers and mortgage
bankers on a national basis. At September 30, 1998 and December 31, 1997,
PrinCap had outstanding loans of $167.4 million, and $122.5 million,
respectively. PrinCap had total loan commitments at September 30, 1998 of
$405.6 million, leaving $238.2 million in outstanding unfunded commitments. The
average yield of Princap's warehouse loan portfolio was 10.47% and 10.38% for
the three and nine months ended September 30, 1998.
Total revenue and expenses from PrinCap for the nine months ended September
30, 1998 were $7.0 million and $1.7 million as compared to none for the same
periods of the prior year, respectively.
LOAN PARTICIPATION AND INVESTMENT GROUP ("LPIG")
At September 30, 1998, loans outstanding under LPIG's commitments totaled
$190.2 million. LPIG had total loan commitments at September 30, 1998 of $512.3
million, leaving $322.1 million in outstanding unfunded commitments. At
September 30, 1998, LPIG had outstanding participations from 36 nationally
syndicated credits, with an average outstanding participation balance of $5.2
million. At September 30, 1998, the size of LPIG's participation interests
ranged from approximately $400,000 to approximately $13.8 million, as compared
to approximately $450,000 to approximately $19.0 million at September 30, 1997,
respectively. The average yield on LPIG's outstanding loan portfolio was 8.08%
and 8.28% for the three and nine months ended September 30, 1998. LPIG had no
delinquent participation interests at September 30, 1998 or December 31, 1997.
In addition to the on-balance sheet funding of LPIG's investments in loan
participations, SPB has entered into off-balance sheet total rate of return swap
contracts with various investment bank counterparties. The provisions of the
swap agreements entitle SPB to receive the total return on various commercial
loan participations in exchange for a floating payment of one month LIBOR plus a
spread. As of September 30, 1998, SPB was party to total rate of return swap
contracts with a total notional amount of $155.0 million.
16
<PAGE>
These contracts are off-balance sheet funding instruments. For the three and
nine months ended September 30, 1998, SPB recognized $701,000 of net swap income
on total return swaps as compared to no such income in the same periods last
year.
The Company plans on de-emphasizing this business going forward in order to
reallocate the capital currently deployed to support LPIG's operations to
higher-margin business such as CBC, PrinCap and IPLD.
Total revenue and expenses from LPIG for the nine months ended September 30,
1998 were $6.4 million and $893,000 as compared to $4.3 million and $690,000 for
the same periods of the prior year, respectively.
COMMERCIAL EQUIPMENT LEASING
The Company conducts its equipment lease origination and servicing operations
through IBC. IBC's lease originations totaled $23.0 million and $84.7 million
for the three and nine months ended September 30, 1998 as compared to $46.0
million and $110.5 million for the same period last year. IBC securitized $24.4
million and $91.1 million of leases during the three and nine months ended
September 30, 1998 as compared to $22.2 million and $137.7 million of leases for
the same periods last year. At September 30, 1998, IBC had 23,332 active
customer accounts with an average total outstanding lease balance of $10,500.
The average yield on IBC's serviced loan portfolio was 14.19% and 14.32% for the
three and nine months ended September 30, 1998. IBC had on-balance sheet loans
delinquent 30 or more days of $342,000 and $1.4 million at September 30, 1998
and December 31, 1997, respectively.
Total revenue and expenses from IBC for the nine months ended September 30,
1998 were $6.4 million and $8.5 million as compared to $14.4 million and $8.3
million for the same periods of the prior year, respectively. The loss for the
nine months ended September 30, 1998 was primarily attributable to the $4.0
million writedown of Retained Interest of Lease Securitization and narrowing of
margins on Lease Securitations during the third quarter ended 1998.
ASSET MANAGEMENT
The Company conducts asset management, investment and other advisory services
through its ICCAMC and ICAM subsidiaries.
IMPERIAL CREDIT COMMERCIAL ASSET MANAGEMENT CORPORATION ("ICCAMC")
In October 1997, the Company completed an initial public offering of the
common stock of ICCMIC. ICCMIC invests primarily in performing multifamily and
commercial loans, commercial mortgage-backed securities and real property
investments. ICCAMC was formed in the third quarter of 1997 to oversee the day-
to-day operations of ICCMIC pursuant to a management agreement. For the three
months and nine months ended September 30, 1998, ICCAMC earned $1.8 million and
$4.3 million, respectively, in management fees from ICCMIC. At September 30,
1998, the Company owned 3,070,000 shares or 10.5% of the outstanding common
stock of ICCMIC.
In addition to receiving asset management fees from ICCMIC, the Company
invested $43.0 million in the common stock of ICCMIC and has received cash
dividends of $2.6 million and $1.4 million during the nine months and year ended
September 30, 1998 and December 31, 1997, respectively. As of September 30,
1998, ICCMIC's stock price declined to $9.75 per share as compared to the
Company's book value of $13.98 per share. Subsequent to September 30, 1998,
ICCMIC's stock price continued to decline to $8.813 per share as of October 23,
1998. As a result of the decline in market value of ICCMIC's common stock, the
Company wrote-down its investment in ICCMIC to $9.75 per share and recognized an
impairment loss of $13.0 million.
Total revenue and expenses from ICCAMC for the nine months ended September 30,
1998 were $4.3 million and $2.2 million as compared to none and $78,000 for the
same period of the prior year, respectively.
17
<PAGE>
IMPERIAL CREDIT ASSET MANAGEMENT, INC. ("ICAM")
For the three and nine months ended September 30, 1998, ICAM earned
management fees of $252,000 from Pacifica Partners I L.P., a $500 million
collateralized loan obligation ("CLO") fund launched by the Company on August
26, 1998. At September 30, 1998, Pacifica Partners I L.P. invested $400 million
in loan participations and $100 million in high yield bonds under management by
ICAM.
The Company invested net cash of $18.7 million in the subordinated and equity
interests of the CLO. The return on the Company's investment in the CLO was
$400,000 for the nine months ended September 30, 1998. As a result of the recent
financial market decline, and a dramatic increase in yield on subordinate bonds,
the Company wrote-down its investment in the subordinate bonds by $3.3 million.
In addition, the Company invested $10.0 million in the Cambria Investment
Partnership I, L.P., a newly formed hedge fund investing in syndicated bank
loans and managed by ICAM. The return on the Company's investment in Cambria was
$(132,000) and $650,000 during the three and nine months ended September 30,
1998, respectively. The Company did not experience any impairment related write-
downs on its investment in Cambria. At September 30, 1998, Cambria had total
assets under management of $165.5 million.
INVESTMENT BANKING AND BROKERAGE
The Company conducts investment banking and brokerage through its ICG
subsidiary.
IMPERIAL CAPITAL GROUP, LLC ("ICG")
In July 1997, the Company formed ICG, which, together with its subsidiaries
Imperial Capital, LLC ("IC") and Imperial Asset Management, LLC ("IAM"), to
offer individual and institutional investors financial products and services. IC
is a registered broker/dealer with the United States Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc.. IC provides investment opportunities and research to individual and
institutional investors, raises private and public capital for middle market
companies, and trades debt, equity and asset backed securities. IAM is an
investment advisor registered with the United States Securities and Exchange
Commission, and provides investment management services to high net worth
individuals and institutional clients. ICG is a consolidated subsidiary in which
the Company maintains an approximate 60% voting and equity ownership interest.
For the three and nine months ended September 30, 1998, ICG generated $3.3
million and $13.1 million in investment banking revenues as compared to none for
the same periods last year. For the three and nine months ended September 30,
1998, ICG incurred expenses of $7.8 million and $16.9 million as compared to
none for the same periods last year.
The loss recorded by ICG for the three and nine months ended September 30,
1998 was primarily due to the writedown of securities held for trading at ICG,
resulting from the recent decline in the financial and equity markets.
OTHER ACTIVITIES
In addition to the Company's significant individual businesses, the Company
engages in following other activities.
18
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY ("FMAC")
FMAC is a publicly traded specialty commercial finance company engaged in the
business of originating and servicing loans and equipment leases to small
businesses, with a primary focus on established national and regional franchise
concepts. More recently, FMAC has expanded its focus to include retail energy
licensees (service stations, convenience stores, truck stops, car washes and
quick lube businesses), funeral homes, cemeteries and golf operating businesses
(golf courses and golf practice facilities). FMAC originates long-term fixed
and variable rate loan and lease products and sells such loans and leases either
through securitizations or whole loan sales to institutional purchasers on a
servicing retained basis. FMAC also periodically makes equity investments or
receives contingent equity compensation as part of its core lending and leasing
business. In March 1998, FMAC purchased Bankers Mutual, an originator of
multifamily income property loans.
During the fourth quarter of 1997, FMAC completed an initial public offering
of its common stock pursuant to which ICII was a selling stockholder. As a
result of the Company's participation in the public offering, the Company's
percentage ownership of FMAC was reduced to 38.4% from 66.7%. Consequently,
commencing with the quarter ended December 31, 1997, the financial statements of
FMAC are no longer consolidated with those of ICII.
As of September 30, 1998, ICII owned 11,023,492 shares of FMAC common stock.
ICII's investment in FMAC is reflected on the Company's consolidated balance
sheet as "Investment in Franchise Mortgage Acceptance Company" and is accounted
for pursuant to the equity method of accounting. Equity in the net income of
FMAC for the three and nine months ended September 30, 1998 was $507,000 and
$7.1 million, respectively, as compared to none for the same periods last year.
According to a press release by FMAC on October 20, 1998, FMAC had total assets
of $871.6 million and net income of $1.3 million and $18.4 million for the three
and nine months ended September 30, 1998.
TOTAL RATE OF RETURN SWAPS
The Company has entered into total rate of return swap contracts to deploy a
portion of its available liquidity. These swaps are entered into with various
investment bank counterparties, the provisions of which entitle the Company to
receive the total return on various loan participations in exchange for a
floating payment of one month LIBOR plus a spread. As of September 30, 1998, the
Company is party to total rate of return swap contracts with a total notional
amount of $46.9 million, under which the Company was to receive one month LIBOR
plus a weighted average spread of 2.01% and is obligated to pay one month LIBOR
plus a weighted average spread of 0.76%. For the three and nine months ended
September 30, 1998, the Company recognized $1.2 million and $3.3 million,
respectively, of interest income on total return swaps as compared to $2.7
million and $3.5 million for the same periods last year. The weighted average
remaining life of these contracts was 46.1 months as of September 30, 1998.
These contracts are off-balance sheet financing instruments.
IMPERIAL CREDIT WORLDWIDE, LTD. ("ICW")
ICW is a holding company for the Company's international finance activities
and is a majority owner of Credito Imperial Argentina, a mortgage banking
company conducting residential mortgage business in Argentina. ICW originated
$14.2 million and $31.0 million in residential loans for the third quarter and
nine months ended September 30, 1998, respectively, as compared to none for the
same periods last year. During the third quarter of 1998, ICW recognized a
lower of cost or market write-down of $7.3 million on its mortgage loans held
for sale. The write-down resulted from the overall decline in the Latin American
financial markets.
Total revenue and expenses from ICW for the nine months ended September 30,
1998 were ($6.6) million and $1.4 million. The loss at ICW was primarily
related to the aforementioned write-down of $7.3 million on its loans held for
sale.
19
<PAGE>
Due to the decline in the Latin American financial markets, the Company is
pursuing various strategies including the sale of the existing portfolio and
conducting future operations as a mortgage broker which would entitle the
Company to receive broker fees to originate loans for others.
IMPAC MORTGAGE HOLDINGS, INC. ("IMH")
Pursuant to a termination agreement entered into in December of 1997, related
to the management agreement between ICAI and IMH, the Company received 2,009,310
shares of IMH common stock and certain securitization-related assets.
Additionally, the Company agreed to cancel its note receivable from ICI Funding
Corporation ("ICIFC"), a former subsidiary of ICII which is now known as Impac
Funding Corporation and operates as the loan origination unit of IMH. The
Company owned 8.0% of the outstanding common stock of IMH as of September 30,
1998.
At September 30, 1998, IMH's stock price had declined to $13.50 per share as
compared to the Company's book basis of $17.44 per share. Shortly after the
third quarter ended September 30, 1998, IMH announced liquidity concerns and the
delay of the payment date of its previously announced third quarter 1998
dividend to January 6, 1999 and that it does not expect to make a further
dividend payments in 1998. Subsequent to this announcement IMH's stock price
declined significantly resulting in the Company writing down its investment to
$5.00 per share resulting in a loss of $24.5 million during the third quarter of
1998.
HOME IMPROVEMENT LOANS AND OTHER CONSUMER CREDIT
At September 30, 1998, SPB's Consumer Credit Division ("CCD") loans
outstanding increased 41.2% to $57.6 million from $40.8 million at December
31,1997. During the three and nine months ended September 30, 1998, CCD
originated $13.5 million and $31.5 million in loans as compared to $4.4 million
and $14.4 million for the same periods last year, respectively. The weighted
average yield on SPB's CCD originated loans was 9.42% and 10.44% for the three
and nine months ended September 30, 1998. At September 30, 1998, CCD had loans
30 days or more delinquent of $760,000.
Subsequent to September 30, 1998, the Company announced the closing of CCD.
Management has determined that the returns generated by CCD were not meeting the
Company's profitability expectations, and that the time necessary to improve
profitability did not warrant further investment in the current financial
market. Closure costs for CCD are not expected to be material.
Total revenue and expenses from CCD for the nine months ended September 30,
1998 were $1.5 million and $3.1 million.
SUB-PRIME AUTO LENDING
SPB's Auto Lending Division originated $24.0 million and $97.2 million in sub-
prime auto loans during the three and nine months ended September 30, 1998 as
compared to $23.4 million and $63.1 million, for the same periods last year,
respectively.
At September 30, 1998, SPB's auto loans outstanding increased 71.6% to $189.8
million from $110.6 million at December 31,1997. At September 30, 1998 SPB's
auto loan portfolio had loans delinquent more than 30 days of $31.1 million. The
weighted average yield on SPB's auto loan portfolio was 18.28% and 20.24% for
the three and nine months ended September 30, 1998. During the third quarter of
1998, the Company decided to aggressively market SPB's auto loan portfolio.
Based on price discovery at September 30, 1998, the Company recognized a lower
of cost or market charge of $18.0 million. The write-down resulted from a
decline in the asset backed securities markets.
Total revenue and expenses from SPB's Auto Lending Division for the nine
months ended September 30, 1998 were $(480,000) and $7.1 million as compared to
$959,000 and $1.6 million for the same periods of the prior year, respectively.
The loss at SPB's Auto Lending Division for the nine months ended September
30, 1998 was primarily related to the aforementioned write-down of $18.0 million
on its auto loans held for sale.
20
<PAGE>
Additionally during the third quarter ended September 30, 1998, the Company
announced it's decision to discontinue the operations of AMN, a subprime Auto
lender. See "Note 6 of Notes to Consolidated Financial Statements--
"Discontinued Operations," describing AMN's discontinued operations.
SOUTHERN PACIFIC FUNDING CORPORATION ("SPFC")
As of September 30, 1998, ICII owned 9,742,500 shares of SPFC common stock,
representing 47.0% of the outstanding common stock of SPFC, which, commencing
with the three months ended March 31, 1997, is reflected on the Company's
consolidated balance sheet as "Investment in Southern Pacific Funding
Corporation" and until its bankruptcy filing and cessation of new business
activities was accounted for pursuant to the equity method of accounting.
On October 1, 1998, SPFC, a publicly traded sub-prime mortgage banking company
which originated, purchased and sold high yielding, single family sub-prime
mortgage loans petitioned for Chapter 11 bankruptcy protection under the Federal
bankruptcy laws, in the U.S. Bankruptcy Court for the District of Oregon. As a
result of SPFC declaring Chapter 11 bankruptcy and the resultant decline in its
common stock to below one dollar per share, the Company wrote-off its total
investment in SPFC. The write-off was $82.6 million during the quarter ended
September 30, 1998.
Equity in the net income of SPFC for the three and nine months ended September
30, 1998 was $0 and $12.7 million, respectively, as compared to $6.4 million and
$19.4 million for the same periods last year. Equity in the net income of SPFC
represents the Company's share of SPFC's net income based on the Company's
ownership percentage.
During the third quarter ended September 30, 1998, SPFC borrowed a maximum of
$4.3 million from the Company at an interest rate of 12%. The average loan
balance during the quarter was $2.6 million. As a result of SPFC declaring
Chapter 11 bankruptcy, ceasing most operations, and beginning the liquidation of
the company, the loan balance plus accrued interest was written-off as a part of
the Company's total investment in SPFC as of September 30, 1998.
FUNDING
DEPOSITS AND FHLB BORROWINGS
The Company primarily funds its loan originations through its subsidiary, SPB.
SPB is an FDIC insured industrial loan company which is regulated by the
California Department of Financial Institutions and the FDIC. SPB obtains the
necessary liquidity to fund its own lending activities primarily through
deposits and, if necessary, through borrowings from the FHLB. SPB's deposit
portfolio consists primarily of certificates of deposit which increased to $1.7
billion as of September 30, 1998 as compared to $1.2 billion at December 31,
1997. The average cost of funds of SPB's deposits was 5.71% and 5.80% at
September 30, 1998 and December 31, 1997, respectively. SPB has been able to
acquire new deposits through its local marketing strategies as well as domestic
money markets. Additionally, SPB maintains liquidity in the form of cash and
interest bearing deposits with financial institutions. The Company tracks on a
daily basis all new loan applications by office and, based on historical closing
statistics, estimates expected fundings. Cash management systems at SPB allow
SPB to anticipate both funding and sales and adjust deposit levels and short-
term investments against the demands of the Company's lending activities.
At September 30, 1998 and December 31, 1997, SPB had available lines of credit
from the FHLB equal to $22.3 million and $45.8 million, respectively. The FHLB
advances are secured by the investment in stock of FHLB and certain real estate
loans with a carrying value of $58.1 million and $228.5 million at September 30,
1998 and December 31, 1997, respectively. The highest FHLB advance outstanding
during the quarter ended September 30, 1998 was $20.0 million, with an average
outstanding balance of $20.0 million. The outstanding balance of FHLB advances
was $20.0 million at September 30, 1998. Since December 31, 1991, SPB 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 investment or sale.
21
<PAGE>
WAREHOUSE LINES OF CREDIT AND NOTES PAYABLE
ICII and its subsidiaries had notes payable and various revolving warehouse
lines of credit available at September 30, 1998, as follows:
<TABLE>
<CAPTION>
INTEREST INDEX
-------- -----
RATE COMMITMENT OUTSTANDING (BASIS POINTS) EXPIRATION DATE
-------- ---------- ----------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Greenwich Capital Financial (AMN)...... 6.98% $100,000 $16,154 Libor plus 135 March 9, 1999
CoreStates (IBC)....................... 7.43% 30,000 3,170 Libor plus 220 November 30, 1998
Notes Payable (ICII)................... 8.00% ------ 1,220 Fixed rate None
-------- -------
$130,000 $20,544
======== =======
</TABLE>
SECURITIZATION TRANSACTIONS AND LOAN SALES
During the quarter ended September 30, 1998, SPB sold $73.7 million of
commercial, multifamily loans, single family loans and Imperial Business
Credit, Inc ("IBC"), securitized $24.4 million of leases.
During the quarter ended September 30, 1997, the Company securitized $207.4
million of loans and leases originated by SPB's Income Property Lending
Division, FMAC and IBC. Excluding loans securitized by FMAC, the Company
securitized $22.2 million of IBC leases for the quarter ended September 30,
1997.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
The Company's consolidated net loss for the three and nine months ended
September 30, 1998 was $109.4 million and $80.3 million or $2.83 and $2.07
diluted net loss per share as compared to income of $14.6 million and $35.7
million or $0.36 and $0.87 diluted net income per share for the same period last
year, respectively.
The net loss for the three and nine months ended September 30, 1998 included
charges and operating losses of $12.7 million or $0.33 diluted net loss per
share and $14.5 million or $0.37 diluted net loss per share related to the
previously announced discontinued operations of AMN, a sub-prime auto lending
subsidiary. Net income for the three and nine months ended September 30, 1997,
includes an extraordinary loss of none and $4.0 million or none and $0.10 basic
and diluted per share representing a loss on the Company's early extinguishment
of debt and operating losses of $3.3 million and $4.0 million or $0.08 and $0.10
basic and diluted per share representing loss from discontinued operations of
AMN, respectively.
Basic consolidated net (loss) income per share for the three and nine months
ended September 30, 1998 was ($2.83) and ($2.07) per basic share as compared to
$0.38 and $0.93 per basic share for the same period last year, respectively.
Basic consolidated net loss per share for the three and nine months ended
September 30, 1998 included charges and operating losses of $0.33 and $0.37
basic net loss per share related to the discontinued operations of AMN as
compared to $0.08 and $0.10 basic net loss per share for the same periods last
year.
The significant loss reported for the quarter ended September 30, 1998 was
primarily due to unstable financial markets in the United States and abroad and
resulted in $97.9 million of non-cash after-tax write downs of the Company's
securities and loans held for sale portfolios. Additionally, the Company has
recorded other non-core pre-tax losses of $8.0 million primarily related to loss
allowances and writedowns in the Company's former mortgage banking operations.
During the third quarter of 1998, the Company completed an analysis of its
potential exposure from losses on the repurchase of the loans still remaining
from its former mortgage banking operations. The completion of this analysis
resulted in the aforementioned $8.0 million charge being taken in the third
quarter of 1998.
22
<PAGE>
DECONSOLIDATION OF FMAC
During the fourth quarter of 1997, the Company reduced its ownership
percentage in FMAC from 66.7% to 38.4% through an initial public offering of
FMAC common stock. The income from FMAC is accounted for by the equity method
of accounting beginning with the quarter ended December 31, 1997. For the three
and nine months ended September 30, 1998, the equity in net income of FMAC was
$507,000 and $7.1 million, respectively. As a result of the deconsolidation
of FMAC, 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 present the results of operations of the Company as
if FMAC had been accounted for as an equity investment for all periods
presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans and leases.................................. $ 3,807 $ 284 $ 12,652 $ 16,836
--------- ------- --------- --------
Interest income................................................... 61,850 47,727 173,365 135,170
Interest expense.................................................. 32,773 26,051 89,473 75,748
--------- ------- --------- --------
Net interest income............................................ 29,077 21,676 83,892 59,422
Provision for loan and lease losses............................... 9,500 3,400 16,800 9,650
--------- ------- --------- --------
Net interest income after provision for loan and lease losses..... 19,577 18,276 67,092 49,772
--------- ------- --------- --------
Other income:
Loan servicing income........................................... 3,326 1,583 9,112 2,825
(Loss) gain on sale of securities............................... (571) 16,678 (564) 20,984
Equity in net income of Southern Pacific Funding Corp........... -- 6,432 12,739 19,363
Equity in net income of Franchise Mortgage Acceptance Company... 507 9,800 7,093 19,110
Investment banking fees......................................... 2,175 -- 13,142 --
Asset management fees........................................... 2,207 858 4,987 3,674
Loss on impairment of securities................................ (120,138) -- (120,138) --
Mark to Market on securities and loans held for sale............ (42,063) (136) (40,528) (141)
Other income.................................................... 7,407 63 9,940 1,542
--------- ------- --------- --------
Total other income................................................ (147,150) 35,278 (104,217) 67,357
--------- ------- --------- --------
Total revenue..................................................... (123,766) 53,838 (24,473) 133,965
--------- ------- --------- --------
EXPENSES:
Personnel expense................................................. 17,785 10,240 45,598 25,332
Amortization of servicing rights.................................. 437 206 1,138 431
Occupancy expense................................................. 1,604 884 4,308 2,497
Data processing expense........................................... 500 492 1,300 1,254
Net (income) expenses of other real estate owned.................. (671) 1,146 (742) 5,383
General, administrative and other expense......................... 19,677 9,698 37,425 23,633
--------- ------- --------- --------
Total expenses................................................. 39,332 22,666 89,027 58,530
--------- ------- --------- --------
(Loss) income before income taxes, minority interest,
discontinued operations and extraordinary item................. (163,098) 31,172 (113,500) 75,435
Income taxes...................................................... (64,516) 13,319 (46,155) 31,711
Minority interest in loss of consolidated subsidiaries............ (1,808) -- (1,574) --
--------- ------- --------- --------
(Loss) income before discontinued operations and
extraordinary item.............................................. (96,774) 17,853 (65,771) 43,724
Loss from discontinued operations, net of income taxes............ (1,390) (3,264) (3,232) (4,030)
Loss on disposal of AMN, net of income taxes...................... (11,276) -- (11,276) --
--------- ------- --------- --------
(Loss) income before extraordinary item........................... (109,440) 14,589 (80,279) 39,694
Extraordinary item--Loss on early extinguishment of debt, net of
income taxes.................................................... -- -- -- (3,995)
--------- ------- --------- --------
Net (loss) income.............................................. $(109,440) $14,589 $ (80,279) $ 35,699
========= ======= ========= ========
</TABLE>
23
<PAGE>
REVENUES
GENERAL
Total revenues for the Company during the third quarter ended September 30,
1998 excluding the loss from the write down of certain securities and held for
sale loan portfolios were $38.4 million as compared to $66.5 million reported
for the same period in 1997. The decrease was due primarily to reduced revenue
contributions from SPFC and the deconsolidation of FMAC. SPFC and FMAC
contributed total revenues to the Company of $507,000 in the quarter ended
September 30, 1998 as compared to $16.2 million in the same period of the
previous year.
Total revenues for the nine months ended September 30, 1998, excluding the
loss from the write-down of certain securities and held for sale loan portfolios
and gains on sale of SPFC and IMH stock were $136.2 million, as compared to
$139.2 million for the same period last year. Excluding the gains on the sale
of SPFC and IMH stock for the nine month periods ended September 30, 1997 and
adjusting the nine months ended September 30, 1997 as if the deconsolidation of
FMAC occurred on January 1, 1997, adjusted total revenues increased by 20.5% to
$136.2 million from $113.0 million, respectively.
GAIN ON SALE OF LOANS AND LEASES
Consistent with the Company's objective of becoming less reliant on gain on
sale as a source of revenue, gain on sale of loans and leases decreased $17.2
million to $3.8 million during the third quarter of 1998 from $21.0 million for
the same period last year. Gain on sale of loans and leases consists primarily
of gains recorded upon the sale of loans and leases, net of associated expenses,
and to a lesser extent, fees received on the origination of loans, and fees
received for commitments to fund loans. Gain on sale of loans decreased $45.0
million to $12.7 million for the nine months ended September 30, 1997 from $57.7
million for the same period last year, primarily as a result of the
deconsolidation of FMAC and lower volume of securitizations at SPB. Gain on
sale of loans and leases decreased to 9.9% and 9.3% of total revenues excluding
loss on impairment of securities and mark-to-market adjustments on certain held
for sale securities and loan portfolios for the quarter and nine months ended
September 30, 1998, as compared to 31.5% and 36.1% of total revenues for the
same periods last year, respectively.
During the quarter ended September 30, 1998, SPB sold $73.7 million of
commercial and multifamily loans and $2.1 million of single family residential
mortgage loans to independent third-parties resulting in a combined gain of $2.7
million. IBC securitized $24.4 million of leases generating a gain of $699,000.
During the quarter ended September 30, 1997, the Company securitized $207.4
million of loans and leases originated by SPB's income property division, FMAC
and IBC. Excluding loans securitized by FMAC, the Company securitized $22.2
million of IBC leases for the quarter ended September 30, 1997.
TOTAL INTEREST INCOME
For the three and nine months ended September 30, 1998, total interest income
increased to $61.9 million and $173.4 million, respectively, from $55.4 million
and $152.2 million for the same periods last year. The increase in total
interest income is primarily attributable to increases in yield as well as the
outstanding average balance on interest-earning assets. The increase in the
average yield on interest-earning assets in 1998 is primarily attributable to
increases in the average yields on loans held for investment and sale reflecting
a more diversified and higher-yielding mix of loan products relative to 1997.
The comparison of total interest income for the three months ended September 30,
1998 and 1997 is also impacted by the deconsolidation of FMAC. Excluding FMAC's
interest income for the three and nine months ended September 30, 1997, total
interest income would have been $47.7 million and $135.2 million.
TOTAL INTEREST EXPENSE
For the three months and nine months ended September 30, 1998, total interest
expense remained essentially the same at $32.8 million and $89.5 million,
respectively, as compared to $32.0 million and $89.7 million for the same
periods last year. The increase in interest on deposits and long term debt was
attributable to the increase in deposits at SPB in 1998 and the interest expense
related to the issuance of $70 million of Remarketed Par Securities in June of
1997.
24
<PAGE>
Total deposits at SPB increased to $1.7 billion from $1.2 billion at September
30, 1998 and 1997, respectively. The yield on SPB deposits was 5.71% and 5.95%
at September 30, 1998 and 1997, respectively. The decrease in interest on other
borrowings was primarily attributable to the deconsolidation of FMAC.
Excluding FMAC's interest expense for the three and nine months ended
September 30, 1997, total interest expense would have been $26.1 million and
$75.7 million.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $9.5 million and $16.8 million for
the three and nine months ended September 30, 1998, respectively, as compared to
$3.4 million and $9.7 million for the same periods last year. The increase in
the loan and lease loss provision for the three months ended September 30, 1998
was primarily the result of a $1.5 million loan loss provision relating to one
credit relationship with a $4.0 million outstanding balance at September 30,
1998, a $3.0 million loan loss provision relating to increased delinquent loans
in SPB's auto loan portfolio, and a $1.0 million lease loss provision relating
to increased loss experience for IBC's equipment leases. The increase in the
loan and lease loss provision for the nine months ended September 30, 1998 was
primarily attributable to the former mortgage banking operations and SPB's auto
loan portfolio.
At September 30, 1998, nonaccrual loans declined to $52.0 million as compared
to $70.6 million at December 31, 1997. Excluding AMN's discontinued operations,
nonaccrual loans were $48.2 million and $48.0 million at September 30,1998 and
December 31, 1997 or 3.5% and 3.6% of gross loans held for investment,
respectively. Additionally, excluding net charge-offs of $12.8 million and $3.3
million of AMN related loans for the nine months ended September 30, 1998 and
1997, net charge-offs were $15.5 million and $8.7 million, respectively. The
increase in net charge-offs was primarily attributed to an increase in net
charge-offs in SPB's auto loan portfolio, partially offset by a decrease in
charge-offs in the Company's lease portfolios at SPB and IBC.
LOSS ON IMPAIRMENT OF SECURITIES
As a result of the decline in the United States and global financial and
equity markets, the market values of the Company's equity holdings have declined
substantially, resulting in a pre-tax loss of $120.1 million. The Company
recorded pre-tax losses of $24.5 million and $13.0 million related to a non-
temporary decline in the market value of equity investments in IMH and ICCMIC,
respectively. At September 30, 1998, the equity investments in IMH and ICCMIC
are carried on the Company's balance sheet as securities available for sale at
$9.9 million and $29.9 million, respectively. To the degree that market values
drop significantly below these amounts, the Company may be exposed to further
writedowns. The reported loss also includes a pre-tax write-off of $82.6
million, which represents the Company's total investment in SPFC. On October 1,
1998, SPFC filed a petition for bankruptcy with the U.S. Bankruptcy Court for
the District of Oregon, and ceased most operations. SPFC has begun the
liquidation of the company. The recovery of any written off amounts is dependent
on proceeds received from the liquidation of SPFC's net assets, if any.
MARK TO MARKET ON SECURITIES AND LOANS HELD FOR SALE
The combination of market pricing movements and developments in the global,
corporate debt, and asset backed financial markets had a negative impact on the
Company's investment, available for sale, and trading securities portfolios. In
addition to the write-downs previously discussed, the Company wrote-down its
retained interests and other asset backed securities by $9.4 million. During the
third quarter, the Company sponsored and invested approximately $18.7 million in
the subordinate and equity interests of Pacifica Partners I, LP., a $500.0
million Collateralized Loan Obligation ("CLO") fund. The CLO is a leveraged
investment backed by syndicated bank debt and high yield bonds. Also as a result
of the recent financial market decline, the Company wrote-down its investment in
the subordinate interest of the CLO by $3.3 million. Additionally, ICG, the
parent of one of the Company's registered investment advisors and its
broker/dealer subsidiary, recorded a loss of $4.5 million primarily due to a
decline and the related write-down in the value of its securities held for
trading, resulting from the recent decline in the financial and equity markets.
To the degree that market values drop significantly below these amounts, the
Company may be exposed to further writedowns.
OTHER NON-CORE, NON-CASH WRITE DOWNS
The Company provided additional loss allowances of $4.8 million for exposure
to losses from the repurchase of residential mortgage loans under
representations and warranties given to loan purchasers related to the Company's
former mortgage banking operations. The Company also recorded an additional
loss of $5.4 million, primarily consisting of a
25
<PAGE>
loss provision of $4.5 million related to the Company's auto loan portfolio and
remaining loans held for investment from the former mortgage banking operations.
LOAN SERVICING INCOME
Loan servicing income for the three and nine months ended September 30, 1998
was $3.3 million and $9.1 million, respectively, as compared to $2.4 million and
$5.1 million for the same periods last year. The increase in loan servicing
income was primarily attributable to a decrease in servicing related expenses
associated with the Company's former residential mortgage banking loan portfolio
and an increase in the average outstanding balance of loans and leases serviced
for others at SPB and IBC. Total loans serviced for others averaged $986.8
million and $548.8 million during the nine months ended September 30, 1998 and
1997, respectively.
EQUITY IN NET INCOME OF SPFC
Equity in the net income of SPFC for the three and nine months ended September
30, 1998 was $0 and $12.7 million, respectively, as compared to $6.4 million and
$19.4 million for the same periods last year, which represents the Company's
share of SPFC's net income based on the Company's ownership percentage. At
September 30, 1997 and 1998, the Company's ownership percentage in SPFC was
47.0%. Prior to SPFC's cessation of new operations, the Company accounted for
its investment in SPFC using the equity method.
On October 1, 1998, SPFC petitioned for Chapter 11 bankruptcy protection under
the Federal bankruptcy laws, in the U.S. Bankruptcy Court for the District of
Oregon, ceased most operations, and began the liquidation of the company. As of
September 30, 1998, the Company has completely written-off its investment in
SPFC.
EQUITY IN NET INCOME OF FMAC
Equity in the net income of FMAC for the three and nine months ended September
30, 1998 was $507,000 and $7.1 million, respectively, as compared to $0 for the
same periods last year, which represents the Company's share of FMAC's net
income based on the Company's ownership percentage. The increase in the equity
in net income of FMAC is due to the difference in accounting methods used for
the Company's investment in FMAC at September 30, 1998 and 1997. At September
30, 1998, the Company's ownership percentage in FMAC was 38.4%, and accordingly,
the Company accounted for its investment in FMAC using the equity method.
During the quarter and nine months ended September 30, 1997, FMAC was a 66.67%
owned consolidated subsidiary of the Company, which contributed pre-tax earnings
to the Company of $9.8 million and $19.1 million, respectively.
ASSET MANAGEMENT FEES
Asset management fees were $2.2 million and $5.0 million for the three and
nine months ended September 30, 1998, respectively, compared to $858,000 million
and $3.7 million for the same periods last year, respectively. The management
fees primarily relate to the activities of ICCAMC. ICCAMC was formed in the
third quarter of 1997 to oversee the day-to-day operations of ICCMIC, a
commercial real estate investment trust, pursuant to a management agreement. For
the three months and nine months ended September 30, 1998, ICCAMC earned $1.8
million and $4.3 million, respectively, in management fees from ICCMIC.
INVESTMENT BANKING FEES
Investment banking fees were $2.2 million and $13.1 million for the three and
nine months ended September 30, 1998, respectively, compared to none for the
same periods last year. During the fourth quarter of 1997, the Company
capitalized a new subsidiary, ICG, which includes a registered broker/dealer and
an asset management company offering individual and corporate investors a wide
range of financial products and services. The investment banking fees consist of
fees related to equity and debt offerings and brokerage commissions.
GAIN ON SALE OF SPFC STOCK
During the three and nine months ended September 30, 1998, the Company did not
sell any shares of its common stock ownership in SPFC. During the first quarter
of 1997, the Company sold 370,000 shares of SPFC common stock at $16.63 per
share generating net proceeds of $6.2 million and a pre-tax gain of $4.3
million. During the third quarter of 1997, the Company sold 500,000 shares of
SPFC common stock at $15.11 per share generating cash proceeds of $7.6 million
and a pre-tax gain of $5.2 million.
26
<PAGE>
EXPENSES
Total expenses for the Company during the third quarter of 1998 were $39.3
million as compared to $30.3 million for the same period last year. For the
nine months ended September 30, 1998 total expenses were $89.0 million as
compared to $74.8 million for the same period last year. Excluding the effect
of the FMAC deconsolidation, expenses for the three and nine month periods ended
September 30, 1997 were $22.7 million and $58.5 million, respectively.
The increase in total expenses for the three and nine month periods ended
September 30, 1998 was attributable to continued growth and increased activities
at the Company's new business lines including PrinCap, ICW, CBC, ICG and ICCAMC.
PERSONNEL EXPENSE
Personnel expense increased to $17.8 million and $45.6 million for the three
and nine months ended September 30, 1998, respectively, as compared to $14.9
million and $34.6 million for the same periods of the previous year. This
increase was primarily the result of growth and increased activities at the
Company's new business lines, including ICG, ICW and ICCAMC.
AMORTIZATION OF SERVICING RIGHTS
Amortization of servicing rights increased to $437,000 and $1.1 million for
the three and nine months ended September 30, 1998 as compared to $206,000 and
$431,000 for the same periods last year. The increase was primarily the result
of an increased balance of servicing rights retained from recent loan sales and
securitizations at SPB.
OCCUPANCY EXPENSE
Occupancy expense increased to $1.6 million and $4.3 million for the three and
nine months ended September 30, 1998, respectively, as compared to $1.1 million
and $2.9 million for the same periods of the previous year. The increase was
primarily attributable to the Company's acquisition and expansion activities
throughout 1997 and during the first nine months of 1998.
NET INCOME/EXPENSES OF OTHER REAL ESTATE OWNED
During the three and nine months ended September 30, 1998, income from OREO
operations were $671,000 and $742,000 as compared to expenses of $1.1 million
and $5.4 million, respectively, for the same periods last year. The income
generated from OREO operations in 1998 as compared to the expenses in 1997
primarily resulted from a lower level of losses and write-downs related to the
sale of properties from the Company's former mortgage banking operations.
OTHER EXPENSES
All other expenses (including data processing, professional services,
telephone and other communications, amortization of goodwill and general and
administrative expense) for the three and nine months ended September 30, 1998
totaled $15.4 million and $34.0 million, respectively, as compared to $13.0
million and $31.4 million for the same periods last year. The comparison of
other expenses for the first quarter 1998 and 1997 is also impacted by the
deconsolidation of FMAC. Excluding FMAC's total other expenses for the three and
nine months ended September 30, 1997, other expenses would have been $10.2
million and $24.9 million, respectively, as compared to the consolidated total
expenses of $15.4 million and $34.0 million. This increase reflects the
Company's acquisition and expansion activities.
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES
The Company's minority interest in (loss) income of consolidated subsidiaries
was ($1.8) million and ($1.6) million for the three and nine months ended
September 30, 1998, respectively, as compared to $4.9 million and $9.6 million
for the same periods last year. The minority interest in income of consolidated
subsidiaries for the three and nine months ended September 30, 1998 is
attributable to the Company's approximately 60% ownership in ICG. The minority
interest in income of consolidated subsidiaries for the same period last year
was attributable to the Company's 66.7% ownership in FMAC. The comparison of
the Company's minority interest in income of consolidated subsidiaries for the
three and nine months ended September 30, 1998 and 1997 is impacted by the
deconsolidation of FMAC. Excluding the Company's minority interest in income of
FMAC for the three and nine months ended September 30, 1997, total minority
interest in
27
<PAGE>
income (loss) of consolidated subsidiaries would have been $0 when compared to
($1.8) million and ($1.6) million for the current periods presented.
EXTRAORDINARY ITEM--LOSS ON EARLY EXTINGUISHMENT OF DEBT
During the first quarter of 1997, the Company successfully completed a $200.0
million offering of 9.875% Senior Notes due 2007. A portion of the proceeds from
the offering were used to repurchase $69.8 million of 9.75% Senior Notes due
2004 for which the Company recorded an extraordinary after-tax charge of $4.0
million.
The Company engaged in the new issuance in order to obtain more favorable
debt covenants and to raise new capital to support its growing businesses.
ASSET QUALITY
NONACCRUAL LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
At September 30, 1998, nonaccrual loans declined to $52.0 million as compared
to $70.6 million at December 31, 1997. Excluding AMN's discontinued operations,
nonaccrual loans were $48.2 million and $48.0 million at September 30,1998 and
December 31, 1997 or 3.5% and 3.6% of gross loans held for investment,
respectively. Additionally, excluding net charge-offs of $12.8 million and $3.3
million of related loans at AMN for the nine months ended September 30, 1998 and
1997, net charge-offs were $15.5 million and $8.7 million, respectively. The
increase in net charge-offs was primarily attributed to an increase in net
charge-offs in SPB's auto loan portfolio, partially offset by a decrease in
charge-offs in the Company's lease portfolios at SPB and IBC.
The balance of nonaccrual loans relating to the former mortgage banking
operations included $5.3 million and $6.9 million of loans at September 30, 1998
and December 31, 1997, 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 balance of nonaccrual loans, management believes 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.
28
<PAGE>
The Company's activity in the allowance for loan and lease losses was as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
BEGINNING BALANCE AS OF DECEMBER 31, 1997 AND 1996........................... $ 38,047 $ 19,999
Provision for loan and lease losses.......................................... 16,800 9,650
Provision for loan losses- AMN............................................... 5,250 8,515
Business acquisitions and bulk loan purchases................................ -- 7,484
Sale of Leases............................................................... -- (900)
Deconsolidation of ICIFC..................................................... -- (687)
-------- --------
60,097 44,061
-------- --------
LOANS CHARGED OFF:
Single family residential.................................................... (1,971) (2,160)
Multifamily mortgage......................................................... (591) (420)
Commercial mortgage.......................................................... (135) (955)
Leases....................................................................... (830) (3,737)
AMN related loans............................................................ (12,767) (3,345)
Consumer loans............................................................... (14,026) (5,399)
-------- --------
Total........................................................................ (30,320) (16,016)
-------- --------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF:
Single family residential.................................................... 189 46
Multifamily mortgage......................................................... 142 --
Commercial mortgage.......................................................... 35 --
Leases....................................................................... 1,004 425
Consumer..................................................................... 645 183
-------- --------
Total........................................................................ 2,015 654
-------- --------
Net charge-offs.............................................................. (28,305) (15,362)
-------- --------
BALANCE INCLUDING AMN AS OF SEPTEMBER 30, 1998 AND 1997...................... $ 31,792 $ 28,699
======== ========
</TABLE>
Excluding the discontinued operations of AMN, the balance of the allowance for
loan and lease losses at September 30, 1998 and December 31, 1997 was $28.2
million and $27.0 million, respectively.
29
<PAGE>
The Company's allowance for loan and lease losses decreased to $28.2 million
as compared to $27.0 million at December 31, 1997. The allowance for loan and
lease losses as a percentage to non-accrual loans at September 30, 1998 and
December 31, 1997 is as follow:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997
--------------------- --------------------
PERCENTAGE TO PERCENTAGE TO
------------- -------------
BALANCE NON-ACCRUING LOANS BALANCE NON-ACCRUING LOAN
------- ------------------ ------- -----------------
<S> <C> <C> <C> <C>
Allowance for loan and lease
losses excluding AMN $28,216 58.48% $26,954 56.21%
AMN's allowance for loan losses 3,576 94.55% 11,093 48.91%
----- ------
Total $31,792 61.10% $38,047 53.87%
======= =======
</TABLE>
NONPERFORMING ASSETS ("NPA")
The Company's NPA's consist of non-accruing loans, OREO and repossessed
property. Total NPA's were $62.9 million as of September 30, 1998 as compared
to $90.5 million at December 31, 1997. Total NPA's as a percentage of loans,
OREO and repossessed assets were 3.61% at September 30, 1998, as compared to
6.04% at December 31, 1997.
30
<PAGE>
The Company's NPA's as a percentage of loans, OREO and repossessed assets at
AMN, former mortgage banking operations and all other lending activities were
19.79%, 48.45% and 3.09% at September 30, 1998, as compared to 69.88%, 52.51%
and 3.57% at December 31, 1997. The decrease in NPA's as a percentage of loans,
OREO and repossessed assets was mainly attributable to loan charges-offs and
sales of OREO properties offset by an increase in SPB nonperforming assets
during the nine months ended September 30, 1998.
The following table sets forth the amount of non performing assets
attributable to the Company's other lending activities, former mortgage banking
operations and AMN.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
FORMER AUTO FORMER AUTO
ALL OTHER MORTGAGE MARKETING ALL OTHER MORTGAGE MARKETING
LENDING BANKING NETWORK, INC LENDING BANKING NETWORK, INC.
ACTIVITIES OPERATIONS OPERATIONS ACTIVITIES OPERATIONS OPERATIONS
------------- ------------- -------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
One to four family....... $ 17,797 $ 5,273 $ -- $ 27,573 $ 6,874 $ --
Commercial property...... 3,553 -- -- 5,058 -- --
Multi-family property.... 1,605 -- -- 1,837 -- --
Leases and installment... 20,020 -- 3,782 6,608 -- 22,681
---------- ------- ------- ---------- ------- -------
Total nonaccrual loans.... 42,975 5,273 3,782 41,076 6,874 22,681
---------- ------- ------- ---------- ------- -------
OREO:
One to four family....... 7,379 1,328 -- 2,552 5,774 --
Commercial property...... 877 -- -- 2,526 -- --
Multi-family property.... 537 -- -- 53 -- --
---------- ------- ------- ---------- ------- -------
Total OREO................ 8,793 1,328 -- 5,131 5,774 --
---------- ------- ------- ---------- ------- -------
Repossessed property:
Equipment held for sale.. 405 -- -- 4,437 -- --
Repossessed vehicles..... -- -- 340 -- -- 4,563
---------- ------- ------- ---------- ------- -------
Total repossessed property 405 -- 340 4,437 -- --
---------- ------- ------- ---------- ------- -------
Total NPAs................ $ 52,173 $ 6,601 $ 4,122 $ 50,644 $12,648 $27,244
========== ======= ======= ========== ======= =======
Total loans, OREO and
repossessed property..... $1,689,873 $13,625 $20,826 $1,417,357 $24,087 $38,989
Total NPA's as a
percentage of loans,
OREO and repossessed 3.09% 48.45% 19.79% 3.57% 52.51% 69.88%
property.................
</TABLE>
There are no loans over 90 days past due accruing interest at September 30,
1998 or December 31, 1997, 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 and lease 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 uncollectable 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 and lease losses may be
necessary.
Loans held for investment consisted of the following at September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single Family 1-4........................................... $ 145,211 $ 244,588
Multi-Family................................................ 61,129 17,261
Commercial.................................................. 40,803 1,085
---------- ----------
247,143 262,934
Leases...................................................... 2,966 7,745
Installment loans........................................... 35,332 129,595
Franchise loans............................................. 54,532 62,219
Asset based loans........................................... 622,021 484,832
Loan participations......................................... 182,394 196,339
Mortgage warehouse lines.................................... 167,420 122,488
Commercial.................................................. 36,642 6,480
---------- ----------
Total..................................................... 1,348,450 1,272,632
Unearned income............................................. (5,314) (7,850)
Deferred loan fees.......................................... (4,727) (4,916)
---------- ----------
Total..................................................... 1,338,409 1,259,866
Allowance for loan and lease losses......................... (28,216) (26,954)
---------- ----------
Total..................................................... $1,310,193 $1,232,912
========== ==========
</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, participations in commercial loan syndications
and loans to experienced franchisees of nationally recognized restaurant
concepts. The increase in loans held for investment was primarily attributable
to loan originations at SPB's Coast Business Credit, Loan Participation and
Investment Group, and Consumer Credit divisions. Additionally, SPB's
acquisition of PrinCap Mortgage Warehouse Inc. during the fourth quarter of 1997
contributed to the increase in loans held for investment. The auto loans held
for investment related to AMN's discontinued operations were $8.2 million and
$25.3 million at September 30, 1998 and December 31, 1997, respectively.
31
<PAGE>
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the Year 2000 problem
("Y2K") concerning existing computer systems. Y2K affects every computer and
subsystem the Company operates, both in-house and from independent servicers and
vendors. The issue is whether the Company's computer systems will properly
recognize the "00" and the prefix "20" dates when the year changes to 2000.
Since many existing computer programs use only two digits to identify a year
field with the assumption that the first two digits are always "19", most
computer systems that do not properly recognize the new prefix century date of
"20" and "00" date could generate erroneous data or cause a computer system to
fail. Systems that calculate, compare or sort using the incorrect date may
cause erroneous results, ranging from system malfunction to incorrect or
incomplete processing. The Company does not have any proprietary in-house
systems to renovate. Reputable vendors with national and international client
bases have supplied the Company's software. These firms are committed to
addressing the Y2K issue and have been working closely with the Company.
STATE OF READINESS
Consistent with the requirements of the Memorandum of Understanding ("MOU")
described below, the Company is concentrating its efforts on the accounting,
human resource, telecommunication and networking issues concerning Y2K. At SPB,
the Company assigned a full-time Year 2000 Project Manager to handle issues
concerning Y2K with testing and certification being performed on loan and
deposit subsystems. At the Company's other subsidiaries, the Y2K responsibility
is being provided by the corporate Management Information Systems group. A full
Y2K assessment of all systems, facilities and peripheral devices was conducted
in the fourth quarter of 1997. As a result of the Y2K assessment, only two
critical systems were deemed to be non-compliant. The first computer system that
was non-compliant will be replaced this year, and the second non-compliant
system will be converted to a Y2K compliant platform during the first quarter of
1999. The Company has contacted all major vendors and received assurances that
they will be fully compliant. Since vendor certification alone is not acceptable
to many of the regulatory agencies, the Company has begun an extensive program
of integration testing.
YEAR 2000 PROJECT STATUS
As of the third quarter ended 1998, the Company has completed the awareness
and assessment phases of the project. Vendor certification has been received for
all major systems. The renovation phase is nearly complete with the exception of
a few improvements to be installed in the Company's personal computer networks,
the installation of a new asset based lending system and the conversion of a
portion of the consumer loan servicing system. The Company's asset based lending
system will be installed and tested prior to December 31, 1998. The non-
compliant portion of the Company's consumer loan servicing system will be
converted in March 1999 to a new system that is Y2K compliant for consumer loans
and mortgages. The Company has just completed a test of all personal computers
owned by the Company in order to assess their ability to handle the Y2K date
change, with a success rate of greater than 90%. The remainder of 1998 will be
spent in the validation phase of the Y2K Project with software test scripts
being developed, system testing and Y2K certification being performed. Most of
the Company is already running Y2K compliant hardware and software including the
Company's general ledger system. The Company and its subsidiaries plan to be
fully Y2K compliant by March 31, 1999.
COSTS TO ADDRESS THE Y2K ISSUE
The Company is utilizing both internal and external resources to correct
reprogram and test the computer systems for Y2K compliance. It is anticipated
that all reprogramming changes will be completed and installed by December 31,
1998, allowing adequate time for testing all data from the Company's in-house,
independent servicers and vendor computer systems through March 31,1999. The
Company currently estimates that its total internal and external costs
associated with making these internal systems Y2K compliant will be
approximately $1.0 million to $2.0 million. The Company expects to fund these
costs through operating cash flows.
CONTINGENCY PLANS
The Company established a series of target dates for vendors of critical
systems to supply Y2K compliant software for testing. In those cases where the
target dates were not met, alternative vendors and systems were acquired. The
Company has scheduled testing with third-party vendors and service providers.
For systems that are not critical to its operation, the Company will rely upon
certifications of Y2K compliance from vendors and service providers. Most
vendors and service providers have targeted December 1998 and March 1999 as
their expected compliance completion dates. The Company believes its Y2K
compliance process should enable it to be successful in modifying its computer
systems to be Y2K compliant. As previously stated, the Company's general ledger
system is already Y2K compliant and testing has begun on SPB's vendor certified
deposit and loan servicing subsystems.
32
<PAGE>
In addition to Y2K compliance, the Company has developed contingency plans for
all other systems classified as critical and essential for operations. These
contingency plans provide various alternatives in the event of the failure of a
system to be adequately modified and/or sufficiently tested and certified to be
Y2K compliant.
However, there can be no assurance that either the compliance process or
contingency plans will avoid partial or total system interruptions or cost
necessary to update hardware and software systems successfully. In addition,
there can be no assurance that the impact of any failure of the Company or its
third-party vendors and service providers to be Y2K compliant will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
REGULATORY MATTERS
MEMORANDUM OF UNDERSTANDING
On October 28, 1998, Southern Pacific Bank entered into a Memorandum of
Understanding ("MOU") with the Federal Deposit Insurance Corporation ("FDIC").
The agreement requires that Southern Pacific Bank (i), within 30 days of the
MOU, shall correct certain deficiencies relating to general ledger account
reconcilements and implement monthly reporting to the Board of Directors
regarding this effort (ii), within 45 days of the MOU, shall correct certain
deficiencies relating to the Y2K assessment and implement monthly reporting to
the Board of Directors regarding this effort (iii), within 45 days of the MOU,
shall correct certain other deficiencies as noted in the Report of Examination-
Information Systems, and (iv), within 30 days of the first month following the
MOU, shall furnish written progress reports to the Regional Director of the
FDIC.
Southern Pacific Bank management has initiated actions to correct the
deficiencies identified, has commenced monthly reporting to the Board of
Directors and will provide monthly reports to the Regional Director of the FDIC.
SPB'S CAPITAL RATIOS
The following table presents SPB'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 September 30, 1998.
<TABLE>
<CAPTION>
MINIMUM
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... $150,000 11.41% $150,000 5.00% $ - -%
Risk-based Capital............... 216,805 10.33% 167,976 8.00% 209,970 10.00%
Risk-based Tier 1 Capital........ 164,993 7.86% 83,988 4.00% 125,982 6.00%
FDIC Leverage Ratio.............. 164,993 8.79% 75,026 4.00% 93,782 5.00%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
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 loan and lease originations and acquisitions, points and
expenses paid in connection with the acquisition of wholesale loans, and ongoing
administrative and other operating expenses.
The Company's liquidity consists of cash, interest bearing deposits,
securities available for sale, trading securities and equity investments. At
September 30, 1998 and December 31, 1997 these sources of liquidity amounted to
$503.8 million and $495.0 million, respectively. At September 30, 1998,
liquidity at the parent company amounted to $12.2 million in cash and interest
bearing deposits, $61.7 million in securities available for sale, $27.0 million
in trading securities, and $60.2 million in equity investments for a total of
$161.1 million.
33
<PAGE>
The Company has financed its activities through warehouse lines of credit and
repurchase facilities with financial institutions, equity and debt offerings in
the capital markets, deposits or borrowings at SPB, dividends from SPB, and
securitizations. The Company believes that such sources will be sufficient to
fund the Company's liquidity requirements for the foreseeable future. There can
be no assurance that the Company will have access to the capital markets in the
future or that financing will be available to satisfy the Company's operating
and debt service requirements or to fund its future growth. The ability of SPB
to dividend funds to the Company is subject to regulatory restrictions.
SPB obtains the necessary liquidity to fund its own lending activities through
deposits and, if necessary through borrowings from the FHLB. At September 30,
1998 and December 31, 1997, SPB had available lines of credit from the FHLB
equal to $22.3 million and $45.8 million, respectively. The FHLB advances are
secured by the investment in stock of FHLB and certain real estate loans with a
carrying value of $58.1 million and $228.5 million at September 30, 1998 and
December 31, 1997, respectively. The highest FHLB advance outstanding during the
quarter ended September 30, 1998 was $20.0 million, with an average outstanding
balance of $20.0 million. The outstanding balance of FHLB advances was $20.0
million at September 30, 1998. Since December 31, 1991, SPB 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. SPB's deposit portfolio, which consists primarily of
certificate accounts, increased to $1.7 billion as of September 30, 1998 as
compared to $1.2 billion at December 31, 1997.
SPB has been able to acquire new deposits through its local marketing
strategies as well as domestic money markets. Additionally, SPB maintains
liquidity in the form of cash and interest bearing deposits with financial
institutions. The Company tracks on a daily basis all new loan applications by
office and, based on historical closing statistics, estimates expected fundings.
Cash management systems at SPB allow SPB to anticipate both funding and sales
and adjust deposit levels and short-term investments against the demands of the
Company's lending activities.
In addition to warehouse lines of credit and SPB borrowings, the Company has
also accessed the capital markets to fund its operations. In January 1997, the
Company issued $200.0 million principal amount of 9.875% Senior Notes and used a
portion of the proceeds to purchase approximately $69.8 million of its
previously issued 9.75% Senior Notes. The Company contributed $35.0 million of
the proceeds to SPB in the form of subordinated indebtedness, and the balance of
the funds were used for general corporate purposes.
During the second quarter of 1997, ICII issued $70.0 million of Senior Notes
under a proprietary product known as "ROPES." These securities can be redeemed
at par upon their maturity or remarketed as 30 year capital instruments. Under
current tax law, the interest payments on these securities are tax-deductible.
The proceeds from the offering are being used for capital contributions to
subsidiaries, strategic acquisitions, investments and general corporate
purposes.
During the fourth quarter of 1997, FMAC completed an initial public offering
of its common stock pursuant to which ICII was a selling stockholder. FMAC and
ICII and another selling stockholder received net proceeds from such offering of
approximately $114.3 million, $59.7 million and $18.5 million, respectively.
34
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On April 22, 1998, the Company was served with an alleged class action
complaint filed in the Superior Court of San Diego County, California by
plaintiff Michael Belch. Plaintiff seeks to represent a class of individuals
who, since March 1994, requested, obtained and were charged fees for both loan
payoff statements and corporate, recording and other fees incurred in the early
repayment of mortgage loans where the borrowers were obtaining refinancing from
other lenders. The complaint alleges, on behalf of the purported class, that
the fees charged were unauthorized, unreasonable or in violation of applicable
statute. The case involves the discontinued mortgage banking operations of the
Company. The Company and plaintiff have reached a settlement agreement in
principle, subject to final documentation and court approval. The settlement
does not have a material impact on the financial condition of the Company.
Following the October 1, 1998 filing for protection under Chapter 11 of the
U.S. Bankruptcy Code by Southern Pacific Funding Corporation ("SPFC"), lawsuits
were filed in the U.S. District Courts for the District of Oregon, the Eastern
District of New York, the Eastern District of Wisconsin, and the Central
District of California setting forth purported class-action complaints relating
to alleged violations of the Federal securities laws in connection with
securities filings and public statements made by SPFC with respect to its
business during various periods specified in the respective complaints that
range from October 9, 1997 to October 1,1998. The initial suits claim to be
filed on behalf of shareholders, noteholders and bondholders of SPFC and name,
among the defendants, H. Wayne Snavely, who served as chairman of the board of
directors of the Company and of SPFC during the period referred to in the
lawsuits, and the Company. While there are variations among the lawsuits, they
in general allege among other things, that the market prices of SPFC's
securities were artificially inflated due to the failure to mark down the value
of its residual securities due to what are alleged to have been unduly positive
statements in SPFC's filings with the Securities and Exchange Commission and in
its press releases, failure to properly reflect increased levels of prepayments
on SPFC loans and actual prepayment and default rates on its loans. The
complaints allege that the statements made by SPFC constitute violations of
Securities and Exchange Commission Rule 10b-5 and that the individual defendants
and the Company have liability for such statements as "controlling persons" of
SPFC. More recently, similar lawsuits have been filed on behalf of shareholders
and bondholders of ICII based on the individual defendants' alleged status as
"controlling persons" of ICII and ICII's alleged misrepresentation of material
facts about the Company's revenues and operations which artificially inflated
the market prices of ICII's securities. The latter cases name, in addition to
Mr. Snavely and ICII, other Company officers, including Kevin E. Villani, Brad
S. Plantiko, Paul B. Lasiter, and Charles O'Hara, and directors Perry A. Lerner
and G. Louis Graziadio, III.
The Company is a named defendant in the cases of Roth, et al v. Howard, et al,
Case No. CV98-1315ST, Chalmers, et al v. Howard, et al, Case No. CV98-1239MA,
and Massel Investments, Ltd. v. Howard, et al, Case No. CV98-1322JO, all of
which have been filed in the U.S. District Court for the District of Oregon. The
case of Sieger and Weiser v. Howard, et al, Case No. CV98-6190, was filed in the
U.S. District Court for the Eastern District of New York. It does not name the
Company as a defendant but does name the board of directors of SPFC, including
Messrs. Snavely and Stephen J. Shugerman, President of SPB and a director of
ICII and SPFC. The case of Mortensen v. Snavely, Case No. 98-8842DT, was filed
in the U.S. District Court for the Central District of California. The case of
Prentice Securities v. Imperial Credit Industries, Inc., et al, Case No. 98-C-
1092, was filed in the U.S. District Court for the Eastern District of
Wisconsin. No responsive pleadings have been filed in any of these cases to
date. The Company anticipates that additional, similar cases may be filed in
these and other jurisdictions and will actively defend against all such cases.
ITEM 2. Changes in Securities
---------------------
None
ITEM 3. Defaults in securities
----------------------
None
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
None
35
<PAGE>
PART II. OTHER INFORMATION - CONTINUED
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
The registrant filed the following report on Form 8-K dated August 14,
1998.
On July 13, 1998, the Company announced the acquisition of all of the
outstanding shares of the capital stock of Statewide Documentation, Inc., a
company providing loan documentation preparation, loan closing, notary and
recording services and marketing of insurance products, for shares of ICII
common stock
On July 31, 1998, the Company announced that the operations of its wholly
owned subsidiary Auto Marketing Network, Inc. ("AMN) were being discontinued.
AMN's near term activities will be limited to managing the remaining loans and
residual interests in its securitizations.
The registrant filed the following report on Form 8-K dated October 2, 1998.
On September 23, 1998, the Board of Directors of Imperial Credit Industries
authorized a dividend of one preferred share purchase right (a "Right") for each
outstanding share of common stock, no par value, of the Company. The dividend
is payable on October 12, 1998 to the shareholders of record at the close of
business on that date. Each right entitles the registered holder to purchase
from the Company one onehundredth of a share of series A Junior Participating
Preferred Stock, par value $0.0001 per share, of the Company ("Preferred
Shares") at a price of $40 per one onehundredth of a Preferred Share, subject to
adjustment. The description and terms of the Rights are set forth in an
Agreement between the Company and the U. S. Stock Transfer Corporation, as
Rights Agent.
36
<PAGE>
ITEM 6
IMPERIAL CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF (LOSS) EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER QUARTER NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------ ------------ ------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Loss) income before discontinued operations and extraordinary item $(96,774) $17,855 $(65,771) $43,724
Loss from discontinued operations of AMN, net of income taxes (1,390) (3,266) (3,232) (4,030)
Loss on disposal of AMN, net of income taxes (11,276) - (11,276) -
Extraordinary item - Early extinguishment of debt,
net of income taxes - - - (3,995)
--------- ------- -------- -------
Net (loss) income $(109,440) $14,589 $(80,279) $35,699
========= ======= ======== =======
Weighted average common shares outstanding used to compute
basic income per share 38,605 38,721 38,699 38,550
Assumed common shares issued on exercise of stock options - 2,163 - 2,253
--------- ------- -------- -------
Number of common shares used to compute diluted income
per share 38,605 40,884 38,699 40,803
========= ======= ======== =======
BASIC EARNINGS PER SHARE:
- -------------------------
(Loss) income before discontinued operations $ (2.50) $ 0.46 $ (1.70) $ 1.13
Loss from discontinued operations of AMN, net of income taxes (0.04) (0.08) (0.08) (0.10)
Loss from disposal of AMN, net of income taxes (0.29) - (0.29) -
Extraordinary item- Loss on early extinguishment of debt,
net of income taxes - - - (0.10)
--------- ------- -------- -------
Net (loss) income per common share $ (2.83) $ 0.38 $ (2.07) $ 0.93
========= ======= ======== =======
DILUTED EARNINGS PER SHARE:
- ---------------------------
(Loss) income before discontinued operations $ (2.50) $ 0.44 $ (1.70) $ 1.07
Loss from discontinued operations of AMN, net of income taxes (0.04) (0.08) (0.08) (0.10)
Loss from disposal of AMN, net of income taxes (0.29) - (0.29) -
Extraordinary item - Loss on early extinguishment of debt,
net of income taxes - - - (0.10)
--------- ------- -------- -------
Net income per common share $ (2.83) $ 0.36 $ (2.07) $ 0.87
========= ======= ======== =======
</TABLE>
37
<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: November 13, 1998 By: /s/ Brad S. Plantiko
--------------------
Brad S. Plantiko
Executive Vice President--
Chief Financial Officer
38
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<C> <S>
27.1 Financial data schedule for September 30, 1998
27.2 Financial data schedules for September 30, 1997 and 1996.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 283,938
<INT-BEARING-DEPOSITS> 14,187
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 70,993
<INVESTMENTS-HELD-FOR-SALE> 69,937
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,672,882
<ALLOWANCE> 31,792
<TOTAL-ASSETS> 2,325,312
<DEPOSITS> 1,711,397
<SHORT-TERM> 40,544
<LIABILITIES-OTHER> 58,002
<LONG-TERM> 289,847
0
0
<COMMON> 128,711
<OTHER-SE> 96,784
<TOTAL-LIABILITIES-AND-EQUITY> 2,325,312
<INTEREST-LOAN> 149,227
<INTEREST-INVEST> 19,294
<INTEREST-OTHER> 4,844
<INTEREST-TOTAL> 173,365
<INTEREST-DEPOSIT> 62,253
<INTEREST-EXPENSE> 89,473
<INTEREST-INCOME-NET> 83,892
<LOAN-LOSSES> 16,800
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 87,453
<INCOME-PRETAX> (113,500)
<INCOME-PRE-EXTRAORDINARY> (80,279)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80,279)
<EPS-PRIMARY> (2.07)
<EPS-DILUTED> (2.07)
<YIELD-ACTUAL> 0
<LOANS-NON> 52,030
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 38,047
<CHARGE-OFFS> 30,320
<RECOVERIES> 2,015
<ALLOWANCE-CLOSE> 28,305
<ALLOWANCE-DOMESTIC> 31,792
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 47,469 57,938
<INT-BEARING-DEPOSITS> 191,406 314,192
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 66,028 0
<INVESTMENTS-HELD-FOR-SALE> 32,355 7,937
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 1,721,155 1,629,923
<ALLOWANCE> 28,699 14,461
<TOTAL-ASSETS> 2,410,693 2,246,137
<DEPOSITS> 1,244,409 1,052,352
<SHORT-TERM> 503,755 338,000
<LIABILITIES-OTHER> 134,780 146,222
<LONG-TERM> 289,803 88,169
0 0
0 0
<COMMON> 147,381 142,943
<OTHER-SE> 124,677 74,082
<TOTAL-LIABILITIES-AND-EQUITY> 2,410,693 2,246,137
<INTEREST-LOAN> 133,008 139,284
<INTEREST-INVEST> 17,001 2,831
<INTEREST-OTHER> 2,142 6,957
<INTEREST-TOTAL> 152,151 149,072
<INTEREST-DEPOSIT> 52,699 44,652
<INTEREST-EXPENSE> 89,670 100,767
<INTEREST-INCOME-NET> 62,481 48,305
<LOAN-LOSSES> 9,650 6,142
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 84,319 79,117
<INCOME-PRETAX> 84,990 118,785
<INCOME-PRE-EXTRAORDINARY> 39,694 61,090
<EXTRAORDINARY> (3,995) 0
<CHANGES> 0 0
<NET-INCOME> 35,699 61,090
<EPS-PRIMARY> .93 1.72
<EPS-DILUTED> .87 1.60
<YIELD-ACTUAL> 0 0
<LOANS-NON> 65,006 46,585
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 44,061 13,729
<CHARGE-OFFS> 16,016 5,523
<RECOVERIES> 654 113
<ALLOWANCE-CLOSE> 28,699 14,461
<ALLOWANCE-DOMESTIC> 28,699 14,461
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0<F1>
<FN>
<F1>RESTATED SEPTEMBER 30, 1997 AND 1996 FINANCIAL DATA SCHEDULES PER FAS 128
</FN>
</TABLE>
