0000898430-95-001597.txt : 19950815 0000898430-95-001597.hdr.sgml : 19950815 ACCESSION NUMBER: 0000898430-95-001597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL BANCORP CENTRAL INDEX KEY: 0000049899 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 952575576 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08196 FILM NUMBER: 95563569 BUSINESS ADDRESS: STREET 1: 9920 S LA CIENEGA BLVD CITY: INGLEWOOD STATE: CA ZIP: 90301 BUSINESS PHONE: 3104175600 MAIL ADDRESS: STREET 2: PO BOX 92991 CITY: LOS ANGELES STATE: CA ZIP: 90009 10-Q 1 SECOND QUARTER REPORT -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1995 IMPERIAL BANCORP (Exact name of registrant as specified in its charter) California 95-2575576 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 9920 South La Cienega Boulevard Inglewood, California 90301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 417-5600 Commission file number: 0-7722 Securities registered pursuant to Section 12(g) of the Act: Common Stock: Number of Shares of Common Stock outstanding as of June 30, 1995: 13,645,806 shares. Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due 1999. As of June 30, 1995, $5,873,000 in principal amount of such Notes and $2,210,000 in principal amount of such Debentures were outstanding. The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- IMPERIAL BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS THREE AND SIX MONTHS ENDED JUNE 30, 1995 Financial Review The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes in trends related to the financial condition of Imperial Bancorp (the "Company") and its results of operations for three and six months ended June 30, 1995. PERFORMANCE SUMMARY Net income for the quarter ended June 30, 1995 amounted to $4,648,000 or $0.33 per share, as compared to $1,209,000 or $0.09 per share for the same quarter of 1994. Net income for the first six months of 1995 amounted to $9,304,000 or $0.66 per share, as compared to $2,334,000 or $0.17 per share for the same period of 1994. Earnings as measured by return on average total assets was 0.82% and 0.83%, respectively, for the three and six months ended June 30, 1995, as compared to 0.22% and 0.20%, respectively, for the three and six months ended June 30, 1994. Return on average stockholders equity was 9.02% and 9.14%, respectively, for the second quarter and first six months of 1995, a significant increase from the 2.55% and 2.48% returned on average stockholders equity for the same periods of 1994. The increase in net income was attributable to several factors: overall improvement in asset quality; 14% growth in the loan portfolio from the prior year; continued growth in the Company's fee based activities; and the Company's efforts to reduce operating costs. At June 30, 1995, the Company's total assets were $2.6 billion, total loans were $1.5 billion and stockholders' equity and allowance for loan losses totaled $248 million. This compares to total assets of $2.4 billion, total loans of $1.4 billion and stockholders' equity and allowance for loan losses of $238 million at December 31, 1994. Asset quality improvement was evidenced by a $8.9 million reduction in nonaccrual loans from June 30, 1994 as well as a $17.0 million reduction in real estate owned ("REO") from June 30, 1994. Nonaccrual loans of $14.5 million at June 30, 1995 decreased $3.7 million from year end 1994 while REO of $22.9 million at June 30, 1995 decreased $6.1 million from year end 1994. These improvements in asset quality have resulted in a reduced provision for loan losses and costs for REO. For the quarter and six months ended June 30, 1995, the provision for loan losses totaled $3.2 million and $4.6 million, respectively, decreases of $1.9 million and $2.7 million, respectively, from the same periods of 1994. REO expenses totaled $1.2 million for the second quarter of 1995 and $2.3 million for the first half of 1995. These expenses decreased $0.6 million and $0.8 million, respectively, from the quarter and six months ended June 30, 1994. Net interest income and net interest margin were $28.0 million and 5.6%, respectively, for the quarter ended June 30, 1995 as compared to $24.7 million and 5.3%, respectively, for the quarter ended June 30, 1994. For the six months ended June 30, 1995, net interest income and net interest margin were $53.0 million and 5.5%. This compares to net interest income and net interest margin of $49.3 million and 5.1% for the first half of 1994. Noninterest income for the second quarter and first six months of 1995 totaled $9.4 million and $17.7 million, respectively, increasing $1.1 million and $1.6 million, respectively, from the same periods in the prior year. Operating expenses amounted to $26.8 million and $53.2 million for the three and six months ended June 30, 1995. This compares to $26.0 million and $54.6 million reported for the same periods of 1994. Excluding a $1.7 million lawsuit settlement collected in the second quarter of 1994, noninterest expenses decreased $0.8 million and $2.9 million, respectively, from the same periods of 1994. These reductions reflects the Company's ongoing efforts to reduce operating costs. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 2 -------------------------------------------------------------------------------- EARNINGS PERFORMANCE Net Interest Income: The Company's operating results depend primarily on net interest income. A primary factor affecting the level of net interest income is the Company's interest rate margin between the yield earned on interest-earning assets and interest-bearing liabilities as well as the difference between the relative amounts of average interest-earning assets and average interest-bearing liabilities. Net interest income was $28.0 million for the quarter ended June 30, 1995 as compared to $24.7 million for the quarter ended June 30, 1994. For the six months ended June 30, 1995, net interest income was $53.0 million as compared to $49.3 million for the same period of 1994.
-------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, (In Thousands) 1995 1994 1995 1994 -------------------------------------------------------------------------------------- Interest income................ $43,660 $33,395 $82,260 $66,150 Interest expense............... 15,692 8,675 29,228 16,860 -------------------------------------------------------------------------------------- Net interest income $27,968 $24,720 $53,032 $49,290 -------------------------------------------------------------------------------------- Net interest margin 5.6% 5.3% 5.5% 5.1% --------------------------------------------------------------------------------------
The Company's net interest margin increased to 5.6% and 5.5%, respectively, for the first quarter and six months of 1995 from 5.3% and 5.1%, respectively, for the same periods of 1994. The increased spread resulted primarily from an increase in the Company's base lending rate which rose an average of 112 basis points since the quarter ended June 30, 1994. In addition to the increase in interest rates, the Company's average loan portfolio for the quarter ended June 30, 1995 grew $150 million, or 11% from the same quarter of 1994. For the six months ended June 30, 1995, the average loan portfolio increased approximately $80 million, or 6% from the first half of 1994. As illustrated by Tables 1 and 2 (see pages 15 and 16), the growth in the Company's loan portfolio significantly impacted net interest income for both the quarter and six months ended June 30, 1995. Concurrently, the Company's borrowing rates have increased, as has its volume of interest-bearing liabilities, although not as rapidly as its lending rates, resulting in part from the Company's efforts to competitively market its certificates of deposit ("CD"). Average demand deposit levels for the quarter and six months ended June 30, 1995 declined approximately $121 million and $206 million, respectively, from the same periods in the prior year. As a result, the Company returned to the CD market to supplement its funding base. This is evidenced by the growth in average time deposits which increased $221 million and $160 million for the quarter and six months ended June 30, 1995, as compared to the same period of 1994. The net effect of the Company's investment in derivative financial instruments was a $2.9 million and $5.9 million reduction, respectively, in net interest income for the quarter and six months ended June 30, 1995, resulting in a 58 basis point reduction in net interest margin for the quarter ended June 30, 1995 and a 60 basis point reduction in net interest margin for the first half of 1995 (see Asset/Liability Management). The impact of these instruments for the quarter and six months ended June 30, 1994 was 16 and 5 basis point reductions in net interest margin. In conformity with banking industry practice, payments for accounting, courier and other deposit related services provided to the Company's real estate related customers are recorded as noninterest expense. If these deposits were treated as interest-bearing and the payments reclassified as interest expense, the Company's reported net interest income and noninterest expense would have been reduced by $4.0 million and $3.7 million, respectively, for the six months ended June 30, 1995 and 1994. The net interest margin for each period would have been 5.0% and 4.7%, respectively. Provision for Loan Losses: The provision for loan losses totaled $3.2 million and $4.6 million, respectively, for the quarter and six months ended June 30, 1995 as compared to $5.1 million and $7.2 million, respectively, for the same periods of 1994. Net charge-offs amounted to $6.1 million and $9.7 million, respectively, for the six months ended June 30, 1995 and 1994. As a percentage of average loans outstanding, net charge-offs were 0.84% and 1.39%, respectively, for the six months ended June 30, 1995 and 1994. The provision for loan losses reflects management's ongoing evaluation of the risk inherent in the loan portfolio, which includes consideration of numerous factors, such as economic conditions, relative risks in the loan portfolio, loan loss experience and review and monitoring of individual loans for identification and resolution of potential problems. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 3 -------------------------------------------------------------------------------- Noninterest Income: Noninterest income amounted to $9.4 million and $17.7 million for the second quarter and first half of 1995 as compared to $8.3 million and $16.1 million recorded for the same periods of 1994.
-------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, (In Thousands) 1995 1994 1995 1994 -------------------------------------------------------------------------------------- Service charges on deposit accounts...................... $ 1,056 $ 1,244 $ 2,058 $ 2,579 Trust fees..................... 1,892 1,649 3,807 3,292 Gain on origination and sale of loans................. 429 1,190 960 2,087 Equity in net earnings of Imperial Credit Industries, Inc............... 1,123 280 1,057 471 Other service charges and fees.......................... 1,851 1,556 3,363 3,043 Merchant and credit card fees.......................... 1,575 1,570 3,014 2,931 Gain (loss) on securities available for sale............ (76) (313) 267 (264) Gain on trading account securities.................... 1,101 236 1,808 446 Gain on sale of real property held for sale or investment............ -- 507 -- 507 Other income................... 424 393 1,399 1,043 -------------------------------------------------------------------------------------- Total $ 9,375 $ 8,312 $17,733 $16,135 --------------------------------------------------------------------------------------
The Company engages in trading various instruments including the guaranteed portion of government guaranteed loans, precious metals and foreign currencies. Combined, these trading activities resulted in a $0.9 million increase in trading income for the second quarter of 1995 from the same quarter of 1994. Trading income for the first half of 1995 was up $1.4 million from the same period of 1994. Trust fees grew $0.2 million, or 15%, in the second quarter of 1995 over the same period of last year while increasing $0.5 million, or 16%, year to year. These increases result from the Company's trust subsidiary's strategies to retain higher margin business relationships. Gain on origination and sale of loans for the period ended June 30, 1995 represents earnings on Small Business Administration ("SBA") lending activities. The decline in earnings from the prior year is related to the dissolution of the Company's mortgage banking division in the fourth quarter of 1994. Excluding mortgage banking activity from prior year earnings, gain on origination and sale of SBA loans for the six months ended June 30, 1995 has increased $0.2 million, or 17% from the same period of 1994. Service charges on deposit accounts for the quarter and six months ended June 30, 1995 have declined $0.2 million and $0.5 million, respectively, from the same periods in the prior year due to the decrease in demand deposits. Included in the equity pickup from Imperial Credit Industries, Inc. (NASDAQ-NMS-ICII) for the three and six months ended June 30, 1995 was an adjustment to the income recognized for the first quarter of 1995. On July 24, 1995, ICII revised its previously reported earnings for the quarter ended March 31, 1995 as a result of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"). The adjustment related to the implementation of FAS 122 was not material. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 4 -------------------------------------------------------------------------------- Noninterest Expense: Noninterest expense totaled $26.9 million and $53.2 million for the quarter and six months ended June 30, 1995 as compared to $26.0 million and $54.6 million for the same periods in the prior year.
-------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, (In Thousands) 1995 1994 1995 1994 -------------------------------------------------------------------------------------- Salary and employee benefits..... $11,532 $10,936 $23,121 $22,919 Net occupancy expense............ 2,203 2,372 4,312 4,735 Furniture and equipment.......... 1,265 1,382 2,503 2,629 Data processing.................. 1,937 2,636 4,019 4,798 Customer services................ 1,960 1,511 4,001 3,726 Net real estate owned expense.... 1,214 1,850 2,328 3,171 Regulatory assessments........... 1,242 1,556 2,512 3,197 Professional and consulting...... 1,093 1,168 1,912 2,272 Business development............. 799 833 1,614 1,620 Lawsuit settlement............... 143 (1,734) 193 (1,734) Other expense.................... 3,491 3,442 6,705 7,083 -------------------------------------------------------------------------------------- Total $26,879 $25,952 $53,220 $54,416 --------------------------------------------------------------------------------------
Exclusive of the lawsuit settlement recorded in the prior year which netted the Company $1.7 million, noninterest expense for the quarter and six months ended June 30, 1995 decreased $0.8 million and $2.9 million, respectively. As evidenced by the above table, the decrease in noninterest expense was primarily due to a reduction in the Company's operating expenses, including deposit insurance premiums, which declined $0.7 million for the six months ended June 30, 1995 from the same period of 1994. The Company's data processing costs for the quarter ended June 30, 1995 dropped $0.7 million compared to the prior year as a result of the major conversion of the Company's data processing systems which took place in 1994. For the second quarter of 1995 to second quarter 1994, operating costs were down $0.8 million. The Company's cost to carry REO during the first half of 1995 has decreased $0.8 million from the prior year as a result of the lower REO balances experienced during the first half of 1995. Income Taxes: The Company recorded income tax expense of $3.7 million for the six months ended June 30, 1995 representing an effective tax rate of approximately 28%. For the same period of 1994, the Company's effective tax rate approximated 38%. During the first quarter of 1995, the Company recorded a $0.9 million reduction of tax expense to reflect the finalization of prior years income tax issues. Excluding this one time reduction of income tax expense, the Company's effective tax rate would have been 35% for the first half of 1995. At June 30, 1995, the Company had a net deferred tax receivable of $6.2 million, net of a $1.5 million valuation allowance as compared to a $7.1 million net deferred tax receivable, net of a $2.3 million valuation allowance at December 31, 1994. The Company's net deferred tax receivable is supported by carryback and carryforward provisions of the tax laws as well as the Company's projection of taxable income for 1995. The $0.8 million net change in the valuation allowance for deferred tax assets from year end 1994 primarily results from actual taxable income experienced to date which currently exceeds the Company's projection of taxable income for 1995. ASSET/LIABILITY MANAGEMENT Liquidity: For the Company, as with most commercial banking institutions, liquidity is the ability to roll over substantial amounts of maturing liabilities and to acquire new liabilities at levels consistent with management's financial targets. The key to this on- going replacement activity is the Company's reputation in the domestic money markets, which is based upon its financial condition and its capital base. The overall liquidity position of the Company has been enhanced by a sizable base of demand deposits resulting from the Company's long standing relationships with the real estate services industry which have provided a relatively stable and low cost funding base. Demand deposits averaged $789 million and $780 million, respectively, for the quarter and six months ended June 30, 1995 as compared to $910 million and $987 million for the same periods of 1994. The Company's average demand deposits -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 5 -------------------------------------------------------------------------------- and average shareholders equity funded 43.7% and 44.1%, respectively, of average total assets for the second quarter and first six months of 1995 as compared to 49.7% and 51.0% respectively, for the same periods of 1994. These funding sources are augmented by payments of principal and interest on loans and the routine liquidation of securities from the trading and available for sale portfolios and Federal funds sold and securities purchased under resale agreements. During the first six months of 1995, the Company experienced a net cash outflow from its investing activities of $190.3 million primarily from the growth in the Company's loan portfolio. The outflows were offset by the $232.7 million net cash provided by the Company's financing activities consisting mainly of deposit inflows, primarily certificates of deposit. These deposit inflows were partially offset by the repayment of short-term borrowings. Interest Rate Sensitivity Management: The primary objectives of the asset liability management process are to provide a stable net interest margin, generate net interest income to meet the Company's earnings objectives, and manage balance sheet risks. These risks include liquidity risk, capital adequacy and overall interest rate risk inherent in the Company's balance sheet. In order to manage its interest rate sensitivity, the Company has adopted policies which attempt to limit the change in pre-tax net interest income assuming various interest rate scenarios. This is accomplished by adjusting the repricing characteristics of the Company's assets and liabilities as interest rates change. The Company's Asset Liability Committee chooses strategies in conformance with its policies to achieve an appropriate trade off between interest rate sensitivity and the volatility of pre- tax net interest income and net interest margin. Each month the Company assesses its overall exposure to potential changes in interest rates and the impact such changes may have on pre- tax interest income and net interest margin by simulating various interest rate scenarios over future time periods. Through the use of these simulations, the Company can approximate the impact of these projected rate changes on its entire on and off-balance sheet position or any particular segment of the balance sheet. Cumulative interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities maturing or repricing, whichever is earlier, at a given point in time. At June 30, 1995, the Company maintained a positive cumulative one year gap of approximately $603 million as its interest rate sensitive assets exceeded its interest rate sensitive liabilities. This positive cumulative gap positions the Company for increased net interest income during a period of rising interest rates but also exposes it to an adverse impact on net interest income in a falling rate environment. The Company's asset sensitivity, as measured by its cumulative positive one year gap, increased from year end 1994 as it is no longer impacted by its derivative instruments. The Company's net interest margin is very sensitive to sudden changes in interest rates. In addition, the Company's interest-earning assets, primarily its loans. are tied to the Prime rate, an index that tends to react more slowly to changes in market rates than other money market indices such as LIBOR (London Interbank Offered Rate). The rates paid for the Company's interest-bearing liabilities, however, do correlate with LIBOR. This mismatch creates a spread relationship risk between the Company's Prime based assets and LIBOR correlated liabilities. An analysis of the historic relationship between the Prime rate and LIBOR showed that the spread between the indices narrows in an environment of rising interest rates and widens in a falling rate environment. In order to provide protection against a narrowing of the Prime rate and LIBOR spread and reduce asset sensitivity in the event of falling interest rates, the Company entered into a series of derivative financial contracts in 1993 and 1994 to establish a balance sheet position which would provide some protection against a decrease in interest rates while providing an increasing rate asset whose characteristics would meet the objectives of the Company's asset liability policy. The purpose of the instruments was to synthetically alter the sensitivity of a portion of the Company's Prime based loan portfolio, while retaining some positive asset sensitivity in the event of an increase in interest rates. At June 30, 1995, the Company's derivative financial contracts consisted of several types of instruments including interest rate swaps with embedded options and associated written options, purchased options and interest rate floors. The interest rate swaps with embedded options had a notional value of $200 million at June 30, 1995 and mature in the first quarter of 1996. The embedded options with increasing strike prices of 25 basis points per quarter cap the rate received on the interest rate swaps. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 6 -------------------------------------------------------------------------------- The embedded options were intended to provide a limited degree of protection against a narrowing of the net interest margin in the event of a decrease in short-term interest rates while providing an increasing rate asset to retain asset sensitivity. The interest rate swaps with linked written options had a notional value of $300 million at June 30, 1995 and mature in the fourth quarter of 1995 and first quarter of 1996. The associated options had a notional value of $400 million at June 30, 1995 including $268 million of financial futures contracts. These linked options, in the same manner as the embedded options, were intended to cap the rate received on the interest rate swaps at escalating strike prices built into the options. The packaged options and futures contracts are stacked with $300 million expiring during the third quarter and the final $100 million in the fourth quarter of 1995. As interest rates continued to rise more quickly than anticipated in 1994 and other market related events caused a deterioration in the values of derivative instruments, the strike price of the escalating options written was exceeded by LIBOR. To prevent further negative impact on interest income from the interest rate swaps with both embedded and linked options, the Company purchased options during the second half of 1994 with terms similar to the linked options written and embedded options thus effectively capping the Company's exposure to further losses. The notional value of the options purchased was $800 million at June 30, 1995. The combined economic impact of the Company's derivative financial instruments discussed above was a $2.9 million and $5.9 million reduction, respectively, in net interest income for the quarter and six months ended June 30, 1995 resulting in a 58 basis point reduction in net interest margin for the quarter ended June 30, 1995 and a 60 basis point reduction in net interest margin for the first half of 1995. The impact of these instruments for the quarter and six months ended June 30, 1994 was 16 and 5 basis point reductions in net interest margin. The total cost to terminate the Company's derivative financial positions as of June 30, 1995 would have been $ 2.4 million with a maximum potential loss exposure of $7.6 million. This had improved to a cost to terminate of $1.5 million and a maximum loss exposure of $6.2 million at July 31, 1995. Exclusive of the impact of premiums received on linked options and paid for purchased options, the cash requirement and negative impact on net interest income associated with the derivative transactions would be $3.1 million if interest rates remain unchanged through the final maturity of these instruments in early 1996. During the first and second quarter of 1995, the Company's asset sensitivity was increasing as previously discussed. In response to this and the general asset sensitive nature of the balance sheet, the Company purchased interest rate floors whose purpose was to protect against a drop in interest rates. The Company also purchased interest rate caps to protect its fixed rate loans from an increase in interest rates which would narrow the Company's net interest margin. The interest rate floors, with a notional value of $500 million at June 30, 1995, expire in the second quarter of 1996. The floors provide protection to the Company in the event that the three month LIBOR drops below the strike price of 6.0% associated with the floor. In July 1995, the Company revised the interest rate floor to decrease the associated strike price to 5.5%. The unrealized gain of the floors approximated $3.4 million at June 30, 1995. The interest rate caps have a notional value of $1.1 billion at June 30, 1995 and expire at the rate of $250 million per quarter beginning in the fourth quarter of 1995 with the final $100 million expiring in the final quarter of 1996. The caps provide protection to the Company in the event that the three month LIBOR rises above the strike prices of the caps which range from 8.0% to 8.5%. The unrealized gain of the caps approximated $57,000 at June 30, 1995. During July 1995, the Company purchased an additional $550 million in interest rate caps which expire in a manner similar to the caps previously discussed; $125 million in the fourth quarter of 1995 and third quarter of 1996, and $150 million in the first and second quarter of 1996. ASSET QUALITY Allowance for loan losses: The Company's determination of the level of the allowance for loan losses, and correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions (especially in California), loan portfolio composition, prior loan loss experience and the Company's on-going examination process to ensure timely identification of potential problem loans. At June 30, 1995, the allowance for loan losses amounted to $38.5 million or 2.5% of total loans as compared to $40.1 million or 2.9% of total loans at December 31, 1994 and -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 7 -------------------------------------------------------------------------------- $40.3 million or 3.0% of total loans at June 30, 1994. While management uses available information to analyze losses on loans, future additions to the allowance may be considered necessary based on changes in economic conditions and loss trends in the loan portfolio. Nonaccrual loans, restructured loans and real estate owned: Asset quality improvement was evidenced by an $8.9 million reduction in nonaccrual loans from June 30, 1994, as well as a $17.0 million reduction in real estate owned from June 30, 1994. Nonaccrual loans of $14.5 million decreased $3.7 million from year end 1994 while REO of $22.9 million at June 30, 1995 decreased $6.1 million from year end 1994. The allowance for loan losses coverage of nonaccrual loans at second quarter end approximated 266%, an increase from 221% at year end 1994 and an increase from 172% at June 30, 1994. Consistent with prior reporting periods, there were no loans past due 90 days or more which were still accruing interest and all interest associated with nonaccrual loans had been reversed. It has been the Company's policy to recognize interest on nonaccrual loans only as collected. On January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114") as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure" ("FAS 118"). FAS 114 requires the measurement of impaired loans to be based on (1) the present value of the expected future cash flows of the impaired loan discounted at the loan's original effective interest rate, (2) the observable market price of the impaired loan or (3) the fair value of the collateral of a collateral dependent loan. The adoption of FAS 114 had no material effect on the Company's financial position or results of operations and did not result in additional provisions for loan losses. The Company considers a loan to be impaired when it is "probable" that it will be unable to collect all amounts due (i.e., both principal and interest) according to the contractual terms of the loan agreement. In determining impairment, the Company considers loans with the following characteristics: nonaccrual loans, restructured loans, and performing loans for which it is probable the contractual terms of the original loan agreement will not be met. The Company bases the measurement of collateral dependent impaired loans on the fair value of the loan's collateral. Non-collateral dependent loans are valued based on a present value calculation of expected future cash flows discounted at the loan's effective rate. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Principal deemed to be uncollectible is recorded through a charge-off to the allowance for loan losses. At June 30, 1995, the recorded investment in loans for which impairment has been recognized in accordance with FAS 114 totaled $36.0 million, of which $14.5 million were on nonaccrual status. The total allowance for potential losses related to such loans was $8.7 million. During the first six months of 1995, total interest recognized on the impaired loan portfolio, on a cash basis, was $1.0 million. At June 30, 1995, $6.6 million of the impaired loans were current as to principal and interest. Excluding nonaccrual loans, restructured loans and impaired loans, the Company had potential problem loans approximating $49.5 million at June 30, 1995. The balance primarily represented real estate loans secured by commercial real estate. At June 30, 1995, these loans were current as to principal and interest. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 8 -------------------------------------------------------------------------------- Detailed information regarding nonaccrual loans, restructured loans and real estate owned is presented below.
------------------------------------------------------------------------------------------------------------------------ June 30, March 31, Dec. 31, Sept. 30, June 30, (In Thousands) 1995 1995 1994 1994 1994 ------------------------------------------------------------------------------------------------------------------------ Nonaccrual loans: Commercial loans.............................. $ 7,358 $ 11,954 $ 10,884 $ 8,098 $ 16,071 Real estate loans............................. 7,121 6,623 7,272 2,392 7,398 Consumer loans................................ -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------ Total nonaccrual loans $ 14,479 $ 18,577 $ 18,156 $ 10,490 $ 23,469 ------------------------------------------------------------------------------------------------------------------------ Restructured loans $ 4,097 $ 3,238 $ 5,948 $ 4,116 $ 4,128 ------------------------------------------------------------------------------------------------------------------------ Real estate owned: Foreclosed assets............................. $ 26,272 $ 25,138 $ 35,446 $ 41,470 $ 26,656 In-substance foreclosures..................... -- -- -- 2,995 17,150 ------------------------------------------------------------------------------------------------------------------------ REO, gross.................................... $ 26,272 $ 25,138 $ 35,446 $ 44,465 $ 43,806 Less valuation allowance...................... (3,381) (3,312) (6,475) (5,434) (3,965) ------------------------------------------------------------------------------------------------------------------------ REO, net $ 22,891 $ 21,826 $ 28,971 $ 39,031 $ 39,841 ------------------------------------------------------------------------------------------------------------------------ Total $ 41,467 $ 43,641 $ 53,075 $ 53,637 $ 67,438 ------------------------------------------------------------------------------------------------------------------------
On an on-going basis, management closely monitors the loan portfolio in addition to evaluating the continued adequacy of the allowance for loan losses. Loans deemed uncollectible by management are charged to the allowance for loan losses. Recoveries on previously charged off loans are credited to the allowance. CAPITAL Retained earnings from operations has been the primary source of new capital for the Company, with the exception of its long term debt offering in 1979, and on a smaller scale, the exercise of employee stock options. At June 30, 1995, shareholders equity totaled $210 million as compared to $198 million at December 31, 1994 and $189 million at June 30, 1994. Management is committed to maintaining capital at a sufficient level to assure shareholders, customers and regulators that the Company and the Bank are financially sound. Risk-adjusted capital guidelines, issued by bank regulatory agencies, assign risk weightings to assets both on and off-balance sheet and place increased emphasis on common equity. Under Prompt Corrective Action legislation, the guidelines require adequately capitalized institutions to maintain a Tier I (core) capital ratio of 4% and a combined Tier I and Tier II capital ratio of 8%. Institutions whose Tier I and total capital ratios meet or exceed 6% and 10%, respectively, are deemed to be well capitalized. Tier I capital basically consists of common stockholders equity and noncumulative perpetual preferred stock and minority interest in consolidated subsidiaries minus intangible assets. The Bank is considered well capitalized with Tier I and total capital ratios at June 30, 1995 of 9.8% and 11.0%, respectively, as compared to 10.7% and 12.0%, respectively, the year earlier. ------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 9 -------------------------------------------------------------------------------- Capital Ratios for Imperial Bank/(1)/
-------------------------------------------------------------------------------------------------------------- June 30, (In Thousands) 1995 1994 -------------------------------------------------------------------------------------------------------------- Tier I: Common stockholders' equity and preferred stock/(2)/.................. $ 199,537 $ 188,652 Disallowed assets..................................................... (2,523) (1,342) -------------------------------------------------------------------------------------------------------------- Tier I capital $ 197,014 $ 187,310 -------------------------------------------------------------------------------------------------------------- Tier II: Allowance for loan losses allowable in Tier II........................ 25,392 22,117 -------------------------------------------------------------------------------------------------------------- Total risk-based capital $ 222,406 $ 209,427 -------------------------------------------------------------------------------------------------------------- Risk-weighted balance sheet assets $1,803,950 $1,625,189 -------------------------------------------------------------------------------------------------------------- Risk-weighted off-balance sheet items: Commitments to make or purchase loans................................. 152,281 84,028 Standby letters of credit............................................. 59,012 43,965 Other................................................................. 18,626 17,528 -------------------------------------------------------------------------------------------------------------- Total risk-weighted off-balance sheet items $ 229,919 $ 145,521 -------------------------------------------------------------------------------------------------------------- Disallowed assets........................................................ (2,523) (1,342) Allowance for loan losses not included in Tier II........................ (13,092) (18,247) -------------------------------------------------------------------------------------------------------------- Total risk-weighted assets $2,018,254 $1,751,121 -------------------------------------------------------------------------------------------------------------- Risk-based capital ratios: Tier I capital (4.0% minimum requirement)............................. 9.8% 10.7% Total capital (8.0% minimum requirement).............................. 11.0% 12.0% Leverage ratio (6.5% minimum requirement)............................. 8.6% 8.5% --------------------------------------------------------------------------------------------------------------
/(1)/ As reported on the June 30, 1995 and 1994 FDIC call reports. /(2)/ Excludes unrealized gain (loss) on securities available for sale. In addition to the risk-weighted ratios, all banks are required to maintain leverage ratios, to be determined on an individual basis, but not below a minimum of 3%. The ratio is defined as Tier I capital to average total assets for the most recent quarter. The Bank's leverage ratio requirement is 6.5% as stipulated in its Memorandum of Understanding ("MOU") with the Federal Deposit Insurance Company ("FDIC") and the California State Banking Department ("State") which was revised during the third quarter of 1993. The Bank's leverage ratio for June 30, 1995 was 8.6% as compared to 8.5% the prior year. In addition to the leverage ratio requirement, the revised MOU established levels for the reduction of classified assets identified in the 1992 examination. No specific targets for the reduction of classified assets were set in the revised MOU as a result of the 1993 examination. In addition, the MOU requires the prior written consent of dividends of the Bank by the FDIC and the State. Management believes that the Bank was in compliance with the terms of the MOU at June 30, 1995. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 10 -------------------------------------------------------------------------------- Consolidated Balance Sheet
----------------------------------------------------------------------------------------------------------------------- (Unaudited) Imperial Bancorp and Subsidiaries June 30, December 31, (In Thousands, Except Share Data) 1995 1994 ----------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks.......................................................... $ 234,101 $ 168,626 Deposits placed with banks....................................................... 823 -- Trading account securities....................................................... 68,065 74,028 Securities available for sale (at fair value).................................... 233,853 388,249 Investment securities (fair value of $5,882 and $6,146 for 1995 and 1994, respectively)............................................................. 5,882 6,146 Federal funds sold and securities purchased under resale agreements.............. 455,000 276,500 Loans held for sale (fair value of $1,722 and $768 for 1995 and 1994, respectively)............................................................. 1,569 768 Loans: Loans, net of unearned income and deferred loan fees.......................... 1,544,684 1,375,146 Less allowance for loan losses............................................. (38,484) (40,072) ----------------------------------------------------------------------------------------------------------------------- Total net loans $1,506,200 $1,335,074 ----------------------------------------------------------------------------------------------------------------------- Premises and equipment, net...................................................... 16,921 18,254 Accrued interest receivable...................................................... 14,673 12,769 Real estate owned, net........................................................... 22,891 28,971 Income taxes receivable.......................................................... 5,297 3,573 Real property held for sale or investment........................................ -- 234 Investment in Imperial Credit Industries, Inc.................................... 31,991 30,934 Other assets..................................................................... 31,063 34,583 ----------------------------------------------------------------------------------------------------------------------- Total assets $2,628,329 $2,378,709 ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand........................................................................ $1,049,362 $ 928,728 Savings....................................................................... 17,288 27,207 Money market.................................................................. 436,378 491,090 Time--under $100,000.......................................................... 255,681 168,044 Time--$100,000 and over....................................................... 502,668 344,641 ----------------------------------------------------------------------------------------------------------------------- Total deposits 2,261,377 1,959,710 ----------------------------------------------------------------------------------------------------------------------- Accrued interest payable......................................................... 6,684 5,209 Short-term borrowings............................................................ 121,509 190,919 Long-term borrowings............................................................. 8,083 8,153 Other liabilities................................................................ 20,175 16,942 Minority interest in consolidated subsidiary..................................... 654 -- ----------------------------------------------------------------------------------------------------------------------- Total liabilities $2,418,482 $2,180,933 ----------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Common stock--no par, 50,000,000 shares authorized; 13,645,806 shares at June 30, 1995 and 12,832,609 shares at December 31, 1994 issued and outstanding..................................................... 128,434 117,144 Unrealized gain (loss) on securities available for sale, net of tax........... 577 (847) Retained earnings............................................................. 80,836 81,479 ----------------------------------------------------------------------------------------------------------------------- Total stockholders' equity $ 209,847 $ 197,776 ----------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,628,329 $2,378,709 -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 11 -------------------------------------------------------------------------------- Consolidated Statement of Income
------------------------------------------------------------------------------------------------------------------------ Three months ended Six months ended Imperial Bancorp and Subsidiaries June 30, June 30, (In Thousands, Except Per Share Data) 1995 1994 1995 1994 ------------------------------------------------------------------------------------------------------------------------ Interest income: Loans....................................................... $35,614 $28,155 $66,769 $55,686 Deposits placed with banks.................................. $ 5 $ -- $ 5 $ -- Trading account securities.................................. 1,368 778 2,319 1,219 Securities available for sale............................... 4,178 2,667 8,925 5,203 Investment securities....................................... 79 110 153 250 Federal funds sold and securities purchased under resale agreements.......................................... 2,340 1,522 3,933 3,389 Loans held for sale......................................... 76 163 156 403 ------------------------------------------------------------------------------------------------------------------------ Total interest income $43,660 $33,395 $82,260 $66,150 ------------------------------------------------------------------------------------------------------------------------ Interest expense: Deposits.................................................... 14,427 7,671 26,442 14,668 Short-term borrowings....................................... 1,110 836 2,481 1,857 Long-term borrowings........................................ 155 168 305 335 ------------------------------------------------------------------------------------------------------------------------ Total interest expense $15,692 $ 8,675 $29,228 $16,860 ------------------------------------------------------------------------------------------------------------------------ Net interest income......................................... 27,968 24,720 53,032 49,290 Provision for loan losses................................... 3,175 5,084 4,556 7,216 ------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses $24,793 $19,636 $48,476 $42,074 ------------------------------------------------------------------------------------------------------------------------ Noninterest income: Service charges on deposit accounts......................... 1,056 1,244 2,058 2,579 Trust fees.................................................. 1,892 1,649 3,807 3,292 Gain on origination and sale of loans....................... 429 1,190 960 2,087 Equity in net earnings of Imperial Credit Industries, Inc............................................ 1,123 280 1,057 471 Other service charges and fees.............................. 1,851 1,556 3,363 3,043 Merchant and credit card fees............................... 1,575 1,570 3,014 2,931 (Loss) gain on securities available for sale................ (76) (313) 267 (264) Gain on trading account securities.......................... 1,101 236 1,808 446 Gain on sale of real property held for sale or investment... -- 507 -- 507 Other income................................................ 424 393 1,399 1,043 ------------------------------------------------------------------------------------------------------------------------ Total noninterest income $ 9,375 $ 8,312 $17,733 $16,135 ------------------------------------------------------------------------------------------------------------------------ Noninterest expense: Salary and employee benefits................................ 11,532 10,936 23,121 22,919 Net occupancy expense....................................... 2,203 2,372 4,312 4,735 Furniture and equipment..................................... 1,265 1,382 2,503 2,629 Data processing............................................. 1,937 2,636 4,019 4,798 Customer services........................................... 1,960 1,511 4,001 3,726 Net real estate owned expense............................... 1,214 1,850 2,328 3,171 Regulatory assessments...................................... 1,242 1,556 2,512 3,197 Professional and consulting................................. 1,093 1,168 1,912 2,272 Business development........................................ 799 833 1,614 1,620 Lawsuit settlement.......................................... 143 (1,734) 193 (1,734) Other expense............................................... 3,491 3,442 6,705 7,083 ------------------------------------------------------------------------------------------------------------------------ Total noninterest expense $26,879 $25,952 $53,220 $54,416 ------------------------------------------------------------------------------------------------------------------------ Income before income taxes and minority interest............... 7,289 1,996 12,989 3,793 Income tax provision........................................... 2,637 787 3,681 1,459 Minority interest in income of consolidated subsidiary......... 4 -- 4 -- ------------------------------------------------------------------------------------------------------------------------ Net income $ 4,648 $ 1,209 $ 9,304 $ 2,334 ------------------------------------------------------------------------------------------------------------------------ Net income per share $0.33 $0.09 $0.66 $0.17 ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 12 -------------------------------------------------------------------------------- Consolidated Statement of Cash Flows
------------------------------------------------------------------------------------------------------------------------ Imperial Bancorp and Subsidiaries Six months ended June 30, (In Thousands) 1995 1994 ------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income.................................................................... $ 9,304 $ 2,334 Adjustments for noncash charges (credits): Depreciation and amortization.............................................. 638 133 Accretion of purchased loan discount....................................... (1,260) -- Provision for loan losses.................................................. 4,556 7,216 Provision for real estate owned............................................ 989 1,808 Equity in net earnings of Imperial Credit Industries, Inc.................. (1,057) (471) (Gain) loss on sale of real estate owned................................... (40) (3) Gain on sale of real property held for sale or investment.................. (75) (507) (Gain) loss on sale of premises and equipment.............................. (4) 111 Writedown for impairment of equity investment.............................. 500 503 (Gain) loss on securities available for sale............................... (267) 264 Net change in trading account securities................................... 5,963 (23,043) Net change in loans held for sale.......................................... (801) 13,684 Net change in accrued interest receivable.................................. (1,904) (2,116) Net change in accrued interest payable..................................... 1,475 1,779 Net change in income taxes receivable...................................... (1,724) 8,314 Net change in other liabilities............................................ 3,233 (1,777) Net change in other assets................................................. 3,520 (8,157) ------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities $ 23,046 $ 72 ------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Net change in deposits placed with banks...................................... (823) -- Proceeds from investment securities........................................... 14 2,950 Purchase of investment securities............................................. (250) (251) Proceeds from sale of securities available for sale........................... 774,005 1,205,700 Proceeds from maturities of securities available for sale..................... 424,194 300,937 Purchase of securities available for sale..................................... (1,040,973) (1,375,767) Net change in federal funds sold and securities purchased under resale agreements............................................ (178,500) 225,019 Net change in loans........................................................... (183,412) 107,358 Capital expenditures.......................................................... (2,176) (4,529) Proceeds from sale of real estate owned....................................... 17,278 20,341 Proceeds from sale of real property held for sale or investment............... 309 14,628 Proceeds from sale of premises and equipment.................................. 9 -- ------------------------------------------------------------------------------------------------------------------------ Net cash (used in) provided by investing activities $ (190,325) $ 496,386 ------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net change in demand deposits, savings, and money market accounts............. 55,420 (349,249) Net change in time deposits................................................... 245,664 (13,365) Net change in short-term borrowings........................................... (68,827) (77,546) Retirement of long-term borrowings............................................ (70) (25) Proceeds from exercise of employee stock options.............................. 578 1,004 Other......................................................................... (11) (9) ------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities $ 232,754 $ (439,190) ------------------------------------------------------------------------------------------------------------------------ Net change in cash and due from banks $ 65,475 $ 57,268 ------------------------------------------------------------------------------------------------------------------------ Cash and due from banks, beginning of year $ 168,626 $ 158,126 ------------------------------------------------------------------------------------------------------------------------ Cash and due from banks, end of period $ 234,101 $ 215,394 ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 13 -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Imperial Bancorp and Subsidiaries NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations, and changes in cash flows in conformity with generally accepted accounting principles. However, these interim financial statements reflect all normal recurring adjustments, which are, in the opinion of the management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments were of a normal recurring nature. The Consolidated Balance Sheet, Consolidated Statement of Income and Consolidated Statement of Cash Flows are presented in the same format as that used in the Company's most recently filed Report on Form 10-K. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC. During 1993, the Bank sold 2,800,000 shares of the common stock of Imperial Credit Industries, Inc. ("ICII") reducing its ownership of ICII to 40.2%. After the 1993 sale of ICII stock, the Company no longer exercised significant control over the operations of ICII, and therefore, the results of ICII operations are now accounted for in the Company's financial statements as an equity investment. The equity investment in ICII is carried at cost adjusted for equity in undistributed earnings. NOTE (3) STATEMENT OF CASH FLOWS The following information supplements the statement of cash flows.
------------------------------------------------------------------ June 30, (In Thousands) 1995 1994 ------------------------------------------------------------------ Interest paid............................... $27,753 $15,081 Taxes refunded.............................. -- 6,499 Taxes paid.................................. 6,770 3,756 Significant noncash transactions: Loans transferred to real estate owned... 10,983 7,891 ------------------------------------------------------------------
-------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 14 -------------------------------------------------------------------------------- TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID The following table sets forth the average daily balances for major categories of assets, liabilities and stockholders' equity including interest-earning assets and interest-bearing liabilities and the average interest rates earned and paid thereon. The yields are not presented on a tax equivalent basis as the effects are not material.
Three months ended June 30, ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 ------------------------------------------------------------------------------------------------------------------------------------ Interest Interest Average Income/ Average Average Income/ Average (In Thousands) Balance Expense Rate % Balance Expense Rate % ------------------------------------------------------------------------------------------------------------------------------------ Earning assets: Loans(1).................................. $1,508,567 $35,614(2) 9.4% $1,358,824 $28,155(2) 8.3% Deposits placed with banks................ 406 5 4.9 -- -- -- Trading account securities................ 72,306 1,368 7.6 59,223 778 5.3 Securities available for sale............. 250,290 4,178 6.7 282,235 2,667 3.8 Investment securities..................... 6,218 79 5.1 6,011 110 7.3 Federal funds sold and securities purchased under resale agreements....... 154,814 2,340 6.0 153,590 1,522 4.0 Loans held for sale....................... 2,699 76 11.3 8,407 163 7.8 ----------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $1,995,300 $43,660 8.8% $1,868,290 $33,395 7.1% ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan losses.................... (40,536) (43,199) Cash......................................... 196,601 226,589 Other assets................................. 123,299 162,373 ---------- ---------- Total assets.............................. $2,274,664 $2,214,053 ========== ========== Interest-bearing liabilities: Savings................................... $ 21,309 $ 134 2.5% $28,133 175 2.5% Money market.............................. 432,846 3,063 2.8 469,737 2,657 2.3 Time - under $100,000..................... 254,996 4,120 6.5 189,720 1,933 4.1 Time - $100,000 and over.................. 458,821 7,110 6.2 303,375 2,906 3.8 ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits $1,167,972 $14,427 4.9% 990,965 $ 7,671 3.1% ----------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings..................... 75,055 1,110 5.9 93,451 836 3.6 Long-term borrowings...................... 8,109 155 7.6 9,865 168 6.8 ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $1,251,136 $15,692 5.0% 1,094,281 $ 8,675 3.2% ----------------------------------------------------------------------------------------------------------------------------------- Demand deposits.............................. 788,540 909,798 Other liabilities............................ 28,755 20,197 Stockholders' equity......................... 206,233 189,777 ---------- ---------- Total liabilities and stockholders' equity.................. $2,274,664 2,214,053 ========== ========== Net interest income/net interest margin............................. $27,968 5.6% $24,720 5.3% =================== =================== Six months ended June 30, ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 ------------------------------------------------------------------------------------------------------------------------------------ Interest Interest Average Income/ Average Average Income/ Average (In Thousands) Balance Expense Rate % Balance Expense Rate % --------------------------------------------------------------------------------------------------------------------------------- Loans(1).................................. $1,464,289 $66,769(2) 9.1% $1,384,465 $55,686(2) 8.0% Deposits placed with banks................ 204 5 4.9 -- -- -- Trading account securities................ 63,095 2,319 7.4 49,171 1,219 5.0 Securities available for sale............. 275,974 8,925 6.5 301,630 5,203 3.4 Investment securities..................... 6,181 153 5.0 6,860 250 7.3 Federal funds sold and securities purchased under resale agreements....... 132,297 3,933 5.9 190,598 3,389 3.6 Loans held for sale....................... 2,787 156 11.2 12,793 403 6.3 ------------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets $1,944,827 $82,260 8.5% $1,945,517 $66,150 6.8% ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan losses.................... (40,471) (43,116) Cash......................................... 200,049 241,191 Other assets................................. 127,420 162,501 ---------- ---------- Total assets.............................. $2,231,825 $2,306,093 ========== ========== Interest-bearing liabilities: Savings................................... $ 28,857 $ 359 2.5% $ 25,918 $ 322 2.5% Money market.............................. 448,193 6,172 2.8 461,411 5,062 2.2 Time - under $100,000..................... 237,201 7,409 6.2 179,563 3,570 4.0 Time - $100,000 and over.................. 414,175 12,502 6.0 312,071 5,714 3.7 ------------------------------------------------------------ ----------------------------------------------------------------------- Total interest-bearing deposits $1,128,426 $26,442 4.7% $ 978,963 $14,668 3.0% ------------------------------------------------------------ -------------------------------------------------- -------------------- Short-term borrowings..................... 85,020 2,481 5.8 122,988 1,857 3.0 Long-term borrowings...................... 8,129 305 7.5 9,866 335 6.8 ------------------------------------------------------------ ----------------------------------------------------------------------- Total interest-bearing liabilities $1,221,575 $29,228 4.8% $1,111,817 $16,860 3.0% ------------------------------------------------------------ ----------------------------------------------------------------------- Demand deposits.............................. 780,142 986,989 Other liabilities............................ 26,522 18,697 Stockholders' equity......................... 203,586 188,590 Total liabilities and ---------- ---------- stockholders' equity.................. 2,231,825 2,306,093 ========== ========== Net interest income/net interest margin............................. $53,032 5.5% $49,290 5.1% =================== ===================
(1) Includes nonaccrual loans. (2) Includes net loan fees of $2,030,000 and $2,342,000 for the six months ended June 30, 1995 and 1994, respectively, and $1,198,000 and $1,398,000 for the three months ended June 30, 1995 and 1994, respectively. -------------------------------------------------------------------------------- 15 -------------------------------------------------------------------------------- TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST MARGIN Changes in the Company's net interest income are a function of both changes in rates and changes in volumes of interest-earning assets and interest-bearing liabilities. The following table sets forth information regarding changes in interest income and interest expense for the years indicated. The total change is segmented into the change attributable to variations in volume (changes in volume multiplied by old rate) and the change attributable to variations in interest rates (changes in rates multiplied by old volume). The change in interest due to both rate and volume (changes in rate multiplied by changes in volume) is classified as rate/volume. Nonaccrual loans are included in average loans used to compute this table. The table is not presented on a tax equivalent basis as the effects are not material.
----------------------------------------------------------------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, ----------------------------------------------------------------------------------------------------------------------------------- 1995 Over 1994 1995 Over 1994 Rate/ Rate/ (In Thousands) Volume Rate(1) Volume Total Volume Rate(1) Volume Total ----------------------------------------------------------------------------------------------------------------------------------- Increase/(Decrease) in: Loans, net of unearned income and deferred loan fees................. 3,107 3,737 615 7,459 3,193 7,615 275 11,083 Deposits placed with banks..................... 5 -- -- 5 5 -- -- 5 Trading account securities................ 173 341 76 590 348 590 162 1,100 Securities available for sale.................. (303) 2,046 (232) 1,511 (436) 4,675 (517) 3,722 Investment securities...... 4 (33) (2) (31) (25) (79) 7 (97) Federal funds sold and securities purchased under resale agreements... 12 768 38 818 (1,049) 2,192 (599) 544 Loans held for sale........ (111) 73 (49) (87) (315) 313 (245) (247) ----------------------------------------------------------------------------------------------------------------------------------- Total interest income $2,887 $6,932 $ 446 $10,265 $ 1,721 $15,306 $ (917) $16,110 ----------------------------------------------------------------------------------------------------------------------------------- Savings.................... (41) -- -- (41) 37 -- -- 37 Money market............... (212) 587 31 406 (145) 1,384 (129) 1,110 Time - under $100,000...... 669 1,138 380 2,187 1,153 1,975 711 3,839 Time - $100,000 and over... 1,477 1,820 907 4,204 1,889 3,589 1,310 6,788 ----------------------------------------------------------------------------------------------------------------------------------- Total deposits $1,893 $3,545 $1,318 $ 6,756 $ 2,934 $ 6,948 $ 1,892 $11,774 ----------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings...... (166) 538 (98) 274 (570) 1,722 (528) 624 Long-term borrowings....... (30) 20 (3) (13) (60) 35 (5) (30) ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense $1,697 $4,103 $1,217 $ 7,017 $ 2,304 $ 8,705 $ 1,359 $12,368 ----------------------------------------------------------------------------------------------------------------------------------- Changes in net interest income $1,190 $2,829 $ (771) $ 3,248 $ (583) $ 6,601 $(2,276) $ 3,742 -----------------------------------------------------------------------------------------------------------------------------------
(1) The rate change for interest income includes a $2.9 million and $5.9 million impact of derivative instruments for the three and six months ended June 30, 1995. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 16 -------------------------------------------------------------------------------- TABLE 3 - SECURITIES (a) Investment Securities The following is a summary for the major categories of investment securities.
------------------------------------------------------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Fair (In Thousands) Cost Gains Losses Value ------------------------------------------------------------------------------------------------------ June 30, 1995 Industrial development bonds.......... $4,532 $ -- $ -- $4,532 Other securities...................... 1,350 -- -- 1,350 ------------------------------------------------------------------------------------------------------ Total $5,882 $ -- $ -- $5,882 ------------------------------------------------------------------------------------------------------ December 31, 1994 Industrial development bonds.......... $4,546 $ -- $ -- $4,546 Other securities...................... 1,600 -- -- 1,600 ------------------------------------------------------------------------------------------------------ Total $6,146 $ -- $ -- $6,146 ------------------------------------------------------------------------------------------------------
(b) Securities Available for Sale The following is a summary for the major categories of securities available for sale.
------------------------------------------------------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Fair (In Thousands) Cost Gains Losses Value ------------------------------------------------------------------------------------------------------ June 30, 1995 U.S. Treasury and federal agencies.... $ 200,362 $ 1,293 $ (20) $201,635 Mutual funds.......................... 26,971 -- -- 26,971 Other securities...................... 5,518 -- (271) 5,247 ------------------------------------------------------------------------------------------------------ Total $ 232,851 $ 1,293 $ (291) $233,853 ------------------------------------------------------------------------------------------------------ December 31, 1994 U.S. Treasury and federal agencies.... $ 321,455 $ 11 $ (517) $320,949 Mutual funds.......................... 56,915 -- -- 56,915 Other securities...................... 11,352 2 (969) 10,385 ------------------------------------------------------------------------------------------------------ Total $ 389,722 $ 13 $(1,486) $388,249 ------------------------------------------------------------------------------------------------------
Gross realized gains and losses for the three months ended June 30, 1995 were $10,000 and $86,000, respectively. For the same period of 1994, these amounts were zero and $313,000, respectively. Gross realized gains and losses for the six months ended June 30, 1995 were $417,000 and $150,000, respectively. These amounts were $49,000 and $313,000, respectively for the same period in the prior year. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 17 -------------------------------------------------------------------------------- TABLE 4 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES The following table summarizes changes in the allowance for loan losses and pertinent ratios.
------------------------------------------------------------------------------------------------------------------- Six months ended June 30, (In Thousands) 1995 1994 ------------------------------------------------------------------------------------------------------------------- Allowance for loan losses: Balance, beginning of year........................................... $ 40,072 $ 42,800 Loans charged off: Commercial........................................................... (3,712) (6,169) Real estate.......................................................... (3,501) (5,196) Consumer............................................................. (37) (80) ------------------------------------------------------------------------------------------------------------------- Total loans charged off $ (7,250) $ (11,445) ------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial........................................................... 1,042 1,713 Real estate.......................................................... 43 44 Consumer............................................................. 21 36 ------------------------------------------------------------------------------------------------------------------- Total loan recoveries $ 1,106 $ 1,793 ------------------------------------------------------------------------------------------------------------------- Net loans charged off................................................... (6,144) (9,652) Provision for loan losses............................................... 4,556 7,216 ------------------------------------------------------------------------------------------------------------------- Balance, end of period $ 38,484 $ 40,364 ------------------------------------------------------------------------------------------------------------------- Loans outstanding, end of period $1,544,684 $1,355,731 ------------------------------------------------------------------------------------------------------------------- Average loans outstanding $1,464,289 $1,384,465 ------------------------------------------------------------------------------------------------------------------- Ratio of net charge-offs to average loans............................... 0.84%(1) 1.39%(1) Ratio of allowance for loan losses to average loans..................... 2.63% 2.92% Ratio of allowance for loan losses to loans outstanding at June 30...... 2.49% 2.98% Ratio of provision for loan losses to net chargeoffs.................... 74% 75% -------------------------------------------------------------------------------------------------------------------
(1) Annualized The Company evaluates the adequacy of its allowance for loan losses on an overall basis rather than by specific categories of loans. In determining the adequacy of the allowance for loan losses, management considers such factors as historical loan loss experience, known problem loans, evaluations made by bank regulatory authorities, assessment of economic conditions and other appropriate data to identify the risks in the loan portfolio. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 18 -------------------------------------------------------------------------------- TABLE 5 - REAL ESTATE OWNED (a) Real Estate Owned by Type of Project At June 30, 1995 and December 31, 1994, real estate owned by type of project is presented in the following table:
----------------------------------------------------------------------------------------- June 30, December 31, (In Thousands) 1995 1994 ----------------------------------------------------------------------------------------- Acquisition and land development................... $11,608 $15,010 Single-family residential.......................... 7,988 14,579 ----------------------------------------------------------------------------------------- Total residential $19,596 $29,589 ----------------------------------------------------------------------------------------- Acquisition and land development................... 5,205 255 Retail facilities.................................. -- 2,214 Office............................................. 1,471 3,388 ----------------------------------------------------------------------------------------- Total nonresidential $ 6,676 $ 5,857 ----------------------------------------------------------------------------------------- REO, gross $26,272 $35,446 ----------------------------------------------------------------------------------------- Less valuation allowance........................... (3,381) (6,475) ----------------------------------------------------------------------------------------- REO, net $22,891 $28,971 -----------------------------------------------------------------------------------------
(b) Net Real Estate Owned Expense For the periods ended June 30, 1995 and 1994, net real estate owned expense was comprised of the following:
----------------------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (In Thousands) 1995 1994 1995 1994 ----------------------------------------------------------------------------------------- Net loss (gain) on sale of real estate owned....................... $ 5 $ (109) $ (40) $ (3) Valuation adjustments charged to operations................... 489 1,200 989 1,808 Direct holding costs..................... 720 759 1,379 1,366 ----------------------------------------------------------------------------------------- Net real estate owned expense $ 1,214 $ 1,850 $2,328 $3,171 -----------------------------------------------------------------------------------------
The following table sets forth information regarding the Company's valuation allowance for REO.
----------------------------------------------------------------------------------------- June 30, December 31, (In Thousands) 1995 1994 ----------------------------------------------------------------------------------------- Balance, beginning of period................................ $ 6,475 $ 3,084 Provision for REO........................................... 989 5,291 REO charged off............................................. (4,083) (1,900) ----------------------------------------------------------------------------------------- Balance, end of period $ 3,381 $ 6,475 -----------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 19 -------------------------------------------------------------------------------- TABLE 6 - FINANCIAL RATIOS
----------------------------------------------------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 ----------------------------------------------------------------------------------------------------------------------- Net income as a percentage of: (1) Average stockholders' equity.............................. 9.02% 2.55% 9.14% 2.48% Average total assets...................................... 0.82 0.22 0.83 0.20 Average earning assets.................................... 0.93 0.26 0.96 0.24 Average stockholders' equity as a percentage of: Average assets............................................ 9.07% 8.57% 9.12% 8.18% Average loans............................................. 13.67 13.97 13.90 13.62 Average deposits.......................................... 10.54 9.98 10.67 9.59 Stockholders' equity at period end as a percentage of: Total assets at period end................................ -- -- 7.98% 8.01% Total loans at period end................................. -- -- 13.59 13.93 Total deposits at period end.............................. -- -- 9.28 9.32 -----------------------------------------------------------------------------------------------------------------------
(1) Annualized -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 20 -------------------------------------------------------------------------------- Exhibits Part I COMPUTATION OF EARNINGS PER SHARE Imperial Bancorp (the "Company") has outstanding certain employee stock options, which options have been determined to be common stock equivalents for purposes of computing earnings per share. During the periods ended June 30, 1995 and 1994, the market price of the Company's common stock exceeded the exercise price of certain of these common stock equivalents. Under the treasury stock method, the following weighted average shares of common stock and common stock equivalents outstanding were used in the respective earnings per share computations.
Three months ended June 30, Six months ended June 30, --------------------------------------------------------------------- 1995 1994 1995 1994 ---------- ------------------------------ --------------- 14,213,553 13,621,623/(1)/ 14,145,744 13,512,240/(1)/
/(1)/ Adjusted for a 5% stock dividend paid in the first quarter of 1995. Part II OTHER INFORMATION ITEM 1. Legal Proceedings Due to the nature of the businesses, the Company and its subsidiaries are subject to numerous legal actions, threatened or filed, arising in the normal course of business. Certain of the actions currently pending seek punitive damages, in addition to other relief. The Company is of the opinion that the eventual outcome of all currently pending legal proceedings will not be materially adverse to the Company, nor has the resolution of any proceeding since the Company's last filing with the Commission materially adversely affected the registrant or any subsidiary thereof. ITEM 2. Changes in Securities No events have transpired which would make response to this item appropriate. ITEM 3. Defaults upon Senior Securities No events have transpired which would make response to this item appropriate. ITEM 4. Submission of Matters to a Vote of Securities Holders No events have transpired which would make response to this item appropriate. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 21 -------------------------------------------------------------------------------- ITEM 5. Other Information During the third quarter of 1993, the Bank entered into a revised Memorandum of Understanding ("MOU") with the Federal Deposit Insurance Corporation ("FDIC") and the California State Banking Department ("State"). The revised MOU established a new level for the reduction of classified assets. The MOU continued the prior written approval of dividends of the Bank by the FDIC and the State and a minimum leverage ratio of 6.5% which began with the first quarter of 1993. At June 30, 1995, the Bank's leverage ratio was 8.6%. Management believes the Bank was in compliance with the terms of the MOU as of June 30, 1995. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Index Exhibit Number Description -------------- ----------- 27 Financial Data Schedule All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the period, and no events have occurred which would require one to be filed. -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 22 -------------------------------------------------------------------------------- Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IMPERIAL BANCORP Dated: August 14, 1995 By: Robert M. Franko ---------------------------- Robert M. Franko Executive Vice President and Chief Financial Officer -------------------------------------------------------------------------------- Imperial Bancorp [LOGO] 23 EX-27 2 ARTICLE 5 FDS
9 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 234,101 823 455,000 68,065 233,853 5,882 5,882 1,544,684 38,484 2,628,329 2,261,377 121,509 27,513 8,083 128,434 0 0 81,413 2,628,329 66,769 11,397 4,094 82,260 26,442 29,228 53,032 4,556 267 53,220 12,985 9,304 0 0 9,304 0.66 0.66 .055 14,479 0 4,097 49,477 40,072 7,250 1,106 38,484 38,484 0 0