<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER: 0-19861
IMPERIAL CREDIT INDUSTRIES, INC.
CALIFORNIA 95-4054791
---------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 791-8020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest possible date:
CLASS SHARES OUTSTANDING AT APRIL 30, 1998
----- ------------------------------------
Common Stock, no par value 38,786,951
================================================================================
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS PAGE
-------------------- ----
<C> <S> <C>
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997............................. 2
Consolidated Statements of Income - Three months ended March 31, 1998 and 1997................. 3
Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and 1997............. 4
Consolidated Statement of Changes in Shareholders' Equity
-- Three months ended March 31, 1998........................................................... 5
Notes to Consolidated Financial Statements..................................................... 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 13
-------------------------------------------------------------------------------------
PART II -- OTHER INFORMATION
----------------------------
ITEMS 1-5 NOT APPLICABLE
ITEM 6. EXHIBIT -- STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE.................................. 29
SIGNATURES........................................................................................ 30
</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>
(unaudited)
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Cash................................................................................. $ 71,948 $ 50,597
Interest bearing deposits............................................................ 118,249 103,738
Investment in Federal Home Loan Bank stock........................................... 5,720 5,646
Securities held for trading, at market............................................... 40,498 120,904
Securities available for sale, at market............................................. 119,718 107,727
Loans held for sale.................................................................. 146,325 162,571
Loans held for investment, net....................................................... 1,404,920 1,266,718
Purchased and originated servicing rights ........................................... 4,876 4,731
Retained interest in loan and lease securitizations.................................. 48,822 43,105
Accrued interest receivable.......................................................... 10,149 9,132
Premises and equipment, net.......................................................... 9,621 9,513
Other real estate owned, net......................................................... 9,787 10,905
Goodwill............................................................................. 34,945 35,607
Investment in Southern Pacific Funding Corporation................................... 71,277 65,303
Investment in Franchise Mortgage Acceptance Company.................................. 55,868 53,099
Other assets......................................................................... 42,779 52,798
---------- ----------
Total assets....................................................................... $2,195,502 $2,102,094
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------
Deposits............................................................................. $1,280,062 $1,156,022
Borrowings from Federal Home Loan Bank............................................... 34,500 45,000
Other borrowings..................................................................... 138,213 144,841
Remarketed Par Securities............................................................ 70,000 70,000
Senior Notes......................................................................... 219,824 219,813
Accrued interest payable............................................................. 17,626 21,484
Accrued income taxes payable......................................................... 66,896 60,528
Minority interest in consolidated subsidiaries....................................... 3,266 3,174
Other liabilities.................................................................... 31,140 57,299
---------- ----------
Total liabilities.................................................................. 1,861,527 1,778,161
---------- ----------
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none issued or outstanding............. -- --
Common stock, no par value. Authorized 80,000,000 shares; 38,748,331
and 38,791,439 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively.................................................... 144,170 147,109
Retained earnings.................................................................... 187,798 174,898
Unrealized gain on securities available for sale, net................................ 2,007 1,926
---------- ----------
Total shareholders' equity......................................................... 333,975 323,933
---------- ----------
Total liabilities and shareholders' equity......................................... $2,195,502 $2,102,094
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
-------- --------
<S> <C> <C>
REVENUE:
Gain on sale of loans and leases.................................................... $ 5,572 $ 8,666
------- -------
Interest on loans and leases........................................................ 45,536 42,930
Interest on investments............................................................. 4,972 5,625
Interest on other finance activities................................................ 3,132 657
------- -------
Total interest income............................................................ 53,640 49,212
Interest on deposits................................................................ 18,287 17,002
Interest on other borrowings........................................................ 1,753 6,618
Interest on long term debt.......................................................... 7,554 4,784
------- -------
Total interest expense........................................................... 27,594 28,404
------- -------
Net interest income.............................................................. 26,046 20,808
Provision for loan and lease losses................................................. 3,850 2,870
------- -------
Net interest income after provision for loan and lease losses....................... 22,196 17,938
------- -------
Loan servicing income............................................................... 4,028 1,280
Loss on sale of securities.......................................................... -- (403)
Equity in net income of Southern Pacific Funding Corporation........................ 5,974 6,253
Equity in net income of Franchise Mortgage Acceptance Company....................... 2,769 --
Investment banking fees............................................................. 4,535 --
Management fees..................................................................... 1,205 1,579
Gain on sale of Southern Pacific Funding Corporation stock.......................... -- 4,306
Other income........................................................................ 2,150 676
------- -------
Total other income............................................................... 20,661 13,691
------- -------
Total revenue....................................................................... 48,429 40,295
======= =======
EXPENSES:
Personnel expense .................................................................. 16,255 10,671
Amortization of PMSR's and OMSR's................................................... 341 19
Occupancy expense................................................................... 1,546 907
Data processing expense............................................................. 495 427
Net (income) expenses of other real estate owned.................................... (358) 757
Professional services............................................................... 2,755 2,588
Telephone and other communications.................................................. 757 429
Amortization of Goodwill............................................................ 663 601
General and administrative expense.................................................. 5,159 4,735
------- -------
Total expenses................................................................... 27,613 21,134
------- -------
Income before income taxes, minority interest and extraordinary item................ 20,816 19,161
Income taxes........................................................................ 7,824 7,976
Minority interest in income of consolidated subsidiaries............................ 92 153
------- -------
Income before extraordinary item.................................................... 12,900 11,032
Extraordinary item--Loss on early extinguishment of debt, net of income taxes....... -- (3,995)
------- -------
Net income.......................................................................... $12,900 $ 7,037
======= =======
BASIC INCOME PER SHARE:
Income before extraordinary item.................................................... $ 0.33 $ 0.29
Extraordinary item--Loss on early extinguishment of debt, net of income taxes....... -- (0.11)
------- -------
Net Income per common share, basic.................................................. $ 0.33 $ 0.18
======= =======
DILUTED INCOME PER SHARE:
Income before extraordinary item.................................................... $ 0.32 $ 0.27
Extraordinary item--Loss on early extinguishment of debt, net of income taxes....... -- (0.10)
------- -------
Net Income per common share, diluted................................................ $ 0.32 $ 0.17
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 12,900 $ 7,037
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan and lease losses...................................... 3,850 2,870
Depreciation............................................................. 991 1,110
Amortization of goodwill................................................. 663 601
Amortization of PMSR's and OMSR's........................................ 341 19
Accretion of discount.................................................... (3,132) (647)
Gain on sale of loans and leases......................................... (5,572) (8,666)
Gains on sale of SPFC stock.............................................. -- (4,306)
Equity in net earnings of SPFC........................................... (5,974) (6,253)
Equity in net earnings of FMC............................................ (2,769) --
Loss on sale of OREO..................................................... 813 956
(Recovery) writedowns on OREO............................................ (1,382) 543
Originations of loans held for sale...................................... (146,900) (290,800)
Sales and collections on loans held for sale............................. 168,718 539,452
Sale of trading securities............................................... 79,751 --
Net change in accrued interest receivable................................ (1,017) 757
Net change in retained interest in loan and lease securitizations........ (5,717) 16,548
Net change in other assets............................................... 8,369 (12,266)
Net change in other liabilities.......................................... (20,345) (19,222)
--------- ---------
Net cash provided by operating activities..................................... 83,588 227,733
--------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits.................................. (14,511) (85,301)
Proceeds from sale of other real estate owned............................ 1,949 1,761
Purchase of securities available for sale................................ (10,327) --
Sales of securities available for sale................................... -- 36,130
Net change in loans held for investment.................................. (142,314) 48,122
Purchases of premises and equipment...................................... (1,099) (2,039)
Proceeds from sale of SPFC stock......................................... -- 6,151
Redemption of stock in Federal Home Loan Bank............................ -- 10,900
Cash utilized for acquisitions........................................... -- (750)
--------- ---------
Net cash (used in) provided by investing activities........................... (166,302) 14,974
--------- ---------
Cash flows from financing activities:
Net increase in deposits................................................. 124,040 92,173
Advances from Federal Home Loan Bank..................................... 39,500 30,000
Repayments of advances from Federal Home Loan Bank....................... (50,000) (91,000)
Net change in other borrowings........................................... (6,628) (389,450)
Proceeds from issuance of Senior Notes due 2007.......................... -- 194,500
Repayments of Senior Notes due 2004...................................... -- (73,241)
Net change in minority interest.......................................... 92 (51,282)
Retirement of Common Stock............................................... (3,087) --
Proceeds from exercise of stock options.................................. 148 439
--------- ---------
Net cash provided by (used in) financing activities........................... 104,065 (287,861)
--------- ---------
Net change in cash............................................................ 21,351 (45,154)
Cash at beginning of year..................................................... 50,597 74,247
--------- ---------
Cash at end of period......................................................... $ 71,948 $ 29,093
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
NUMBER OF SECURITIES TOTAL
SHARES COMMON RETAINED AVAILABLE SHAREHOLDERS'
OUTSTANDING STOCK EARNINGS FOR SALE, NET EQUITY
----------- --------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............... 38,791 $147,109 $174,898 $1,926 $323,933
Exercise of stock options................ 120 148 -- -- 148
Retirement of stock...................... (163) (3,087) -- -- (3,087)
Increase in unrealized gain on
securities available for sale, net..... -- -- -- 81 81
Net income, for the period............... -- -- 12,900 -- 12,900
------ -------- -------- ------ --------
Balance, March 31, 1998.................. 38,748 $144,170 $187,798 $2,007 $333,975
====== ======== ======== ====== ========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Imperial Credit Industries, Inc., incorporated in 1986 in the State of
California, is 23.0% owned by Imperial Bank. In 1991 Imperial Bank recapitalized
the Company to conduct a full service mortgage banking operation. The
consolidated financial statements include Imperial Credit Industries, Inc.
("ICII"), its significant wholly-owned operating subsidiaries, significant
majority-owned operating subsidiaries and significant equity investments in two
publicly traded companies (collectively the "Company"). The significant wholly-
owned subsidiaries include Southern Pacific Bank ("SPB"), Imperial Business
Credit Inc. ("IBC"), Imperial Credit Advisors, Inc. ("ICAI"), Auto Marketing
Network ("AMN"), Imperial Credit Commercial Asset Management Corporation,
("ICCAMC") and Imperial Credit Worldwide ("ICW"). The significant operating
majority owned consolidated subsidiary is Imperial Capital Group, LLC ("ICG")
which is 60% owned by the Company and 40% owned by ICG's management. The
significant equity investments in publicly traded companies are Southern Pacific
Funding Corporation ("SPFC") NYSE Symbol: SFC, and Franchise Mortgage Acceptance
Company ("FMC") NASDAQ Symbol: FMAX. Both SPFC and FMC were former consolidated
subsidiaries of the Company. 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 three months ended March 31, 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 INCOME PER SHARE INFORMATION
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." This statement replaces the previously reported primary
and fully-diluted income per share with basic and diluted income per share.
Unlike primary income per share, basic income per share excludes any dilutive
effects of stock options. Diluted income per share is similar to fully-diluted
income per share. The following table reconciles the number of shares used in
the computations of basic and diluted income per share for the first quarter
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Weighted-average common shares outstanding during the
year used to compute basic income per share............ 38,745,348 38,418,153
Assumed common shares issued on exercise of stock
options................................................ 2,036,572 2,466,667
---------- ----------
Number of common shares used to compute diluted income
per share.............................................. 40,781,920 40,884,820
========== ==========
</TABLE>
6
<PAGE>
4. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" as of January 1, 1998. SFAS No. 130
establishes standards for reporting comprehensive income and its components in
the consolidated financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company's comprehensive income is
comprised of the unrealized gain on securities available for sale, net for all
periods reported. Comprehensive income for the quarters ended March 31, 1998 and
1997 totaled $13.0 million and $6.9 million, respectively. Accumulated other
comprehensive income at March 31, 1998 and December 31, 1997 totaled $2.0
million and $1.9 million, respectively.
5. ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" as of January 1, 1998. SFAS No. 131
establishes standards to report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim reports to shareholders beginning in 1999. It
also establishes standards for related disclosures about products and services.
SFAS No. 131 is effective for the Company for its December 31, 1998 consolidated
financial statements with comparative information for earlier years to be
restated.
The Company adopted SFAS No. 132, "Employer's Disclosures about Pensions
and Other Postretirement Benefits" as of January 1, 1998. The statement revises
the required disclosures for pensions and other post retirement plans but does
not change the measurement or recognition of such plans. SFAS No. 132 is
effective for the Company for its December 31, 1998 consolidated financial
statements with comparative information for earlier years to be restated.
6. LOANS HELD FOR SALE
Loans held for sale consisted of the following at March 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ----------------
1998 1997
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single family 1-4......... $ 21,693 $ 13,169
Multi-family.............. 54,288 68,294
-------- --------
75,981 81,463
Automobile loans................... 11,509 9,102
Leases............................. 12,668 13,561
Commercial loans................... 46,167 58,445
-------- --------
$146,325 $162,571
======== ========
</TABLE>
7. CONSOLIDATING BALANCE SHEET AND INCOME STATEMENTS
The following represents summarized consolidating financial information
as of March 31, 1998 and December 31, 1997, and for the three months ended March
31, 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 March 31, 1998, the 9.875% Senior Notes are
guaranteed by five of the Company's wholly-owned subsidiaries, IBC, ICAI,
ICCAMC, ICW and AMN (the "Guarantor Subsidiaries"). As of March 31, 1998, the
non-guarantor subsidiaries are SPB, ICG and ICCTI. FMC 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
7
<PAGE>
disclosures of the wholly-owned subsidiary guarantors as management has
determined that such information is not material to investors. None of the
subsidiary guarantors is restricted from making distributions to the Company.
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
ICII SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
------
Cash..................................... $ 2,182 $ 4,797 $ 68,304 $ (3,335) $ 71,948
Interest bearing deposits................ 24,557 392 93,300 -- 118,249
Investment in Federal Home Loan Bank
stock................................... -- -- 5,720 -- 5,720
Securities available for sale and
trading................................. 117,776 22,349 20,091 -- 160,216
Loans held for sale...................... 12,456 31,979 101,890 -- 146,325
Loans held for investment, net........... 72,711 12,837 1,354,372 (35,000) 1,404,920
Investment in SPFC....................... 71,277 -- -- -- 71,277
Investment in FMC........................ 55,868 -- -- -- 55,868
Purchased and originated servicing
rights.................................. -- -- 4,876 -- 4,876
Retained interest in loan and lease
securitizations......................... -- 48,822 -- -- 48,822
Investment in subsidiaries............... 296,064 -- -- (296,064) --
Goodwill................................. -- 12,992 21,953 -- 34,945
Other assets............................. 43,125 8,185 21,901 (875) 72,336
-------- -------- ---------- --------- ----------
Total assets........................... $696,016 $142,353 $1,692,407 $(335,274) $2,195,502
======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits................................. $ $ $1,283,397 $ (3,335) $1,280,062
Other borrowings......................... -- 23,213 185,375 (35,875) 172,713
Remarketed Par Securities................ 72,165 (2,165) -- -- 70,000
Senior notes............................. 219,824 -- -- -- 219,824
Minority interest in consolidated
subsidiaries............................ 946 (53) 167 2,206 3,266
Other liabilities........................ 77,420 3,723 34,519 -- 115,662
-------- -------- ---------- --------- ----------
Total liabilities..................... 370,355 24,718 1,503,458 (37,004) 1,861,527
-------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock.......................... -- 12,000 -- (12,000) --
Common stock............................. 144,295 127,305 101,661 (229,091) 144,170
Retained earnings........................ 179,359 (21,670) 87,288 (57,179) 187,798
Unrealized gain on securities available
for sale................................ 2,007 -- -- -- 2,007
-------- -------- ---------- --------- ----------
Total shareholders' equity............ 325,661 117,635 188,949 (298,270) 333,975
-------- -------- ---------- --------- ----------
Total liabilities and shareholders'
equity............................... $696,016 $142,353 $1,692,407 $(335,274) $2,195,502
======== ======== ========== ========= ==========
</TABLE>
8
<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 $ 6,668 $ 43,318 $ (12,618) $ 50,597
Interest bearing deposits............... 31,390 1,149 71,199 -- 103,738
Investment in Federal Home Loan Bank
stock.................................. -- -- 5,646 -- 5,646
Securities available for sale and
trading................................ 107,671 21,031 99,929 -- 228,631
Loans held for sale..................... 12,138 23,694 126,739 -- 162,571
Loans held for investment, net.......... 78,922 44,941 1,197,430 (54,575) 1,266,718
Investment in SPFC...................... 65,303 -- -- -- 65,303
Purchased and originated servicing
rights................................. -- -- 4,731 -- 4,731
Investment in FMC....................... 53,099 -- -- -- 53,099
Retained interest in loan and lease
securitizations........................ -- 43,105 -- -- 43,105
Investment in subsidiaries.............. 281,454 -- -- (281,454) --
Goodwill................................ -- 13,229 22,378 -- 35,607
Other assets............................ 59,911 (1,104) 26,473 (2,932) 82,348
-------- -------- ---------- --------- ----------
Total assets.......................... $703,117 $152,713 $1,597,843 $(351,579) $2,102,094
======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Deposits................................ $ $ $1,189,840 $ (33,818) $1,156,022
Other borrowings........................ -- 30,250 196,528 (36,937) 189,841
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 7,327 45,095 629 139,311
-------- -------- ---------- --------- ----------
Total liabilities.................... 379,184 37,597 1,429,409 (68,029) 1,778,161
-------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock......................... -- 12,000 -- (12,000) --
Common stock............................ 147,109 125,139 89,342 (214,481) 147,109
Retained earnings....................... 174,898 (22,023) 79,092 (57,069) 174,898
Unrealized gain on securities available
for sale............................... 1,926 -- -- -- 1,926
-------- -------- ---------- --------- ----------
Total shareholders' equity........... 323,933 115,116 168,434 (283,550) 323,933
-------- -------- ---------- --------- ----------
Total liabilities and shareholders'
equity.............................. $703,117 $152,713 $1,597,843 $(351,579) $2,102,094
======== ======== ========== ========= ==========
</TABLE>
9
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 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........ $ 47 $1,707 $ 3,818 $ -- $ 5,572
------- ------ ------- ------------ -------
Interest income......................... 7,523 3,754 43,505 (1,142) 53,640
Interest expense........................ 7,384 538 20,814 (1,142) 27,594
------- ------ ------- ------------ -------
Net interest income..................... 139 3,216 22,691 -- 26,046
Provision for loan and lease losses..... -- 850 3,000 -- 3,850
------- ------ ------- ------------ -------
Net interest income after Provision
for loan and lease losses......... 139 2,366 19,691 -- 22,196
------- ------ ------- ------------ -------
Loan servicing (expense) income......... (146) 2,614 1,560 -- 4,028
Investment banking fees................. -- -- 4,535 -- 4,535
REIT management fees.................... -- 1,205 -- -- 1,205
Equity in net income of SPFC............ 5,974 -- -- -- 5,974
Equity in net income of FMC............. 2,769 -- -- -- 2,769
Other (expense) income.................. (190) 739 1,601 -- 2,150
------- ------ ------- ------------ -------
Total other income.................. 8,407 4,558 7,696 -- 20,661
------- ------ ------- ------------ -------
Total revenues.................. 8,593 8,631 31,205 -- 48,429
------- ------ ------- ------------ -------
EXPENSES:
Personnel expense....................... 998 4,609 10,648 -- 16,255
Amortization of PMSR's and OMSR's....... -- -- 341 -- 341
Occupancy expense....................... 333 323 890 -- 1,546
Data processing expense................. 106 76 313 -- 495
Net (income) expenses of other real
estate owned........................... (445) 412 (325) -- (358)
Professional services................... 584 778 1,393 -- 2,755
Telephone and other communication....... 59 388 310 -- 757
Amortization of goodwill................ -- 238 425 -- 663
General, administrative and other
expense................................ 631 1,477 3,051 -- 5,159
------- ------ ------- ------------ -------
Total expenses...................... 2,266 8,301 17,046 -- 27,613
------- ------ ------- ------------ -------
Income before income taxes, minority
interest, deferred inter-company
expense and extraordinary item......... 6,327 330 14,159 -- 20,816
Income taxes............................ 1,865 125 5,834 -- 7,824
------- ------ ------- ------------ -------
Income before minority interest and
extraordinary item..................... 4,462 205 8,325 -- 12,992
Minority interest in income of
consolidated subsidiaries.............. 109 (73) 56 -- 92
------- ------ ------- ------------ -------
Income before equity in undistributed
income of subsidiaries and
extraordinary item..................... 4,353 278 8,269 -- 12,900
Equity in undistributed income of
subsidiaries........................... 8,547 -- -- (8,547) --
------- ------ ------- ------------ -------
Net income (loss)....................... $12,900 $ 278 $ 8,269 $(8,547) $12,900
======= ====== ======= ============ =======
</TABLE>
10
<PAGE>
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 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. $ (351) $ 5,378 $ 390 $ 3,249 $ 8,666
------- ------- ------- ------- -------
Interest income......................... 5,146 5,496 38,725 (155) 49,212
Interest expense........................ 5,209 1,887 21,463 (155) 28,404
------- ------- ------- ------- -------
Net interest (expense) income........... (63) 3,609 17,262 -- 20,808
Provision for loan and lease losses..... -- 220 2,650 -- 2,870
------- ------- ------- ------- -------
Net interest (expense) income after
Provision for loan and lease losses.. (63) 3,389 14,612 -- 17,938
------- ------- ------- ------- -------
Loan servicing (expense) income......... (1,084) 1,062 1,302 -- 1,280
REIT management fees.................... -- 1,579 -- -- 1,579
Loss on sale of securities.............. -- -- (403) -- (403)
Gain on sale of SPFC stock.............. 4,306 -- -- -- 4,306
Equity in net income of SPFC............ 6,253 -- -- -- 6,253
Dividends received from subsidiaries.... 8,540 -- -- (8,540) --
Other (expense) income.................. (562) 288 950 -- 676
------- ------- ------- ------- -------
Total other income................ 17,453 2,929 1,849 (8,540) 13,691
------- ------- ------- ------- -------
Total revenues........... 17,039 11,696 16,851 (5,291) 40,295
------- ------- ------- ------- -------
EXPENSES:
Personnel expense....................... 583 2,206 7,882 -- 10,671
Amortization of PMSR's and OMSR's....... -- 19 -- -- 19
Occupancy expense....................... 281 110 516 -- 907
Data processing expense................. 287 17 123 -- 427
Net expenses of other real estate owned. 487 -- 270 -- 757
Professional services................... 864 389 1,335 -- 2,588
Telephone and other communication....... 51 97 281 -- 429
Amortization of goodwill................ -- 242 359 -- 601
General, administrative and other....... 709 1,958 2,068 -- 4,735
expense................................ ------- ------- ------- ------- -------
Total expenses.................... 3,262 5,038 12,834 -- 21,134
------- ------- ------- ------- -------
Income before income taxes, minority
interest, deferred inter-company
expense and extraordinary item......... 13,777 6,658 4,017 (5,291) 19,161
Income taxes............................ 2,303 2,677 2,996 -- 7,976
------- ------- ------- ------- -------
Income before minority interest
and extraordinary item................. 11,474 3,981 1,021 (5,291) 11,185
Minority interest in income of
consolidated subsidiaries.............. 153 -- -- -- 153
------- ------- ------- ------- -------
Income before equity in
undistributed income of subsidiaries
and extraordinary item................. 11,321 3,981 1,021 (5,291) 11,032
Equity in undistributed loss of
subsidiaries........................... (289) -- -- 289 --
Extraordinary item--Loss on early
extinguishment of debt, net of
income taxes........................... (3,995) -- -- -- (3,995)
------- ------- ------- ------- -------
Net income (loss)....................... $ 7,037 $ 3,981 $ 1,021 $(5,002) $ 7,037
======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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................. 4,447 (28,157) 124,810 (17,512) 83,588
------- ------- -------- ------- --------
Cash flows from investing activities:
Net change in interest
bearing deposits.................... 6,833 757 (22,101) -- (14,511)
Purchase of securities
available for sale.................. (10,327) -- (511) 511 (10,327)
Proceeds from sale of OREO........... 120 1,051 778 -- 1,949
Net change in loans held
for investment...................... 5,948 12,122 (159,942) (442) (142,314)
Net change in investment
in Subsidiaries..................... (14,610) -- -- 14,610 --
Other, net........................... (519) (108) (508) 36 (1,099)
------- ------- -------- ------- --------
Net cash (used in) provided by
investing activities.................. (12,555) 13,822 (182,284) 14,715 (166,302)
------- ------- -------- ------- --------
Cash flows from financing activities:
Net increase in deposits............. -- -- 93,557 30,483 124,040
Advances from Federal Home Loan Bank. -- -- 39,500 -- 39,500
Repayments of advances from Federal
Home Loan Bank...................... -- -- (50,000) -- (50,000)
Net change in other borrowings....... -- 12,537 (653) (18,512) (6,628)
Other, net........................... (2,939) (73) 56 109 (2,847)
------- ------- -------- ------- --------
Net cash (used in) provided by
financing activities................. (2,939) 12,464 82,460 12,080 104,065
------- ------- -------- ------- --------
Net change in cash................... (11,047) (1,871) 24,986 9,283 21,351
Cash at beginning of period.......... 13,229 6,668 43,318 (12,618) 50,597
------- ------- -------- ------- --------
Cash at end of period................ 2,182 4,797 68,304 (3,335) 71,948
======= ======= ======== ======= ========
</TABLE>
12
<PAGE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997
<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............................. 20,129 (85,385) 255,209 37,780 $ 227,733
-------- -------- --------- -------- ---------
Cash flows from investing activities:
Net change in interest bearing
deposits............................. (5,128) (37) (80,234) 98 (85,301)
Net change in loans held
for investment....................... (80,643) (72) (2,532) 131,369 48,122
Proceeds from sale of SPFC stock...... 6,151 -- -- -- 6,151
Redemption of Federal Home Loan
Bank stock........................... -- -- 10,900 -- 10,900
Cash utilized for acquisitions........ (750) -- -- -- (750)
Net change in investment in
Subsidiaries......................... 45,652 -- -- (45,652) --
Other, net............................ 444 85,301 34,020 (83,913) 35,852
-------- -------- --------- -------- ---------
Net cash (used in) provided by
investing activities................... (34,274) 85,192 (37,846) 1,902 14,974
-------- -------- --------- -------- ---------
Cash flows from financing activities:
Net change in deposits................ -- -- 137,535 (45,362) 92,173
Advances from Federal Home
Loan Bank............................ -- -- 30,000 -- 30,000
Repayments of advances from
Federal Home Loan Bank............... -- -- (91,000) -- (91,000)
Net change in other borrowings........ (15,363) 3,245 (338,965) (38,367) (389,450)
Proceeds from offering of Senior
Notes................................ 194,500 -- -- -- 194,500
Repurchase of Senior Notes............ (73,241) -- -- -- (73,241)
Net change in minority interest....... (42,293) -- -- (8,989) (51,282)
Other, net............................ -- 750 (8,598) 8,287 439
-------- -------- --------- -------- ---------
Net cash provided by (used in)
financing activities................... 63,603 3,995 (271,028) (84,431) (287,861)
-------- -------- --------- -------- ---------
Net change in cash.................... 49,458 3,802 (53,665) (44,749) (45,154)
Cash at beginning of period........... 5,213 7,973 64,755 (3,694) 74,247
-------- -------- --------- -------- ---------
Cash at end of period................. $ 54,671 $ 11,775 $ 11,090 $(48,443) $ 29,093
======== ======== ========= ======== =========
</TABLE>
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 $2.2 billion as of March 31, 1998, is a diversified
commercial and consumer lending, financial services and investment holding
company, organized in 1986 with its headquarters located in Torrance,
California. Its principal business activities consist of the operation of six
significant wholly owned operating subsidiaries: Southern Pacific Bank ("SPB"),
Imperial Business Credit Inc. ("IBC"), Imperial Credit Advisors, Inc. ("ICAI"),
Auto Marketing Network Inc. ("AMN"), Imperial Credit Commercial Asset Management
Corporation ("ICCAMC") and Imperial Credit Worldwide, Ltd. ("ICW"), one
significant majority owned consolidated operating subsidiary, Imperial Capital
Group, LLC ("ICG") and significant equity investments in two publicly traded
companies, Southern Pacific Funding Corporation ("SPFC") NYSE Symbol: SFC and
Franchise Mortgage Acceptance Company ("FMC") NASDAQ Symbol: FMAX.
STRATEGIC FOCUS AND ACQUISITIONS
Historically, the Company's primary business was the origination and
sale of conforming residential mortgage loans. This business experienced
substantial growth due to high levels of mortgage loan refinancing activity in
1992 and 1993, as interest rates dropped to historically low levels. However, as
interest rates increased and refinancing activity declined in 1994, conforming
residential mortgage loan originations on an industry-wide basis decreased
dramatically and pricing became increasingly competitive. The Company recognized
that the sub-prime residential mortgage loan market provided greater
opportunities for mortgage loan origination growth. As a result, during 1995 and
1996, the Company directed additional capital and resources to its sub-prime
residential mortgage lending subsidiary, SPFC, and divested substantially all of
its conforming mortgage lending and servicing businesses. At the same time, the
Company entered or expanded its presence in higher margin commercial and
consumer lending markets.
13
<PAGE>
The Company now operates as a commercial and consumer finance company
providing loan and lease products in the following sectors: business finance
lending, commercial mortgage lending, and consumer lending. The Company also is
a provider of other financial services and investment products.
The Company's core business has remained consistent in that it
originates loans and leases funded primarily by warehouse lines of credit,
repurchase facilities, securitizations and whole loan sales in the secondary
market. The Company's business strategy emphasizes:
. Investing in and managing businesses in niche segments of the
financial services industry. The Company intends to retain a
significant equity investment in the companies to provide a
source of future earnings and cash flow for the Company.
. Conservative, disciplined underwriting and credit risk
management.
. Loan and lease originations, where possible, on a wholesale
basis.
. Securitization or sale in the secondary market of substantially
all of the Company's loans and leases, other than those held by
SPB for investment.
. Maintaining business and financial flexibility to take advantage
of changing market conditions with respect to specific financial
services businesses.
The Company diversified its loan and lease products by focusing on the
creation and acquisition of additional finance businesses in order to reduce its
dependency on residential mortgage lending. When acquiring new businesses or
targeting expansion opportunities, the Company seeks to retain existing
management and recruit additional experienced management to increase growth and
profitability and to reduce the risks associated with operating the newly
acquired entity.
BUSINESS FINANCE LENDING
Commercial Equipment Leasing
IBC's lease originations totaled $35.1 million for the three months
ended March 31, 1998 as compared to $30.1 million for the same period last year.
IBC securitized $35.5 million of leases during the three months ended March 31,
1998 as compared to $97.9 million for the same period last year. At March 31,
1998, IBC had total assets of $50.9 million. IBC's total revenues and net income
for the three months ended March 31, 1998 were $3.8 million and $480,000 as
compared to $8.9 million and $3.3 million for the same period last year,
respectively.
Asset Based Lending
At March 31, 1998, Coast Business Credit ("CBC") loan portfolio
represented lending relationships with approximately 154 customers, with an
average total loan per customer of $3.4 million. 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. At March 31, 1998 and
December 31, 1997, CBC had outstanding loans totaling $528.3 million and $484.8
million, of which $199.9 million and $201.8 million were outstanding to
technology companies, respectively. CBC had open unused commitments of $365.2
million at March 31, 1998. As of March 31, 1998, CBC had total loan commitments
of $893.5 million.
14
<PAGE>
Loan Participation and Investment Group ("LPIG")
At March 31, 1998, loan participations held by the LPIG division of SPB
ranged in size from approximately $3.0 million to approximately $24.0 million,
as compared to approximately $0.9 million to $9.4 million at March 31, 1997,
respectively. As of March 31, 1998, LPIG committed to fund approximately $574.1
million of senior secured loan participation commitments. Loans outstanding
under LPIG's participation commitments at March 31, 1998 totaled $257.7 million.
Auto Lend Group
Auto Lend had $66.9 million of commitments and $16.2 million of loans
outstanding at March 31, 1998. SPB believes that Auto Lend's products offer
synergistic opportunities, when offered in connection with SPB's sub-prime auto
lending ability, to provide car dealers a complete financing package. See
"Consumer Lending, Sub-prime Auto Lending."
COMMERCIAL MORTGAGE LENDING
Income Property Lending Division ("IPLD")
For the three months ended March 31, 1998 and 1997, the IPLD division of
SPB funded approximately $64.7 million and $75.9 million in loans, respectively.
CONSUMER LENDING
Sub-prime Auto Lending
SPB's Auto Lending Division originated $32.5 million and $16.3 million
in sub-prime auto loans during the three months ended March 31, 1998, and 1997,
respectively. The Company currently originates sub-prime auto loans through
three Northern California retail offices and is expanding its activities to
Central California and areas outside California.
AMN originated $2.6 million and $16.1 million in sub-prime auto loans
during the three months ended March 31, 1998, and 1997, respectively.
Home Improvement Loans and Other Consumer Credit
During the three months ended March 31, 1998 and 1997, SPB's Consumer
Credit Division originated $5.5 million and $4.0 million in loans, respectively.
PrinCap Mortgage Warehouse
In October 1997, the Company's wholly-owned subsidiary, 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 $6.8 million.
PrinCap's primary business is residential mortgage warehouse lending to medium-
sized brokers and mortgage bankers on a national basis. At March 31, 1998 and
December 31, 1997, PrinCap had commitments outstanding and loans of $140.6
million and $133.8 million, respectively.
15
<PAGE>
ADVISORY, INVESTMENT AND OTHER ACTIVITIES
The Company conducts advisory services through its ICAI, ICCAMC and ICG
subsidiaries and has substantial equity investments in SPFC, a publicly traded
sub-prime residential mortgage lender, FMC, a publicly traded specialty
commercial finance company, Imperial Credit Commercial Mortgage Investment
Corporation ("ICCMIC"), a publicly traded REIT engaged in commercial finance
activities, Impac Mortgage Holdings, Inc. ("IMH"), a publicly traded REIT
engaged in non conforming residential mortgage lending and ICW, a holding
company for international finance activities.
Imperial Credit Advisors, Inc.
ICAI provides capital markets, portfolio management and research
services to the Company's subsidiaries and affiliates. Prior to December 1997,
ICAI oversaw the day-to-day operations of IMH pursuant to a management
agreement. For the quarter ended March 31, 1997, ICAI earned $1.6 million in
management fees and incentive payments pursuant to the IMH management agreement
which was terminated in December 1997.
Imperial Credit Commercial Asset Management Corporation
ICCAMC was formed in the third quarter of 1997 and oversees the day-to-
day operations of ICCMIC pursuant to a management agreement. For the quarter
ended March 31, 1998, ICCAMC earned $1.2 million in management fees pursuant to
the management agreement.
Imperial Capital Group, LLC
ICG is a subsidiary which the Company controls through its 60% voting
and equity ownership interest. ICG was formed in July 1997. ICG, together with
its subsidiaries Imperial Capital, LLC and Imperial Asset Management, LLC, offer
individual and institutional investors financial products and services. Imperial
Capital, LLC, 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. Imperial Capital, LLC, 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. Imperial Asset Management, LLC, 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.
For the three months ended March 31, 1998, ICG earned $4.5 million in
investment banking fees compared to none for the same period last year.
Southern Pacific Funding Corporation
SPFC is a publicly traded sub-prime mortgage banking company which
originates, purchases and sells high yielding, single family sub-prime mortgage
loans. Substantially all of SPFC's loans are secured by first or second
mortgages on owner occupied single family residences. The majority of the
originated and purchased loans are made to borrowers who do not qualify for or
are unwilling to obtain financing from conventional mortgage sources. As of
March 31, 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 is accounted
for pursuant to the equity method of accounting.
Franchise Mortgage Acceptance Company
FMC 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
16
<PAGE>
concepts. More recently, FMC 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).
FMC 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. FMC also
periodically makes equity investments or receives contingent equity compensation
as part of its core lending and leasing business.
During the fourth quarter of 1997, FMC 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 FMC was reduced to 38.4% from 66.67%.
Consequently, commencing with the quarter ended December 31, 1997, the
financial statements of FMC are no longer consolidated with those of ICII.
ICII's investment in FMC 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.
Imperial Credit Commercial Mortgage Investment Corporation
In October 1997, the Company completed a public offering of the common
stock of ICCMIC. ICCMIC invests primarily in performing multifamily and
commercial loans and mortgage-backed securities. The Company owned 3,070,000
shares or 8.9% of the outstanding common stock of ICCMIC as of March 31, 1998.
Impac Mortgage Holdings, Inc.
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 is the origination unit of IMH. The Company owned 8.5%
of the outstanding common stock of IMH as of March 31, 1998.
Imperial Credit Worldwide, Ltd.
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.
SECURITIZATION TRANSACTIONS
During the three months ended March 31, 1998, the Company completed
lease securitizations totaling $35.5 million. The Company has retained interests
in loan and lease securitizations representing the excess of the total amount of
loans sold in the securitization over the amounts represented by interests in
the security sold to investors. The retained interests in the loan and lease
securitizations were $48.8 million and $43.1 million at March 31, 1998 and
December 31, 1997, respectively.
17
<PAGE>
FUNDING
Lines of Credit
Until 1995, apart from equity and debt offerings in the capital markets,
the Company's primary sources of financing were warehouse lines of credit at
ICII and deposits with SPB. Typically, ICII would borrow funds under its
warehouse lines in connection with its wholesale loan originations and
purchases, while SPB used its deposits and borrowings from the Federal Home Loan
Bank of San Francisco ("FHLB") to finance its lending activities. In connection
with its diversification strategy, the Company believes that lower cost
financing is available through credit lines, repurchase facilities, whole loan
sales and securitization programs established by IBC, SPB and AMN.
The Company continues to rely on FDIC insured deposits generated by SPB
and third party warehouse lines of credit and securitizations. At March 31,
1998, SPB had total deposits of approximately $1.3 billion (excluding deposits
of ICII maintained with SPB).
ICII and its subsidiaries had various revolving warehouse lines of
credit available at March 31, 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 $ 13,848 Libor plus 135 March 9, 1999
Core States (IBC)....................... 7.79 30,000 9,365 Libor plus 220 October 6, 1998
Morgan Stanley (SPB).................... 6.19 200,000 115,000 Libor plus 50 October 1, 1998
-------- --------
6.37 $330,000 $138,213
======== ========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Income before extraordinary item for the three months ended March 31,
1998 increased to $12.9 million or $0.32 diluted income per share compared to
$11.0 million or $0.27 diluted income per share for the same period last year.
Net income for the first quarter of 1998 was $12.9 million or $0.32 diluted net
income per share as compared to $7.0 million or $0.17 diluted net income per
share for the same period last year. Net income for the first quarter of 1997
includes an extraordinary item of $4.0 million or $0.10 per diluted share
representing a loss on the Company's early retirement of debt.
RETURN ON EQUITY
Return on equity ("ROE") based on the Company's core net income (defined
as net income excluding gain on sale of SPFC stock, gain on sale of servicing
rights, the restructuring provision for the Company's exit from the mortgage
banking business, and the extraordinary item, net of income taxes, relating to
the early retirement of debt), and excluding income taxes on the equity in net
income of SFC and FMC was 19.76% for the first quarter ended March 31, 1998, as
compared to ROE of 21.05% for the quarter ended March 31, 1997. The Company's
strong capital position provides it with excellent opportunities to reduce risk
and improve corporate performance and profitability in the future through
opportunistic acquisitions and future capital redeployment opportunities.
18
<PAGE>
DECONSOLIDATION OF FMC
During the fourth quarter of 1997, the Company reduced its ownership
percentage from 66.7% to 38.4% through an initial public offering of FMC common
stock. The income from FMC is accounted for by the equity method of accounting
beginning with the quarter ended December 31, 1997. For the three months ended
March 31, 1998, the equity in net income of FMC was $2.8 million.
As a result of the deconsolidation of FMC, 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
gain on sale of loans, net-interest income, other income and general and
administrative expenses for the Company as if FMC had been accounted for as an
equity investment for all periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUE:
Gain on sale of loans and leases................................................... $ 5,572 $ 8,276
------- -------
Interest income.................................................................... 53,640 45,870
Interest expense................................................................... 27,594 25,705
------- -------
Net interest income............................................................. 26,046 20,165
Provision for loan and lease losses................................................ 3,850 2,870
------- -------
Net interest income after provision for loan and lease losses...................... 22,196 17,295
------- -------
Other income:
Loan servicing income........................................................... 4,028 640
Equity in net income of Southern Pacific Funding Corporation.................... 5,974 6,253
Equity in net income (loss) of Franchise Mortgage Acceptance Company............ 2,769 (1,860)
Investment banking fees......................................................... 4,535 --
Management fees................................................................. 1,205 1,578
Gain on sale of Southern Pacific Funding Corporation stock...................... -- 4,306
Other income.................................................................... 2,150 676
------- -------
Total other income................................................................. 20,661 11,593
------- -------
Total revenue...................................................................... 48,429 37,164
------- -------
EXPENSES:
Personnel expense.................................................................. 16,255 8,073
Amortization of PMSR's and OMSR's.................................................. 341 19
Occupancy expense.................................................................. 1,546 791
Data processing expense............................................................ 495 420
Net (income) expenses of other real estate owned................................... (358) 757
General and administrative expense................................................. 9,334 7,014
------- -------
Total expenses............................................................... 27,613 17,074
------- -------
Income before income taxes, minority interest and extraordinary item............... 20,816 20,090
Income taxes....................................................................... 7,824 9,058
Minority interest in income of consolidated subsidiaries........................... 92 --
------- -------
Income before extraordinary item................................................... 12,900 11,032
Extraordinary item--Loss on early extinguishment of debt, net of income taxes...... -- (3,995)
------- -------
Net income................................................................... $12,900 $ 7,037
======= =======
</TABLE>
19
<PAGE>
REVENUES
General
The Company's consolidated net income for the three months ended March
31, 1998 was $12.9 million or $0.32 diluted income per share as compared to $7.0
million or $0.17 diluted income per share for the three months ended March 31,
1997. Basic consolidated income per share for the three months ended March 31,
1998 was $0.33 per share as compared to $0.18 per share for the same period last
year. Consolidated net income for the three months ended March 31, 1997,
includes an extraordinary loss on early extinguishment of debt of $4.0 million,
or $0.10 per common share, net of income tax. The increase in net income is
primarily attributable to an increase in net interest income, loan servicing
income, investment banking fees and equity in the earnings of FMC. These
positive factors were partially offset by an increase in total expenses and the
provision for loan and lease losses. Total revenues for the Company during the
first quarter ended March 31, 1998 were $48.4 million, an increase of $8.1
million or 20.2% from the $40.3 million reported for the same period in 1997.
Gain on Sale/Loan & Lease Securitization and Sales
Gain on sale of loans and leases decreased $3.1 million to $5.6 million
during the first quarter of 1998 from $8.7 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. During the quarter ended March 31, 1998, the Company
sold $96.6 million of commercial and multifamily loans to ICCMIC, and
securitized $35.5 million of leases originated by IBC, generating gains of $3.8
million and $1.6 million, respectively. During the quarter ended March 31, 1997,
the Company securitized $97.9 million of leases acquired by IBC, generating a
gain of $5.4 million. During the quarter ended March 31, 1997, the Company also
sold a retained equity interest from a franchise loan securitization completed
in 1996, which allowed the Company to record a gain of $3.2 million.
Total Interest Income
For the three months ended March 31, 1998, total interest income
increased to $53.6 million from $49.2 million for the three months ended March
31, 1997. The increase in total interest income is primarily attributable to an
increase in the average yield 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 decrease in the average balance of interest-earning assets compared to 1997
is primarily due to a decrease in the average balance of loans held for sale
offset by an increase in the average balance of loans held for investment. The
comparison of total interest income for the three months ended March 31, 1998
and 1997 is also impacted by the deconsolidation of FMC. Excluding FMC's
interest income for the three months ended March 31, 1997, total interest income
would have been $45.9 million compared to actual of $49.2 million.
Total Interest Expense
For the three months ended March 31, 1998, total interest expense
decreased to $27.6 million from $28.4 million for the three months ended March
31, 1997. The decrease in total interest expense is primarily attributable to a
decrease in the average balance of interest-bearing liabilities offset by an
increase in the average cost of interest-bearing liabilities. The decrease in
the average balance of interest-bearing liabilities relative to 1997 resulted
primarily from a decrease in the average balance of borrowings due to the
deconsolidation of FMC. This decrease was partially offset by an increase in
cost of interest bearing liabilities. The increase in the average cost of
interest-bearing liabilities is primarily attributable to the relatively higher
borrowing costs associated with the Company's Remarketed Par Securities issued
during 1997. The comparison of total interest expense for the three months ended
March 31, 1998 and 1997 is also impacted by the deconsolidation of FMC.
Excluding FMC's interest expense for the first three months of 1997, total
interest expense for the first quarter ended March 31, 1997 would have been
$25.7 million compared to actual of $28.4 million.
20
<PAGE>
Provision for Loan and Lease Losses
The provision for loan and lease losses increased to $3.9 million for
the three months ended March 31, 1998, as compared to $2.9 million for the same
period last year. The increase in the loan and lease loss provision for the
first quarter of 1998 was primarily the result of the continuing change in the
composition of the Company's investment loan portfolio to higher yielding loan
products. Nonaccrual loans and leases as of March 31, 1998 decreased to $67.9
million from $70.6 million at December 31, 1997 or 4.6% and 5.4% of gross loans
held for investment, respectively.
Loan Servicing Income
Loan servicing income for the three months ended March 31, 1998,
increased to $4.0 million as compared to $1.3 million for the same period last
year. Loan servicing income increased primarily due to a decrease in the level
of foreclosure and liquidation costs associated with the Company's former
residential mortgage loan servicing portfolio and due to an increase in the
average outstanding balance of loans and leases serviced for others at SPB, IBC
and AMN.
Equity in Net Income of SPFC
Equity in the net income of SPFC for the three months ended March 31,
1998 was $6.0 million as compared to $6.3 million for the same period last year,
and represents the Company's share of SPFC's net income based on the Company's
ownership percentage. At March 31, 1998 and December 31, 1997, the Company's
ownership percentage in SPFC was 47.0%, and accordingly, the Company accounted
for its investment in SPFC using the equity method.
Equity in Net Income of FMC
Equity in the net income of FMC for the three months ended March 31,
1998 was $2.8 million as compared to $0 for the same period last year, and
represents the Company's share of FMC's net income based on the Company's
ownership percentage. The increase in the equity in net income of FMC is due to
the difference in accounting methods used for the Company's investment in FMC at
March 31, 1998 and 1997. At March 31, 1998, the Company's ownership percentage
in FMC was 38.4%, and accordingly, the Company accounted for its investment in
FMC using the equity method. At March 31, 1997, the Company's ownership
percentage in FMC was 66.7%, and accordingly, FMC's operating results were
consolidated with those of the Company.
Investment Banking Fees
Investment banking fees were $4.5 million for the three months ended
March 31, 1998, compared to $0 for the same period 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. During the
first quarter of 1998, ICG raised money for corporate clients through private
placement debt and equity offerings generating investment banking fees of $4.5
million.
Gain on Sale of SPFC Stock
During the three months ended March 31, 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 gain of $4.3 million.
EXPENSES
Total expenses for the Company during the quarter ended March 31, 1998
were $27.6 million, an increase of $6.5 million from the $21.1 million reported
for the same period in 1997. The increase was primarily attributable to
personnel expense. Excluding total expenses for FMC from the first quarter of
1997, total expenses increased by $10.5 million for the quarter ending March 31,
1998, when compared to the same period last year. This increase also primarily
resulted from personnel expense.
21
<PAGE>
Personnel Expense
Personnel expense increased to $16.3 million for the three months ended
March 31, 1998 as compared to $10.7 million for the same period of the previous
year. This increase was primarily the result of growth and increased activities
at the Company's new business lines, including AMN, ICG, and ICCAMC .
Amortization of PMSR's and OMSR's
Amortization of PMSR's and OMSR's increased to $341,000 for the three
months ended March 31, 1998 as compared to $19,000 for the same period 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 $1.5 million for the three months ended
March 31, 1998 as compared to $907,000 for the same period of the previous year.
The increase is primarily attributable to the Company's acquisition and
expansion activities throughout 1997 and during the first quarter of 1998.
Net Income/Expenses of Other Real Estate Owned
During the first quarter of 1998, the Company generated income from OREO
operations of $358,000 as compared to expenses of $757,000 for the same period
last year. The decrease in expenses primarily resulted from a lower level of
losses and write downs related to the Company's former mortgage banking
operations.
Other Expenses
All other expenses (including data processing expense, professional
services, telephone and other communications, amortization of goodwill and
general and administrative expense) for the three months ended March 31, 1998
totaled $9.8 million compared to $8.8 million for the same period last year.
This increase reflects the Company's acquisition and expansion activities. The
comparison of other expenses for the first quarter 1998 and 1997 is also
impacted by the deconsolidation of FMC. Excluding FMC's other expenses for the
first quarter of 1997, total other expenses for the three months ended March 31,
1997 would have been $7.4 million compared to actual of $8.8 million.
Minority Interest in Income of Consolidated Subsidiaries
The Company's minority interest in income of consolidated subsidiaries
was $92,000 for the first quarter ended March 31, 1998 compared to $153,000 for
the same period last year. The first quarter 1998 minority interest in income of
consolidated subsidiaries is the result of the Company's 60% ownership in ICG.
The comparison of the Company's minority interest in income of consolidated
subsidiaries for the first quarter 1998 and 1997 is also impacted by the
deconsolidation of FMC. Excluding the Company's minority interest in income of
FMC for the three months ended March 31, 1997, total minority interest in income
of consolidated subsidiaries would have been $0 compared to actual of $153,000.
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.
22
<PAGE>
The Company engaged in the new issuance in order to obtain a more
favorable debt covenant package and to raise new capital to support its growing
businesses.
ASSET QUALITY
Loan Loss Provision and Nonaccrual Loans and Leases
As a result of the growth in the loan portfolio and the change in its
product mix, the Company continued to add to the allowance for loan and lease
losses. The provision for loan and lease losses increased $1.0 million to $3.9
million for the first quarter of 1998 from $2.9 million for the same period last
year. The increase in the loan and lease loss provision for the first quarter
of 1998 was primarily the result of the continuing change in the composition of
the Company's investment loan portfolio to higher yielding loan products.
Nonaccrual loans and leases as of March 31, 1998 decreased to $67.9 million from
$70.6 million at December 31, 1997 or 4.6% and 5.4% of gross loans held for
investment, respectively.
The balance of nonaccrual loans relating to the former mortgage banking
operations included $10.5 million and $6.9 million of loans for March 31, 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.
23
<PAGE>
The Company's activity in the allowance for loan and lease losses was as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
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............................ 3,850 2,870
Business acquisitions and bulk loan purchases.................. -- 4,864
Sale of Leases................................................. -- (2,000)
Deconsolidation of ICIFC....................................... -- (687)
---------- -------
41,897 25,046
---------- -------
LOANS CHARGED OFF:
Mortgage....................................................... (1,136) (591)
Multifamily.................................................... -- (161)
Commercial..................................................... (3) (36)
Leases......................................................... (443) (677)
Consumer....................................................... (6,008) (557)
---------- -------
Total.......................................................... (7,590) (2,022)
---------- -------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF:
Mortgage....................................................... 88 61
Multifamily.................................................... 142 --
Leases......................................................... 477 175
Consumer....................................................... 106 50
---------- -------
Total.......................................................... 813 286
---------- -------
Net charge-offs................................................ (6,777) (1,736)
---------- -------
ENDING BALANCE AS OF MARCH 31, 1998 AND 1997................... $ 35,120 $23,310
========== =======
</TABLE>
Loans held for investment consisted of the following at March 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single Family 1-4............................... $ 213,411 $ 244,588
Multi-Family.................................... 38,556 17,261
Commercial...................................... 5,639 1,085
---------- ----------
257,606 262,934
Leases.......................................... 6,952 7,745
Installment loans............................... 195,591 154,919
Franchise loans................................. 73,453 62,219
Asset based loans............................... 528,259 484,832
Commercial...................................... 405,903 344,882
---------- ----------
Total................................... 1,467,764 1,317,531
Unearned income................................. (17,047) (7,850)
Deferred loan fees.............................. (10,677) (4,916)
---------- ----------
Total................................... 1,440,040 1,304,765
Allowance for loan losses....................... (35,120) (38,047)
---------- ----------
Total................................... $1,404,920 $1,266,718
========== ==========
</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. As a result, the loan portfolio has a high concentration in
the same geographic region. Although the Company has a diversified portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the economy of California.
24
<PAGE>
The following table sets forth the amount of non performing assets
attributable to the Company's former mortgage banking operations and to all of
its other lending activities.
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT DECEMBER 31, 1997
----------------- --------------------
FORMER FORMER
------ ------
ALL OTHER MORTGAGE ALL OTHER MORTGAGE
--------- -------- --------
LENDING BANKING LENDING BANKING
------- ------- -------
ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans:
One to four family............. $ 17,300 $10,537 $ 27,573 $ 6,874
Commercial property............ 9,904 -- 5,058 --
Multi-family property.......... 2,411 -- 1,837 --
Leases and installment......... 27,752 -- 29,289 --
---------- ------- ---------- -------
Total nonaccrual loans................. 57,367 10,537 63,757 6,874
---------- ------- ---------- -------
OREO:
One to four family............. 8,042 1,745 2,552 5,774
Commercial property............ -- -- 2,526 --
Multi-family property.......... -- -- 53 --
---------- ------- ---------- -------
Total OREO............................. 8,042 1,745 5,131 5,774
---------- ------- ---------- -------
Loans with modified terms:
One to four family............. -- -- -- --
Commercial property............ -- -- -- --
Multi-family property.......... -- -- -- --
---------- ------- ---------- -------
Total loans with modified terms........ -- -- -- --
---------- ------- ---------- -------
Repossessed property:
Equipment held for sale........ 2,477 -- 4,437 --
Repossessed vehicles........... 2,522 -- 4,563 --
---------- ------- ---------- -------
Total repossessed property............. 4,999 -- 9,000 --
---------- ------- ---------- -------
Total NPAs............................. $ 70,408 $12,282 $ 77,888 $12,648
========== ======= ========== =======
Total loans and OREO................... $1,599,998 $28,877 $1,475,920 $24,087
Total NPA's as a percentage of loans
and OREO.............................. 4.40% 42.53% 5.27% 52.51%
</TABLE>
There are no loans over 90 days past due accruing interest at
March 31, 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 uncollectible are charged to the
allowance for loan and lease losses. Recoveries on loans previously charged off
are credited to the allowance. Provisions for loan and lease losses are charged
to expense and credited to the allowance in amounts deemed appropriate by
management based upon its evaluation of the known and inherent risks in the loan
portfolio. Future additions to the allowance for loan and lease losses may be
necessary.
25
<PAGE>
INFLATION
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with Generally Accepted Accounting Principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Inflation
affects the Company primarily through its effect on interest rates, since
interest rates normally increase during periods of high inflation and decrease
during periods of low inflation. During periods of increasing interest rates,
demand for loans and a borrower's ability to qualify for mortgage financing in a
purchase transaction may be adversely affected. During periods of decreasing
interest rates borrowers are more likely to refinance their existing loans which
may negatively impact the Company's investments in securitization related assets
and interest-only securities.
REGULATORY MATTERS
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 March 31,
1998.
<TABLE>
<CAPTION>
MINIMUM WELL CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
------ ----------- -----------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT FOR RATIO DATA)
California Leverage Limitation................. $165,089 12.86% $ 64,170 5.00% $ -- --%
Risk-based Capital............................. 201,454 11.22% 143,647 8.00% 179,559 10.00%
Risk-based Tier 1 Capital...................... 144,605 8.05% 71,823 4.00% 107,735 6.00%
FDIC Leverage Ratio............................ 144,605 8.79% 65,809 4.00% 82,261 5.00%
</TABLE>
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements result from the need for
the Company to fund mortgage loans originated or acquired for purposes of sale
or investment. In addition, the Company, as a loan servicer, requires funding to
make advances of delinquent principal and interest payments and escrow balances,
and as basic working capital.
SPB obtains the necessary liquidity to fund its own lending activities
through deposits and, if necessary through borrowings from the FHLB. At March
31, 1998 and December 31, 1997, SPB had available lines of credit from the FHLB
equal to $34.9 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 $348.8 million and $228.5 million at March 31, 1998 and
December 31, 1997, respectively. The highest FHLB advance outstanding during the
quarter ending March 31, 1998 was $45.0 million, with an average outstanding
balance of $38.7 million. The outstanding balance of FHLB advances was $34.5
million at March 31, 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 mostly of
certificate accounts increased to $1.3 billion as of March 31, 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. SPB 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.
The Company has an ongoing need for capital to finance its lending
activities. This need is expected to increase as the volume of the Company's
loan and lease originations and acquisitions increases. The Company's primary
cash requirements include the funding of (i) loan and lease originations and
acquisitions pending their pooling and sale, (ii) points and expenses paid in
connection with the acquisition of wholesale loans, (iii) fees and expenses
incurred in connection with its securitization programs, (iv)
overcollateralization or reserve account requirements in connection with loans
and leases pooled and sold, (v) ongoing administrative and other operating
expenses, (vi) interest and principal payments under ICII's $220 million
principal amount of Senior Notes due 2004 and 2007 (the "Notes") and $70.0
million of Remarketed Par Securities and (vii) the costs of the Company's
warehouse credit and repurchase facilities with certain financial institutions.
The Company has financed its activities through repurchase facilities, warehouse
lines of credit from financial institutions, including SPB, public offerings of
capital stock of ICII, SPFC and FMC, the issuance of the Notes, the issuance of
convertible securities, and securitizations. The Company believes that such
sources will be sufficient to fund the Company's liquidity requirements for the
foreseeable future. Any future financing may involve the issuance of additional
Common Stock or other securities, including securities convertible into or
exercisable for Common Stock.
The Company currently pools and sells through securitization a
substantial portion of the loans or leases which it originates or purchases,
other than loans held by SPB for investment. Accordingly, adverse changes in the
securitization market could impair the Company's ability to originate, purchase
and sell loans or leases on a favorable or timely basis. Any such impairment
could have a material adverse effect upon the Company's business and results of
operations. In addition, the securitization market for many types of assets is
relatively undeveloped and may be more susceptible to market fluctuations or
other adverse changes than more developed capital markets. Finally, any delay in
the sale of a loan or lease pool could cause the Company's earnings to fluctuate
from quarter to quarter.
In a securitization, the Company recognizes a gain on sale of the loans
or leases securitized upon the closing of the securitization, but does not
receive all of the cash representing such gain until it receives the excess
servicing fees, which are payable over the actual life of the loans or leases
securitized. As a result, such transactions may not generate cash flows to the
Company for an extended period.
In addition, in order to gain access to the secondary market for loans
and leases, the Company has relied on monoline insurance companies to provide
guarantees on outstanding senior interests in the trusts to which such loans and
leases are sold to enable it to obtain an "AAA/Aaa" rating for such interests.
27
<PAGE>
Any unwillingness of the monoline insurance companies to guarantee the
senior interests in the Company's loan or lease pools could have a material
adverse effect on the Company's financial position and results of operations.
The Company is dependent upon its ability to access warehouse credit and
repurchase facilities, in addition to its ability to continue to pool and sell
loans and leases in the secondary market, in order to fund new originations and
purchases. The Company has warehouse lines of credit and repurchase facilities
under which it had available an aggregate of approximately $191.8 million in
financing at March 31, 1998. The Company expects to be able to maintain existing
warehouse lines of credit and repurchase facilities (or to obtain replacement or
additional financing) as current arrangements expire or become fully utilized;
however, there can be no assurance that such financing will be obtainable on
favorable terms. To the extent that the Company is unable to arrange new
warehouse lines of credit and repurchase facilities, the Company may have to
curtail its loan origination and purchasing activities, which could have a
material adverse effect on the Company's operations and financial position.
The Company believes that SPB, together with liquidity available at ICII
and its subsidiaries, will adequately fund the Company's lending activities.
Under applicable regulations, dividends and loans from SPB to ICII and its other
subsidiaries are subject to various limitations. The combination of cash from
operations, loans sales and securitizations, the net proceeds received by the
Company from its Senior Note offerings and its Remarketed Par Securities have
allowed the Company to meet its required liquidity needs. These available
sources, in addition to the proceeds received from the Company's secondary stock
offering in April, 1996 and the completion of the Company's offering of SPFC
stock in June, 1996 and FMC stock in November, 1997 have allowed the Company to
meet its capital resource needs for at least the next 12 months.
28
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBIT
IMPERIAL CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF EARNING PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Income before extraordinary items $12,900 $11,032
------- -------
Extraordinary item -- Early extinguishment of debt,
net of income taxes -- (3,995)
------- -------
Net income $12,900 $ 7,037
======= =======
Weighted -average common shares outstanding during
the year used to compute basic income per share 38,745 38,418
Assumed common shares issued on exercise of stock options 2,037 2,467
------- -------
Number of common shares used to compute diluted income per share 40,782 40,885
======= =======
BASIC EARNINGS PER SHARE:
- -------------------------
Income before extraordinary item $ 0.33 $ 0.29
------- -------
Extraordinary item -- Loss on early extinguishment of debt,
net of income taxes -- (0.11)
------- -------
Net income per common share $ 0.33 $ 0.18
======= =======
DILUTED EARNINGS PER SHARE:
- ---------------------------
Income before extraordinary item $ 0.32 $ 0.27
------- -------
Extraordinary item -- Loss on early extinguishment of debt,
net of income taxes -- (0.10)
------- -------
Net Income $ 0.32 $ 0.17
======= =======
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPERIAL CREDIT INDUSTRIES, INC.
Date: May 15, 1998 By: /s/ Kevin Villani
-----------------
Kevin Villani
Executive Vice President and CFO
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<CASH> 71,948 29,093 34,946
<INT-BEARING-DEPOSITS> 118,249 88,670 6,703
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 40,498 23,734 0
<INVESTMENTS-HELD-FOR-SALE> 119,718 24,180 5,963
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 1,586,365 1,736,779 1,720,117
<ALLOWANCE> 35,120 23,310 13,336
<TOTAL-ASSETS> 2,195,502 2,096,241 1,944,414
<DEPOSITS> 1,280,062 1,161,357 1,023,906
<SHORT-TERM> 172,713 384,402 650,032
<LIABILITIES-OTHER> 118,928 83,059 79,418
<LONG-TERM> 289,824 219,782 88,129
0 0 0
0 0 0
<COMMON> 144,170 146,767 78,110
<OTHER-SE> 187,798 96,014 21,609
<TOTAL-LIABILITIES-AND-EQUITY> 2,195,502 2,096,241 1,944,414
<INTEREST-LOAN> 45,536 42,930 45,194
<INTEREST-INVEST> 4,972 5,625 2,185
<INTEREST-OTHER> 3,132 657 2,141
<INTEREST-TOTAL> 53,640 49,212 49,520
<INTEREST-DEPOSIT> 18,287 17,002 15,078
<INTEREST-EXPENSE> 27,594 28,404 36,783
<INTEREST-INCOME-NET> 26,046 20,808 12,737
<LOAN-LOSSES> 3,850 2,870 1,500
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 27,613 21,287 28,708
<INCOME-PRETAX> 20,816 19,161 17,057
<INCOME-PRE-EXTRAORDINARY> 12,900 11,032 8,616
<EXTRAORDINARY> 0 (3,995) 0
<CHANGES> 0 0 0
<NET-INCOME> 12,900 7,037 8,616
<EPS-PRIMARY> .33 .18 .27
<EPS-DILUTED> .32 .17 .24
<YIELD-ACTUAL> 0 4.28 3.68
<LOANS-NON> 67,904 51,617 37,181
<LOANS-PAST> 0 0 0
<LOANS-TROUBLED> 0 800 1,323
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 38,047 19,999 13,729
<CHARGE-OFFS> 7,590 2,022 1,921
<RECOVERIES> 813 286 28
<ALLOWANCE-CLOSE> 35,120 23,310 13,336
<ALLOWANCE-DOMESTIC> 35,120 23,310 13,336
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0<F1>
<FN>
<F1>*Restate March 31, 1997 and 1996 Financial Data Schedule per FAS 128.
</FN>
</TABLE>
