-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wah/3zBDfnzbZ/U/0BVgSlHBkouOOScGm7EaQ4xBSAI8U+qExOJ+qTzDljWz71Qq vx31Un3PDGU025xfAtufwA== 0000898430-96-005239.txt : 19961113 0000898430-96-005239.hdr.sgml : 19961113 ACCESSION NUMBER: 0000898430-96-005239 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 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: 96659761 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 QUARTERLY 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 September 30, 1996 IMPERIAL BANCORP (Exact name of registrant as specified in its charter) California 95-2575576 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 9920 South La Cienega Boulevard Inglewood, California 90301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 417-5600 Commission file number: 0-7722 Securities registered pursuant to Section 12(g) of the Act: Common Stock: Number of Shares of Common Stock outstanding as of September 30, 1996: 23,073,803 shares. Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due 1999. As of September 30, 1996, $3,419,000 in principal amount of such Notes and $1,082,000 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 Nine Months Ended September 30, 1996 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 the three and nine months ended September 30, 1996. PERFORMANCE SUMMARY Net income for the third quarter rose 68% to $8.7 million, or $0.36 per share, compared with net income of $5.2 million, or $0.22 per share, for the third quarter of 1995. Earnings per share have been adjusted for a three-for-two stock split declared on September 26, 1996 and distributed on October 18, 1996 to shareholders of record on October 11, 1996. On a pre-split basis, earnings per share for the third quarter of 1996 were $0.54 per share compared with $0.33 for the same quarter of 1995. For the third quarter, return on equity was 12.8%, compared with 9.7% for the same quarter last year, and return on assets rose to 1.2% from 0.85% in the third quarter of 1995. For the first nine months of 1996, net income tripled to $44.1 million, or $1.87 per share on a post-split basis, compared with $14.5 million, or $0.63 per share on a post-split basis, for the same period of 1995. Year-to-date, earnings were positively impacted by a pre-tax gain of $36.4 million realized from the second quarter sale of a portion of the Company's investment in Imperial Credit Industries, Inc. (NASDAQ-NMS-ICII) plus an additional $8.6 million derived from ICII's gain associated with its June 1996 public offering and sale of stock in its subsidiary, Southern Pacific Funding Corporation (NYSE- SFC). Also impacting results was a $5.6 million loss from operations, net of tax, from a discontinued operation. Excluding the gains and the costs associated with the discontinued operation, the Company earned approximately $23.0 million, or $0.98 per share on a post-split basis, for the nine month period, a 59% improvement over the comparable period a year ago. The increase in core net income (income excluding gains from ICII and loss from discontinued operation) was attributable to the 18% and 19% growth in average loans in the third quarter and nine-month period, respectively, over the same periods of 1995. As a result, net interest income and net interest margin for the third quarter and nine-month period were $36.1 million and 5.7%, respectively, and $103.2 million and 5.8%, respectively, compared with $29.0 million and 5.5%, respectively, and $81.5 million and 5.4%, respectively, for the comparable periods of 1995. Noninterest income for the quarter ended September 30, 1996 totaled $12.6 million, an improvement from $10.5 million for the same period of 1995. For the first nine months of 1996, noninterest income totaled $84.5 million as compared to $27.1 million for the same period of 1995. Excluding non-core business items, the most significant of which are discussed above, noninterest income for the nine-month period was $35.9 million. Noninterest expenses amounted to $30.5 million and $93.7 million, respectively, for the 1996 third quarter and nine-month period, compared with $26.1 million and $78.7 million, respectively, reported for the same periods in 1995. These increases for the quarter and year-to-date are primarily related to the $3.9 million and $11.0 million respective increases in salary and employee benefits expense over the same periods of 1995. In addition, the Company recorded charitable donation expenses of $4.9 million in the first nine months of 1996. Offsetting the increase in personnel costs and charitable donations were reductions in regulatory assessments, real estate owned ("REO") expense and data processing costs. Regulatory assessments for the quarter and nine months ended September 30, 1996 decreased $0.3 million and $2.6 million, respectively, from the same periods of 1995 due to the reduction in the FDIC deposit insurance - -------------------------------------------------------------------------------- 2 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- premium in late 1995. REO expenses declined $2.6 million and $4.0 million, respectively, for the third quarter and first nine months of 1996 as levels of REO have decreased significantly from the same periods of 1995. At September 30, 1996, the Company's total assets were $3.3 billion, total loans were $1.9 billion and stockholders' equity and allowance for loan losses totaled $316 million. This compares to total assets of $2.8 billion, total loans of $1.7 billion and stockholders' equity and allowance for loan losses of $266 million at December 31, 1995. Total deposits at September 30, 1996, amounted to $2.8 billion which included $1.3 billion, or 45%, of noninterest bearing demand deposits. This favorably compares to total deposits of $2.4 billion at December 31, 1995 which included $1.1 billion, or 48%, of noninterest bearing demand deposits. The overall funding base of the Company is enhanced by a sizable level of demand deposits resulting from the Company's long standing relationships with the real estate services industry. The Company's average demand deposits and average stockholders' equity funded 46% of average total assets for the nine months ended September 30, 1996, as compared to 45% for the nine months ended September 30, 1995. At September 30, 1996, the allowance for loan losses amounted to $39.5 million or 2.1% of total loans as compared to $37.4 million or 2.2% of total loans at December 31, 1995 and $38.3 million or 2.3% of total loans at September 30, 1995. The provision for loan losses for the quarter ended September 30, 1996 totaled $3.8 million as compared to $6.3 million reported for the quarter ended September 30, 1995. Net charge-offs for the quarter ended September 30, 1996 totaled $2.8 million, a $3.6 million decrease from the levels experienced in the same quarter of 1995. The provision for loan losses for the nine months ended September 30, 1996 totaled $9.8 million as compared to $10.8 million reported for the same period of 1995. Net charge-offs for the first nine months of 1996 totaled $7.7 million, a $4.8 million decrease from the levels experienced in the same period of 1995. Nonaccrual loans of $22.3 million at September 30, 1996, decreased $0.9 million from September 30, 1995 and decreased $6.6 million from year end 1995. The allowance for loan losses coverage of nonaccrual loans at September 30, 1996 approximated 177%, an increase from 165% at September 30, 1995 and an increase from 129% at December 31, 1995. REO of $2.7 million at September 30, 1996, decreased $10.4 million from September 30, 1995 and $7.7 million from year end 1995. Imperial Bank is classified "Well Capitalized" with leverage, Tier I and total capital ratios at September 30, 1996, of 8.7%, 9.8% and 11.0%, respectively, as compared to 8.3%, 9.1% and 10.4%, respectively, the year earlier. 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. For the quarter and nine months ended September 30, 1996, net interest income increased to $36.1 million and $103.2 million, respectively, from $29.0 million and $81.5 million, respectively, for the same periods of 1995.
- -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, (In Thousands) 1996 1995 1996 1995 - ------------------------------------------------------------------------------ Interest income............ $54,513 $45,014 $152,929 $126,675 Interest expense........... 18,429 15,978 49,735 45,206 - ------------------------------------------------------------------------------ Net interest income $36,084 $29,036 $103,194 $ 81,469 - ------------------------------------------------------------------------------ Net interest margin 5.7% 5.5% 5.8% 5.4% - ------------------------------------------------------------------------------
The Company's net interest margin increased to 5.7% and 5.8% for the third quarter and first nine months of 1996, respectively, from 5.5% and 5.4%, respectively, for the same periods of 1995. The increased net interest income and spread resulted from the $282 million and $288 million growth in - -------------------------------------------------------------------------------- 3 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- average loans for the third quarter and first nine months of 1996, respectively, from the comparable periods of 1995. In addition, net interest income and net interest margin improved due to the expiration of derivative financial instruments which had a negative impact on the Company's net interest margin in 1995. As illustrated by Table 1 - Average Balances, Yields and Rates Paid (see page 18) and Table 2 - Analysis of Changes in Net Interest Margin (see page 19), the growth in the Company's loan portfolio had a much greater impact on net interest income for the quarter and nine months ended September 30, 1996 than the change in rates. Although the Company's average base lending rate dropped approximately 56 basis points from period to period, the Company experienced an increase in average loan rates as it was no longer negatively impacted by its derivative financial instruments. These instruments reduced net interest income and net interest margin $2.1 million and 39 basis points, respectively, in the third quarter of 1995 and $8.0 million and 52 basis points, respectively, in the first nine months of 1995 while having no material impact in 1996. Concurrently, the Company's average interest-bearing liabilities for the third quarter of 1996, primarily time certificates of deposit ("CD"), have grown $272 million from the third quarter of 1995 in order to support loan demand. In addition, average demand deposit levels were up $133 million from the prior year third quarter as deposit inflows from the Company's real estate related customers have increased. As a result of lower interest rates, overall funding costs as a percentage of total interest-bearing liabilities have been reduced. Offsetting this decrease in rates paid was the volume increase in CDs greater than $100,000. 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 $8.3 million and $6.2 million, respectively, for the nine months ended September 30, 1996 and 1995. The net interest margin for each period would have been 5.3% and 5.0%, respectively. Noninterest Income: Noninterest income amounted to $12.6 million for the third quarter of 1996 as compared to $10.5 million for the same period of 1995. For the nine months ended September 30, 1996, noninterest income totaled $84.5 million as compared to $27.1 million in the prior year. The table below shows the major components of noninterest income.
- -------------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, (In Thousands) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- Service charges on deposit accounts.................... $ 1,123 $ 1,045 $ 3,617 $ 3,103 Trust fees................... 2,197 1,921 6,468 5,728 Gain on origination and sale of loans............... 576 758 2,249 1,718 Equity in net earnings of Imperial Credit Industries, Inc......................... 3,045 1,730 16,556 2,787 Gain on sale of Imperial Credit Industries, Inc. common stock................ - - 36,411 - Other service charges and fees........................ 3,118 1,675 7,115 4,629 Merchant and credit card fees........................ 728 1,662 1,764 4,676 (Loss) gain on securities available for sale.......... (13) (8) 229 259 Gain on trading account securities.................. 581 827 2,387 1,973 Appreciation of donated Imperial Credit Industries, Inc. common stock........... 109 - 3,614 - Other income................. 1,122 843 4,107 2,253 - -------------------------------------------------------------------------------- Total $12,586 $10,453 $84,517 $27,126 - --------------------------------------------------------------------------------
Noninterest income reported for the nine-month period ended September 30, 1996 was significantly impacted by gains realized from the sale of a portion of the Company's investment in ICII. In April 1996, the Company sold 1.5 million shares of ICII as a part of an offering which included the sale of approximately 2.2 million new ICII shares by ICII to the public. An additional 0.5 million shares were sold by ICII to the public in May 1996. The Company recorded a $25.6 million pre-tax gain on the sale of its ICII shares. After the sales of ICII shares, the book value of ICII common stock approximated - -------------------------------------------------------------------------------- 4 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- $8.72 per share. As such, the Company recorded a $10.8 million pre-tax gain which approximated the excess of ICII's book value per share over the book value of the Company's remaining investment in ICII. The total gains of $36.4 million related to these transactions are reflected in the consolidated Statement of Income as "Gain on sale of Imperial Credit Industries, Inc. common stock." In addition, the Company realized a significant increase in equity in the net earnings of ICII in the second quarter of 1996. In June 1996, ICII sold approximately 2.0 million shares of their subsidiary Southern Pacific Funding Corporation (NYSE-SFC) in connection with SFC's initial public offering of 5.0 million shares. ICII's sale of its SFC stock resulted in a pre-tax gain to ICII of $62.0 million. The Company's net equity in this gain realized by ICII approximated $8.6 million pre-tax and is included in the consolidated Statement of Income as "Equity in the net earnings of Imperial Credit Industries, Inc." Excluding the gains from the SFC transaction, the equity in net earnings of ICII increased $1.3 million and $5.2 million for the third quarter and first nine months of 1996 despite the reduction in ownership percentage to 25%. These increases were attributable to ICII's greater volume and higher profitability on loan sales executed through securitization transactions. Excluding ICII, noninterest income for the third quarter and first nine months of 1996 improved $0.8 million and $7.2 million, respectively, from the same periods of 1995. This improvement in the nine-month period partially results from $3.6 million of appreciation of ICII stock which was contributed to a charitable organization during the second quarter. The appreciation represents the difference between the market value and the book value of the ICII shares on the date they were donated. The Company recorded a corresponding charitable contribution expense in other expenses during the quarter (see Noninterest Expense). Also, the Company recorded improvements in fee income businesses. The Company recorded higher gains from the origination and sales of SBA loans as loan volumes have increased over the prior year. This line of business generated an additional $0.5 million of noninterest income for the nine months ended September 30, 1996. Trust revenues from the Company's trust subsidiary, Imperial Trust Company, increased $0.3 million and $0.7 million, respectively, from the third quarter and first nine months of 1995 as a result of the Trust Company's increase in assets under management and administration. Service charges on deposit accounts for the third quarter and first nine months of 1996 have increased $0.1 million and $0.5 million, respectively, from the same periods in the prior year primarily due to the increase in average demand deposits from period to period. The $1.4 million and $2.5 million increase, respectively, in other service charges and fees for the third quarter and first nine months of 1996 related to various activities, most significant of which were the following: commissions related to the sale of non-proprietary mutual funds increased $0.1 million and $0.4 million, respectively, and fees related to loan processing and servicing were also up $1.0 million and $1.6 million, respectively. These increases were all related to increased volumes in their respective operations. Other income recorded in the quarter and nine months ended September 30, 1996 improved $0.3 million and $1.9 million, respectively, over the same periods of 1995. Partially responsible was a $0.1 million and $0.5 million increase, respectively, from the same periods in 1995 from the exercise and sale of stock warrants. Offsetting the overall increase in noninterest income were $0.9 million and $2.9 million decreases, respectively, in merchant and credit card fees for the quarter and nine months ended September 30, 1996 from the same periods of last year. As a result of the fourth quarter 1995 sale of a portion of the Company's merchant card accounts, fee income for the quarter and nine month period related to this line of business decreased from the same periods of 1995. - -------------------------------------------------------------------------------- 5 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- Noninterest Expense: Noninterest expense totaled $30.5 million for the quarter ended September 30, 1996 as compared to $26.1 million for the same period in the prior year. For the nine months ended September 30, 1996 noninterest expense was $93.7 million up from $78.7 million in the same period in 1995. The table below shows the major components of noninterest expense.
------------------------------------------------------------------------ Three months ended Nine months ended September 30, September 30, (In Thousands) 1996 1995 1996 1995 ------------------------------------------------------------------------ Salary and employee benefits.................. $15,367 $11,499 $45,291 $34,280 Net occupancy expense....... 2,356 2,233 6,821 6,526 Furniture and equipment..... 1,288 1,264 3,707 3,760 Data processing............. 1,714 2,048 4,771 6,048 Customer services........... 3,044 2,151 8,275 6,152 Net real estate owned expense................... 321 2,952 1,269 5,280 Regulatory assessments...... 27 348 253 2,860 Professional and consulting 1,505 578 4,957 2,491 Business development........ 1,030 778 2,759 2,384 Lawsuit settlements......... - (1,709) - (1,516) Charitable donations........ 195 50 4,863 115 Other expense............... 3,673 3,956 10,704 10,335 ------------------------------------------------------------------------ Total $30,520 $26,148 $93,670 $78,715 ------------------------------------------------------------------------
For the three and nine-month period, the increase in noninterest expense was partially attributable to the charitable donations of ICII common stock made during the year (see Noninterest Income) and to the favorable settlement of a lawsuit in the third quarter of 1995. Excluding the impact of the donations and a prior year lawsuit settlement, noninterest expense rose $2.5 million and $8.6 million, respectively, from the third quarter and first nine months of 1995. Primarily responsible for the increase were the rise in salary and benefit costs experienced in the first nine months of 1996. In addition to opening a new banking office in Fresno, California and loan production offices in Boston, Massachusetts; Austin, Texas; and Phoenix; Arizona, the Company's focus on growth has centered around an investment in people resulting in a $4.6 million increase in personnel expenses for the first nine months of 1996 over the first nine months of 1995. Also, the Company adopted an additional deferred compensation plan on January 1, 1996 which added approximately $2.5 million to benefit costs in the first nine months of 1996. As a result of the greater profitability realized for the nine month period and expected through the remainder of the year, expenses related to incentive compensation for the nine months ended September 30, 1996 increased $2.7 million over the same period of the prior year. Effective January 1, 1996, the Company increased the match on its 401-K Plan which in turn increased expenses related to this plan by $0.5 million for the first nine months of 1996 over the same period of 1995. All of these factors were also responsible for the increase in compensation costs in the third quarter of 1996 over the same quarter of 1995. Customer service costs related to demand deposits including accounting courier and other deposit related services in the third quarter and first nine months of 1996 increased $0.9 million and $2.1 million, respectively, from the same periods of 1995 due to increased average demand deposits volumes during the first nine months of 1996 as these costs are a function of deposit volume and interest rates. The Company incurred higher professional and consulting fees during the third quarter and nine month period ended September 30, 1996. Increased consulting expenses in the third quarter and first nine months of 1996 accounted for approximately $0.4 million and $1.3 million, respectively, of the increase. The Company has retained the services of outside consultants to assist in the implementation of its cost containment and revenue enhancement programs. Offsetting these increases in noninterest expense were decreases in the following components of noninterest expense. Regulatory assessments for the quarter and nine months ended September 30, 1996 decreased $0.3 million and $2.6 million, respectively, from the same periods of 1995 due to a reduction in the FDIC deposit insurance premium in the third quarter of 1995. Also, the Company experienced reduced data processing costs in the third quarter and first nine months of 1996 which declined $0.3 million and $1.3 million, respectively, from the same periods of 1995. The reduced costs - -------------------------------------------------------------------------------- 6 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- were primarily the result of the fourth quarter 1995 sale of a portion of the Company's merchant card accounts as the cost to service the accounts declined $0.4 million and $1.2 million, respectively, from the quarter and nine months ended September 30, 1995. REO expenses totaled $0.3 million and $1.3 million, respectively, for the quarter and nine months ended September 30, 1996, a decrease of $2.6 million and $4.0 million from the same periods of 1995. In the third quarter and first nine months of the prior year, the Company recorded $1.7 million and $2.7 million, respectively, in provisions for REO; no provisions for REO were required in the first nine months of 1996. Income Taxes: The Company recorded income tax expense of $6.0 million and $34.5 million, respectively, for the quarter and nine months ended September 30, 1996 representing effective tax rates of approximately 42.1% and 40.9%, respectively. For the same periods of 1995, the Company's income tax expense and effective tax rate approximated $2.4 million and 34.0%, respectively, and $5.7 million and 29.7%, respectively. 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. Also in the first nine months of 1995, the Company reduced the valuation allowance on its deferred tax assets by approximately $1.4 million. Excluding these items, the Company's effective tax rate would have been 42.5% and 41.8%, respectively, for the third quarter and first nine months of 1995. At September 30, 1996, the Company had a net deferred tax receivable of $1.0 million, as compared to a $5.5 million net deferred tax receivable at December 31, 1995. The Company's net deferred tax receivable is supported by carryback and carryforward provisions of the tax laws as well as the Company's level of taxable income recognized in the first nine months of 1996 and its projection of taxable income for the remainder of 1996. Discontinued Operation: In the second quarter of 1996, management of the Company decided to discontinue the precious metals business which had been engaged in trading and leasing of precious metals in addition to making loans secured by precious metals since 1993. The decision to exit this line of business was made in the wake of several operational losses for which the Company provided approximately $6.7 million, net of tax, in the second quarter. No further provisions were required in the third quarter of 1996. The provision, in addition to all of the results of operations from this division, are reflected in the Consolidated Statement of Income as "(Loss) income from operations of discontinued operation, net of tax." The Company expects substantially all of the activities of the precious metals division to be completed by December 31, 1996. 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 its 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 $991 million for the nine months ended September 30, 1996 as compared to $817 million for the same period of 1995. The Company's average demand deposits and average stockholders' equity funded 46% and 45%, respectively, of average total assets for the nine months ended September 30, 1996 and 1995. 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 nine months of 1996, the Company experienced a net cash outflow from its investing activities of $333 million. This net outflow in investing activities resulted primarily from the growth in the Company's loan portfolio, an outflow of $196 million. The outflows were offset by the $415 million net cash provided by the Company's financing activities consisting mainly of deposit inflows including $233 million in certificates of deposit and $216 million in demand deposits, money market and savings accounts. These deposit inflows were partially offset by $35 million of outflows attributable to short-term borrowings. - -------------------------------------------------------------------------------- 7 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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 ("ALCO") 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 September 30, 1996, the Company maintained a positive one year gap of approximately $629 million as its interest rate sensitive assets exceeded its interest rate sensitive liabilities. This positive cumulative gap indicates that the Company is asset sensitive and positioned for increased net interest income during a period of rising interest rates but also exposed to an adverse impact on net interest income in a falling rate environment. The Company's net interest margin is sensitive to sudden changes in interest rates. In addition, the Company's interest-earning assets, primarily its loans are tied to the Prime Rate, an index which tends to react more slowly to changes in market rates than other money market indices such as LIBOR (London Interbank Offered Rate). The rates paid for the Company's interest-bearing liabilities, however, do correlate with LIBOR. This mismatch creates a spread relationship risk between the Company's Prime based assets and LIBOR correlated liabilities. 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. Of the derivative financial contracts entered into in late 1993 and 1994, which included interest rate swaps with embedded options and associated written options, and purchased options, many expired during 1995 although some were still outstanding at year end 1995. The swaps outstanding from 1995 matured in the first quarter of 1996. All of the embedded and linked options expired during 1995. The combined economic impact of the Company's derivative financial instruments discussed above was a reduction in net interest income and a net interest margin of $2.1 million and 39 basis points, respectively, in the third quarter of 1995 and $8.0 million and 52 basis points, respectively, in the first nine months of 1995. The impact of these instruments for the nine months ended September 30, 1996 was not material. During 1995, the Company revised its approach as it related to protecting net interest income from a narrowing of the Prime Rate and LIBOR spread. The concern with the spread between the two indices narrowing was reduced as the Prime Rate moved toward the characteristics of a retail rate and away from those as a wholesale rate. This was evidenced by the interest rate swap markets in 1995 as the spread between the Prime Rate and LIBOR increased from approximately 217 basis points to 250 basis points. Although the Company's balance sheet remains asset sensitive, management had fewer concerns about potential compression of the Company's interest rate margin in early 1995 then it did in late 1993 - -------------------------------------------------------------------------------- 8 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- and early 1994. The Company developed strategies to protect both net interest income and net interest margin from significant movements in interest rates both up and down. These strategies involve purchasing interest rate floors and caps with strike prices which generally adjust quarterly and are approximately 200 basis points below or above (depending on the instrument) current market rates. Based on its strategy and the general asset sensitive nature of the balance sheet, the Company purchased over the counter interest rate floors in the first quarter of 1995 to protect against a drop in interest rates. The interest rate floors, with a notional value of $500 million at September 30, 1996, mature in the first quarter of 1997. In the first and second quarters of 1996, the Company purchased $2.0 billion of exchange traded interest rate floors. The floors mature at the rate of $500 million per quarter beginning in the second quarter of 1997. The floors maturing in the first and second quarter of 1997 provide protection to the Company in the event that the three month LIBOR drops below the strike price of 4.0% associated with the floor while the remaining floors have a strike price of 4.25%. The unrealized gain on the floors approximated $75,000 at September 30, 1996. During 1995, the Company also purchased both exchange traded and over the counter 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 exchange traded caps matured in the third quarter of 1996. The over the counter caps had a notional value of $100 million at September 30, 1996. These caps mature in December 1996. These caps provide protection to the Company in the event that the three month LIBOR rises above the strike price of the caps of 8.45%. There were no material unrealized gains or losses on these caps at September 30, 1996. In the first and second quarters of 1996, the Company purchased additional exchange traded interest rate caps with a notional value of $1.0 billion at September 30, 1996. The caps provide protection in the event that the three month LIBOR increases above the 6.5% strike price of the caps and mature at the rate of $500 million per quarter during the fourth quarter of 1996 and the first quarter of 1997. The unrealized gain on both the exchange traded and over the counter caps approximated $112,500 at September 30, 1996. ASSET QUALITY Nonaccrual loans, restructured loans and real estate owned: Nonaccrual loans, which includes loans 90 days or more past due, totaled $22.3 million at September 30, 1996 as compared to $28.9 million at year end 1995 and $23.2 million at September 30, 1995. The decrease from year end 1995 was related in part to charge-offs of loans on nonaccrual status at year end 1995, approximately $3.0 million, paydowns approximating $8.1 million and delinquencies which were cured, approximately $4.5 million. Offsetting these decreases from year end 1995 were several commercial loans totaling approximately $8.3 million which were placed on nonaccrual during 1996. 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. Restructured loans, loans outstanding whose original terms have been modified, totaled $44.8 million at September 30, 1996 compared with $33.6 million at year end 1995 and $4.1 million at September 30, 1995. The increase in restructured loans from the third quarter of 1995 resulted from the modification of two real estate secured loans totaling $29.5 million in the fourth quarter of 1995. The modified loans carried market rates of interest but are classified as restructured because the Company anticipates debt forgiveness on one of the loans in return for a partial principal paydown and additional collateral and because the Company deferred a principal reduction on the other. All restructured loans were current as to principal and interest at September 30, 1996. Real estate owned of $2.7 million, net of a $0.3 valuation allowance, at September 30, 1996 decreased $7.7 million from year end 1995 and $10.4 million from September 30, 1995. The significant decline from year end 1995 is attributable to the Company's disposition of seventeen REO properties since December 31, 1995. The largest, a $5.0 million piece of commercial land, was sold in the third quarter of 1996. - -------------------------------------------------------------------------------- 9 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- Detailed information regarding nonaccrual loans, restructured loans and real estate owned is presented below.
------------------------------------------------------------------------------------ Sept. 30, June 30, March 31, Dec. 31, Sept. 30, (In Thousands) 1996 1996 1996 1995 1995 ------------------------------------------------------------------------------------ Nonaccrual loans: Commercial loans.......... $11,782 $10,419 $14,766 $ 11,714 $ 9,308 Real estate loans......... 10,526 10,434 16,022 17,212 13,938 ------------------------------------------------------------------------------------ Total nonaccrual loans $22,308 $20,853 $30,788 $ 28,926 $ 23,246 ------------------------------------------------------------------------------------ Restructured loans $44,764 $44,962 $35,966 $ 33,608 $ 4,083 ------------------------------------------------------------------------------------ Real estate owned: REO, gross................ $ 2,986 $ 8,306 $10,377 $ 15,015 $ 17,504 Less valuation allowance.. (307) (366) (640) (4,686) (4,379) ------------------------------------------------------------------------------------ REO, net $ 2,679 $ 7,940 $ 9,737 $ 10,329 $ 13,125 ------------------------------------------------------------------------------------ Total $69,751 $73,755 $76,491 $ 72,863 $ 40,454 ------------------------------------------------------------------------------------
At September 30, 1996, the recorded investment in loans for which impairment has been recognized in accordance with FAS 114 totaled $139.0 million, of which $22.3 million were on nonaccrual status and $41.2 million were classified as restructured loans. A significant portion, $107.6 million, of the impaired loans were secured by real estate. Impaired loans totaling $103.0 million required a specific allowance for potential losses. The specific allowance for potential losses related to such loans was $14.0 million. The remaining $36.0 million of loans classified as impaired did not require a specific allowance for potential losses. Impaired loans averaged $130.8 million during the nine months ended September 30, 1996. During the first nine months of 1996, total interest recognized on the impaired loan portfolio, on a cash basis, was $7.8 million. At September 30, 1996, $116.7 million of the impaired loans were current as to principal and interest. There were no loans classified as potential problems at September 30, 1996. Allowance and provision for loan losses: The allowance for loan losses is maintained at a level considered appropriate by management and is based on an ongoing assessment of the risks inherent in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses which is charged against current period operating results, and is decreased by the amount of net charge-offs during the period. The Company's determination of the level of the allowance for loan losses, and correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions (especially in California), loan portfolio composition and concentrations, prior loan loss experience, collateral value, identification of problem and potential problem loans and other relevant data to identify the risks in the loan portfolio. While management believes that the allowance for loan losses is adequate at September 30, 1996, future additions to the allowance will be subject to continuing evaluation of inherent risk in the loan portfolio. - -------------------------------------------------------------------------------- 10 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- At September 30, 1996, the allowance for loan losses amounted to $39.5 million, or 2.09% of total loans, as compared to $37.4 million, or 2.20% of total loans, at December 31, 1995 and $38.3 million, or 2.32% of total loans, at September 30, 1995. The following table summarizes changes in the allowance for loan losses.
- -------------------------------------------------------------------------------- Nine months ended September 30, (In Thousands) 1996 1995 - -------------------------------------------------------------------------------- Balance, beginning of year $ 37,402 $ 40,072 - -------------------------------------------------------------------------------- Loans charged off: Commercial............................. (5,655) (8,738) Real estate............................ (3,438) (5,784) Consumer............................... (19) (47) - -------------------------------------------------------------------------------- Total loans charged off $ (9,112) $ (14,569) - -------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial............................. 1,371 1,538 Real estate............................ 11 453 Consumer............................... 17 28 - -------------------------------------------------------------------------------- Total loan recoveries $ 1,399 $ 2,019 - -------------------------------------------------------------------------------- Net loans charged off................... (7,713) (12,550) Provision for loan losses............... 9,829 10,817 Provision for loan losses of discontinued operation................. 22 - - -------------------------------------------------------------------------------- Balance, end of period $ 39,540 $ 38,339 - -------------------------------------------------------------------------------- Loans outstanding, end of period $1,893,466 $1,650,876 - -------------------------------------------------------------------------------- Average loans outstanding $1,792,413 $1,504,884 - -------------------------------------------------------------------------------- Ratio of net charge-offs to average loans.................................. 0.57%/(1)/ 1.11%/(1)/ Ratio of allowance for loan losses to average loans.......................... 2.21 2.55 Ratio of allowance for loan losses to loans outstanding at September 30...... 2.09 2.32 Ratio of allowance for loan losses to nonaccrual loans....................... 177 165 Ratio of provision for loan losses to net charge-offs........................ 128 86 - --------------------------------------------------------------------------------
/(1)/ Annualized The provision for loan losses totaled $3.8 million and $9.8 million, respectively, for the quarter and nine months ended September 30, 1996 as compared to $6.3 million and $10.8 million, respectively, for the same periods of 1995. Net charge-offs totaled $2.8 million and $7.7 million, respectively, for the three months and nine months ended September 30, 1996 as compared to $6.4 million and $12.6 million, respectively, in the same periods of 1995. As a percentage of average loans outstanding, annualized net charge-offs were 0.59% and 0.57%, respectively, for the three and nine months ended September 30, 1996 compared with 1.62% and 1.11%, respectively, for the same periods in the prior year. 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 September 30, 1996, shareholders' equity totaled $276 million as compared to $228 million at December 31, 1995. In the first nine months of 1996, the Company recorded an additional $2.4 million of shareholders' equity from the exercise of employee stock options. The Company receives a tax deduction from the exercise of non-qualified stock options for the difference between the option price and the market value of the shares issued. The tax benefit associated with shares exercised, which is recorded as a component of stockholders' equity, approximated $3.2 million during the first nine months of 1996. 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, institutions whose Tier I - -------------------------------------------------------------------------------- 11 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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 of consolidated subsidiaries minus intangible assets. Based on the guidelines, the Bank's Tier I and total capital ratios at September 30, 1996 were 9.8% and 11.0%, respectively, as compared to 9.1% and 10.4%, respectively, at September 30, 1995. Capital Ratios for Imperial Bank/(1)/
-------------------------------------------------------------------------- September 30, (In Thousands) 1996 1995 -------------------------------------------------------------------------- Tier I: Common stockholders' equity and preferred stock/(2)/........................ $ 253,918 $ 202,761 Disallowed assets............................ (1,204) (2,444) -------------------------------------------------------------------------- Tier I capital $ 252,714 $ 200,317 -------------------------------------------------------------------------- Tier II: Allowance for loan losses allowable in Tier II..................................... 32,409 27,585 -------------------------------------------------------------------------- Total risk-based capital $ 285,123 $ 227,902 -------------------------------------------------------------------------- Risk-weighted balance sheet assets $2,202,445 $1,939,841 -------------------------------------------------------------------------- Risk-weighted off-balance sheet items: Commitments to make or purchase loans........ 279,912 198,912 Standby letters of credit.................... 95,533 55,279 Other........................................ 14,861 15,243 -------------------------------------------------------------------------- Total risk-weighted off-balance sheet items $ 390,306 $ 269,434 -------------------------------------------------------------------------- Disallowed assets............................. (1,204) (2,444) Allowance for loan losses not included in Tier II................................... (7,131) (10,754) -------------------------------------------------------------------------- Total risk-weighted assets $2,584,416 $2,196,077 -------------------------------------------------------------------------- Risk-based capital ratios: Tier I capital............................... 9.8% 9.1% Total capital................................ 11.0 10.4 Leverage ratio............................... 8.7 8.3 --------------------------------------------------------------------------
/(1)/ As reported on the September 30, 1996 and 1995 FDIC Call Reports. /(2)/ Excludes unrealized gain 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 was 8.8% at September 30, 1996 as compared to 8.3% at September 30, 1995 well in excess of its regulatory requirement. NEW ACCOUNTING/REGULATORY PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 121 requires that long-lived assets and certain identifiable intangibles held for use be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, FAS 121 requires that long- lived assets and certain identifiable intangibles held for disposal be reported at the lower of book value or fair value less selling costs. The Company adopted FAS 121 on January 1, 1996. The impact of adopting FAS 121 was not material to the results of operations for the nine months ended September 30, 1996. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123"). FAS 123 applies to all transactions in which the Company acquires goods or services by issuing equity instruments or by incurring liabilities where the payment amounts are based on the Company's common stock price, except for Employee Stock Ownership Plans. A new method of accounting for stock based compensation arrangements with employees is established by FAS 123. The new method is based on the fair value method rather than the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB - -------------------------------------------------------------------------------- 12 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 25"). FAS 123 does not require companies to adopt the new fair value method for purposes of preparing their basic financial statements. Companies are allowed to either continue to use the APB 25 method or adopt the fair value method set forth in FAS 123. Companies that do not adopt the new fair value method in FAS 123 for purposes of preparing their basic financial statements are required to include pro-forma disclosures in the notes to the basic financial statements. The pro-forma disclosures should include the impact of the fair value method on net income and income per share as if FAS 123 had been adopted. The Company adopted FAS 123 on January 1, 1996 but management has decided not to adopt the fair value method set forth in FAS 123 for purposes of accounting for its stock-based compensation. In June 1996, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 125, "Accounting for Liabilities" ("FAS 125"). FAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. FAS 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. FAS 125 requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interest, if any, based on their relative fair values at the date of the transfers. FAS 125 includes specific provisions to deal with servicing assets or liabilities. FAS 125 will be effective for transactions occurring after December 31, 1996. It is not anticipated that the financial impact of this statement will have material effect on the Company. On September 30, 1996, the Omnibus Federal Spending Bill was signed into law. This bill included a comprehensive legislative package on BIF-SAIF. The package included the following provisions which impact the Company: 1) a FICO premium assessment on BIF-insured deposits at one-fifth the premium rate imposed on SAIF-insured deposits for the three year period beginning in 1997. One-fifth of the SAIF premium approximates a 1.3 basis point FICO premium assessment for BIF-insured deposits. In the year 2000, the bill requires BIF-insured institutions to share in the payment of the FICO obligations on a pro-rata basis with all thrift institutions, with annual assessments expected to equal approximately 2.4 basis points until the year 2017, and to be completely phased out by 2019; 2) a merger of the BIF and SAIF on January 1, 1999, if no thrift institutions exist on that date; 3) the FDIC is prohibited from setting insurance premiums above the amount which would result in the deposit insurance fund exceeding its designated reserve ratio - currently 1.25%; and 4) the FDIC was given the authority to refund assessments paid to it in excess of amounts due. - -------------------------------------------------------------------------------- 13 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- Consolidated Balance Sheet
----------------------------------------------------------------------------- (Unaudited) Imperial Bancorp and Subsidiaries September 30, December 31, (In Thousands, Except Share Data) 1996 1995 ----------------------------------------------------------------------------- ASSETS Cash and due from banks................. $ 286,899 $ 242,018 Trading account securities.............. 83,108 40,050 Securities available for sale........... 399,170 295,312 Securities held to maturity (fair value of $4,244 and $4,975 for 1996 and 1995, respectively).................... 4,244 4,975 Federal funds sold and securities purchased under resale agreements...... 500,000 425,300 Loans held for sale (fair value of $6,519 and $2,842 for 1996 and 1995, respectively).......................... 5,661 2,648 Loans: Loans, net of unearned income and deferred loan fees.................... 1,893,466 1,699,347 Less allowance for loan losses......... (39,540) (37,402) ----------------------------------------------------------------------------- Total net loans $1,853,926 $1,661,945 ----------------------------------------------------------------------------- Premises and equipment, net............. 18,184 16,003 Accrued interest receivable............. 14,714 15,284 Real estate owned, net.................. 2,679 10,329 Income taxes receivable................. 3,960 4,008 Investment in Imperial Credit Industries, Inc........................ 52,887 36,126 Other assets............................ 45,625 34,376 ----------------------------------------------------------------------------- Total assets $3,271,057 $2,788,374 ----------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand................................. $1,274,025 $1,145,720 Savings................................ 16,448 15,708 Money market........................... 523,040 435,674 Time-under $100,000.................... 207,696 227,262 Time-$100,000 and over................. 791,571 539,252 ----------------------------------------------------------------------------- Total deposits $2,812,780 $2,363,616 ----------------------------------------------------------------------------- Accrued interest payable................ 5,615 5,576 Short-term borrowings................... 124,247 159,636 Long-term borrowings.................... 4,501 5,906 Other liabilities....................... 47,924 25,404 ----------------------------------------------------------------------------- Total liabilities $2,995,067 $2,560,138 ----------------------------------------------------------------------------- Stockholders' equity: Common stock-no par, 50,000,000 shares authorized; 23,073,803 shares at September 30, 1996 and 22,390,223 shares at December 31, 1995 issued and outstanding....................... 163,727 130,780 Unrealized gain on securities available for sale, net of tax........ 849 2,747 Retained earnings...................... 111,414 94,709 ----------------------------------------------------------------------------- Total stockholders' equity $ 275,990 $ 228,236 ----------------------------------------------------------------------------- Total liabilities and stockholders' equity $3,271,057 $2,788,374 -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------- 14 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- Consolidated Statement of Income
- ----------------------------------------------------------------------------------------------------------- Three months ended Nine months ended Imperial Bancorp and Subsidiaries September 30, September 30, (In Thousands, Except Per Share Data) Unaudited 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------- Interest income: Loans................................................. $44,531 $ 36,788 $127,236 $102,963 Trading account securities............................ 978 686 2,025 3,005 Securities available for sale......................... 5,574 4,145 15,653 13,070 Securities held to maturity........................... 77 74 231 227 Federal funds sold and securities purchased under resale agreements.............................. 3,220 3,267 7,424 7,200 Loans held for sale................................... 133 54 360 210 - ----------------------------------------------------------------------------------------------------------- Total interest income $54,513 $ 45,014 $152,929 $126,675 - ----------------------------------------------------------------------------------------------------------- Interest expense: Deposits.............................................. 17,281 14,888 47,081 41,330 Short-term borrowings................................. 1,073 967 2,390 3,448 Long-term borrowings.................................. 75 123 264 428 - ----------------------------------------------------------------------------------------------------------- Total interest expense $18,429 $ 15,978 $ 49,735 $ 45,206 - ----------------------------------------------------------------------------------------------------------- Net interest income................................... 36,084 29,036 103,194 81,469 Provision for loan losses............................. 3,803 6,261 9,829 10,817 - ----------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses $32,281 $ 22,775 $ 93,365 $ 70,652 - ----------------------------------------------------------------------------------------------------------- Noninterest income: Service charges on deposit accounts................... 1,123 1,045 3,617 3,103 Trust fees............................................ 2,197 1,921 6,468 5,728 Gain on origination and sale of loans................. 576 758 2,249 1,718 Equity in net earnings of Imperial Credit Industries, Inc...................................... 3,045 1,730 16,556 2,787 Gain on sale of Imperial Credit Industries, Inc. common stock......................................... - - 36,411 - Other service charges and fees........................ 3,118 1,675 7,115 4,629 Merchant and credit card fees......................... 728 1,662 1,764 4,676 (Loss) gain on securities available for sale.......... (13) (8) 229 259 Gain on trading account securities.................... 581 827 2,387 1,973 Appreciation of donated Imperial Credit Industries, Inc. common stock........................ 109 -- 3,614 -- Other income.......................................... 1,122 843 4,107 2,253 - ----------------------------------------------------------------------------------------------------------- Total noninterest income $12,586 $ 10,453 $ 84,517 $ 27,126 - ----------------------------------------------------------------------------------------------------------- Noninterest expense: Salary and employee benefits.......................... 15,367 11,499 45,291 34,280 Net occupancy expense................................. 2,356 2,233 6,821 6,526 Furniture and equipment............................... 1,288 1,264 3,707 3,760 Data processing....................................... 1,714 2,048 4,771 6,048 Customer services..................................... 3,044 2,151 8,275 6,152 Net real estate owned expense......................... 321 2,952 1,269 5,280 Regulatory assessments................................ 27 348 253 2,860 Professional and consulting........................... 1,505 578 4,957 2,491 Business development.................................. 1,030 778 2,759 2,384 Lawsuit settlements................................... -- (1,709) -- (1,516) Charitable donations.................................. 195 50 4,863 115 Other expense......................................... 3,673 3,956 10,704 10,335 - ----------------------------------------------------------------------------------------------------------- Total noninterest expense $30,520 $ 26,148 $ 93,670 $ 78,715 - ----------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes................................................ 14,347 7,080 84,212 19,063 Income tax provision.................................. 6,044 2,410 34,462 5,667 - ----------------------------------------------------------------------------------------------------------- Net income from continuing operations $ 8,303 $ 4,670 $ 49,750 $ 13,396 - ----------------------------------------------------------------------------------------------------------- Income (loss) from operations of discontinued operation, net of tax................... 373 480 (5,625) 1,058 - ----------------------------------------------------------------------------------------------------------- Net income $ 8,676 $ 5,150 $ 44,125 $ 14,454 - ----------------------------------------------------------------------------------------------------------- Net income from continuing operations per share............................................ $0.35 $0.20 $2.11 $0.59 Income (loss) per share of discontinued operations........................................... $0.01 $0.02 $(0.24) $0.05 - ----------------------------------------------------------------------------------------------------------- Net income per share $0.36 $0.22 $1.87 $0.63 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------- 15 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- Consolidated Statement of Cash Flows
- -------------------------------------------------------------------------------- Imperial Bancorp and Subsidiaries (Unaudited) Nine months ended September 30, (In Thousands) 1996 1995 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income..........................................$ 44,125 $ 14,454 Adjustments for noncash charges (credits): Depreciation and amortization..................... (2,105) 375 Accretion of purchased loan discount.............. (205) (1,836) Provision for loan losses......................... 9,829 10,817 (Reversal) provision for real estate owned........ (5) 2,664 Provision for operational losses in discontinued operation........................... 10,615 - Equity in net earnings of Imperial Credit Industries, Inc........................... (16,556) (2,787) Gain on sale of Imperial Credit Industries, Inc. common stock.................... (36,411) - Loss (gain) on sale of real estate owned.......... 157 (134) Gain on sale of real property held for sale or investment........................... - (75) Gain on sale of premises and equipment............ - (4) Writedown for impairment of equity investment..... - 1,500 Gain on securities available for sale............. (229) (259) Net change in trading account securities.......... (43,058) 22,405 Net change in loans held for sale................. (3,013) (620) Net change in accrued interest receivable......... 570 (3,193) Net change in accrued interest payable............ 39 595 Net change in income taxes receivable............. 48 (1,253) Net change in other liabilities................... 11,905 6,242 Net change in other assets........................ (12,164) 3,332 - -------------------------------------------------------------------------------- Net cash (used in) provided by operating activities $ (36,458) $ 52,223 - -------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from securities held to maturity........................................... 132 110 Purchase of securities held to maturity............. - (403) Proceeds from sale of securities available for sale................................. 2,045,960 1,169,859 Proceeds from maturities of securities available for sale................................. 119,939 464,958 Purchase of securities available for sale............................................... (2,267,221) (1,527,940) Proceeds from sale of Imperial Credit Industries, Inc. common stock...................... 35,079 - Net change in Federal funds sold and securities purchased under resale agreements....... (74,700) (248,500) Net change in loans................................. (195,535) (294,898) Capital expenditures................................ (5,140) (3,585) Proceeds from sale of real estate owned............. 8,120 27,090 Proceeds from sale of real property held for sale or investment........................ - 309 Proceeds from sale of premises and equipment.......................................... - 9 - -------------------------------------------------------------------------------- Net cash used in investing activities $(333,366) $(412,991) - -------------------------------------------------------------------------------- Cash flows from financing activities: Net change in demand deposits, savings, and money market accounts................. 216,411 91,927 Net change in time deposits......................... 232,753 256,801 Net change in short-term borrowings................. (35,389) 28,965 Retirement of long-term borrowings.................. (1,405) (2,247) Proceeds from exercise of employee stock options...................................... 2,353 1,781 Other............................................... (18) (11) - -------------------------------------------------------------------------------- Net cash provided by financing activities $414,705 $377,216 - -------------------------------------------------------------------------------- Net change in cash and due from banks $ 44,881 $ 16,448 - -------------------------------------------------------------------------------- Cash and due from banks, beginning of year $242,018 $168,626 - -------------------------------------------------------------------------------- Cash and due from banks, end of period $286,899 $185,074 - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------- 16 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Imperial Bancorp and Subsidiaries NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations, and changes in cash flows in conformity with generally accepted accounting principles. However, these interim financial statements reflect all normal recurring adjustments, which are, in the opinion of the management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments were of a normal recurring nature. The Consolidated Balance Sheet, Consolidated Statement of Income and Consolidated Statement of Cash Flows are presented in the same format as that used in the Company's most recently filed Report on Form 10-K. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC. At December 31, 1994, the Company owned 3,867,368 shares, or 40.2% of the common stock of Imperial Credit Industries, Inc. (NASDAQ-NMS-ICII) ("ICII"). During 1995, ICII common stock was split at the ratio of three new shares for every two shares outstanding. In February 1996, ICII declared and paid a 10% stock dividend. Combined, these events increased shares held by the Company to 6,381,157. The Company's ownership percentage dropped slightly from 40.2% to 39.7% as a result of the exercise of employee stock options at ICII. In April 1996, the Company sold 1,500,000 shares of ICII in a public offering for $26 per share. As a part of that same offering, ICII sold 2,252,091 new shares to the public. In May 1996, ICII sold an additional 562,813 new shares to the public. Additionally, during 1996, the Company donated 179,604 shares of its ICII stock to qualifying not-for-profit organizations. In October 1996, ICII declared a two-for-one stock split which brought the Company's total shares of ICII common stock to 9,403,106. As a result of the second quarter sale and offerings, the Company's ownership percentage was reduced to approximately 25%. The Company does not exercise significant control over the operations of ICII and as such the results of operations are accounted for in the Company's financial statements as an equity investment. The equity investment in ICII is carried at cost adjusted for changes in ICII's shareholder equity including undistributed income. Transactions between ICII and the Company occur during the normal course of business. All transactions are carried out at substantially the same terms as those prevailing at the same time for comparable transactions with others. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") restricts the ability of state chartered banks, such as the Company's principal subsidiary, Imperial Bank (the "Bank"), to hold equity securities and requires impermissible investments to be disposed of before December 19, 1996. The equity investment in ICII held by the Bank, as noted in the prospectus relating to the second quarter sale of ICII common stock, may be subject to divestiture under FDICIA. The Bank has requested approval from the FDIC to retain its investment in ICII. The response to the request is currently pending following delivery of further information concerning ICII required by the FDIC. NOTE (3) STATEMENT OF CASH FLOWS The following information supplements the statement of cash flows.
---------------------------------------------------------------------- September 30, (In Thousands) 1996 1995 ---------------------------------------------------------------------- Interest paid................................... $49,696 $44,611 Taxes refunded.................................. 244 - Taxes paid...................................... 25,932 9,350 Significant noncash transactions: Loans transferred to real estate owned......... 622 11,982 Donation of Imperial Credit Industries, Inc. common stock................. 4,741 - ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- 17 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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 September 30, - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Interest Interest Average Income/ Average Average Income/ Average (In Thousands) Balance Expense Rate % Balance Expense Rate % - --------------------------------------------------------------------------------------------------------------------------------- Earning assets: Loans/(1)/............................. $ 1,866,498 $ 44,531 9.5% $ 1,584,749 $ 36,788 9.3% Trading account securities............. 77,173 978 5.1 50,053 686 5.5 Securities available for sale.......... 371,029 5,574 6.0 250,903 4,145 6.6 Securities held to maturity............ 4,307 77 7.2 5,220 74 5.7 Federal funds sold and securites purchased under resale agreements..... 240,268 3,220 5.4 220,390 3,267 5.9 Loans held for sale.................... 4,643 133 11.5 2,126 54 10.2 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets....... $ 2,563,918 $ 54,513 8.5% $ 2,113,441 $ 45,014 8.5% - --------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses................. (38,786) (38,468) Cash...................................... 241,544 212,403 Other assets.............................. 134,904 125,585 --------------- --------------- Total assets........................ $ 2,901,580 $ 2,412,961 =============== =============== Interest-bearing liabilities: Savings................................ $ 18,472 $ 116 2.5% $ 21,825 $ 137 2.5% Money market........................... 493,718 3,859 3.1 423,529 3,128 3.0 Time - under $100,000.................. 220,370 3,146 5.7 241,176 3,883 6.4 Time - $100,000 and over............... 731,400 10,160 5.6 516,638 7,740 6.0 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits..... $ 1,463,960 $ 17,281 4.7% $ 1,203,168 $ 14,888 4.9% - --------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings.................. 81,842 1,073 5.2 68,384 967 5.7 Long-term borrowings................... 4,752 75 6.3 6,904 123 7.1 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities.. $ 1,550,554 $ 18,429 4.8% $ 1,278,456 $ 15,978 5.0% - --------------------------------------------------------------------------------------------------------------------------------- Demand deposits........................... 1,022,109 889,076 Other liabilities......................... 58,104 33,117 Stockholders' equity...................... 270,813 212,312 --------------- --------------- Total liabilities and stockholders' equity............... $ 2,901,580 $ 2,412,961 =============== =============== Net interest income/net interest margin... $ 36,084 5.7% $ 29,036 5.5% ============================= ======================== ================================================================================================================================= ================================================================================================================================= Nine months ended September 30, - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Interest Interest Average Income/ Average Average Income/ Average (In Thousands) Balance Expense Rate % Balance Expense Rate % - --------------------------------------------------------------------------------------------------------------------------------- Earning assets: Loans/(1)/............................. $ 1,792,413 $ 127,236 9.5% $ 1,504,884 $ 102,963 9.1% Trading account securities............. 53,270 2,025 5.1 58,700 3,005 6.8 Securities available for sale.......... 341,259 15,653 6.1 267,525 13,070 6.5 Securities held to maturity............ 4,348 231 7.1 5,857 227 5.2 Federal funds sold and securities purchased under resale agreements..... 184,700 7,424 5.4 161,984 7,200 5.9 Loans held for sale.................... 4,545 360 10.6 2,564 210 10.9 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets....... $ 2,380,535 $ 152,929 8.6% $ 2,001,514 $ 126,675 8.4% - --------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses................. (39,144) (39,796) Cash...................................... 241,413 204,212 Other assets.............................. 122,313 126,937 --------------- --------------- Total assets........................ $ 2,705,117 $ 2,292,867 =============== =============== Interest-bearing liabilities: Savings................................ $ 18,681 $ 348 2.5% $ 26,487 $ 496 2.5% Money market........................... 462,359 10,506 3.0 439,881 9,300 2.8 Time - under $100,000.................. 226,874 9,725 5.7 238,540 11,292 6.3 Time - $100,000 and over............... 644,917 26,502 5.5 448,704 20,242 6.0 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits..... $ 1,352,831 $ 47,081 4.6% $ 1,153,612 $ 41,330 4.8% - --------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings................. 61,610 2,390 5.2 79,413 3,448 5.8 Long-term borrowings.................. 5,381 264 6.5 7,716 428 7.4 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities.. $ 1,419,822 $ 49,735 4.7% $ 1,240,741 $ 45,206 4.9% - --------------------------------------------------------------------------------------------------------------------------------- Demand deposits........................... 990,531 816,852 Other liabilities......................... 42,347 28,747 Stockholders' equity...................... 252,417 206,527 --------------- --------------- Total liabilities and stockholders' equity............... $ 2,705,117 $ 2,292,867 =============== =============== Net interest income/net interest margin... 103,194 5.8% $ 81,469 5.4% ============================ ======================== =================================================================================================================================
/(1)/ Includes nonaccrual loans. /(2)/ Includes net loan fees of $6.7 million and $3.6 million for the nine months ended September 30, 1996 and 1995, respectively, and $2.3 million and $1.5 million for the three months ended September 30, 1996 and 1995, respectively. - -------------------------------------------------------------------------------- 18 Imperial Bancorp [LOGO OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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 September 30 Nine months ended September 30, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 Over 1995 1996 Over 1995 (In Thousands) Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total - ------------------------------------------------------------------------------------------------------------------------------------ Increase/(decrease) in: Loans, net of unearned income and deferred loan fees..................... 6,551 964 228 7,743 19,624 4,117 532 24,273 Trading account securities 373 (54) (27) 292 (277) (762) 59 (980) Securities available for sale..................... 1,982 (371) (182) 1,429 3,595 (771) (241) 2,583 Securities held to maturity................. (13) 19 (3) 3 (59) 83 (20) 4 Federal funds sold and securities purchased under resale agreements.. 293 (297) (43) (47) 1,005 (657) (124) 224 Loans held for sale....... 64 7 8 79 162 (7) (5) 150 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income $ 9,250 $ 268 $ (19) $ 9,499 $ 24,050 $ 2,003 $ 201 $ 26,254 - ----------------------------------------------------------------------------------------------------------------------------------- Savings................... (41) 1 19 (21) (146) (3) 1 (148) Money market.............. 526 134 71 731 472 758 (24) 1,206 Time - under $100,000..... (333) (416) 12 (737) (551) (1,046) 30 (1,567) Time - $100,000 and over.. 3,222 (573) (229) 2,420 8,830 (1,753) (817) 6,260 - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits $ 3,374 $ (854) $ (127) $ 2,393 $ 8,605 $ (2,044) $ (810) $ 5,751 - ------------------------------------------------------------------------------------------------------------------------------------ Short-term borrowings..... 192 (78) (8) 106 (774) (374) 90 (1,058) Long-term borrowings...... (38) (14) 4 (48) (130) (50) 16 (164) - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense $ 3,528 $ (946) $ (131) $ 2,451 $ 7,701 $ (2,468) $ (704) $ 4,529 - ----------------------------------------------------------------------------------------------------------------------------------- Changes in net interest income $ 5,722 $ 1,214 $ 112 $ 7,048 $16,349 $ 4,471 $ 905 $ 21,725 - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 19 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- TABLE 3 - SECURITIES (a) Securities Held to Maturity The following is a summary for the major categories of securities held to maturity.
--------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In Thousands) Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------------- September 30, 1996 Industrial development bonds................. $ 4,244 $ -- $ -- $ 4,244 --------------------------------------------------------------------------------------------------------------------------- Total $ 4,244 $ -- $ -- $ 4,244 --------------------------------------------------------------------------------------------------------------------------- December 31, 1995 Industrial development bonds................. $ 4,376 $ -- $ -- $ 4,376 Other securities............................. 599 -- -- 599 --------------------------------------------------------------------------------------------------------------------------- Total $ 4,975 $ -- $ -- $ 4,975 ---------------------------------------------------------------------------------------------------------------------------
(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 --------------------------------------------------------------------------------------------------------------------------- September 30, 1996 U.S. Treasury and federal agencies........... $ 326,671 $ 1,421 $ (20) $ 328,072 Mutual funds................................. 66,809 -- -- 66,809 Other securities............................. 4,218 71 -- 4,289 --------------------------------------------------------------------------------------------------------------------------- Total $ 397,698 $ 1,492 $ (20) $ 399,170 --------------------------------------------------------------------------------------------------------------------------- December 31, 1995 U.S. Treasury and federal agencies........... $241,649 $4,274 $ (4) $245,919 Mutual funds................................. 43,052 -- -- 43,052 Other securities............................. 5,837 504 -- 6,341 --------------------------------------------------------------------------------------------------------------------------- Total $290,538 $4,778 $ (4) $295,312 ---------------------------------------------------------------------------------------------------------------------------
Gross realized gains and losses for the three months ended September 30, 1996, were $2,000 and $15,000, respectively. For the same period of 1995, these amounts were $5,000 and $13,000, respectively. For the nine months ended September 30, 1996, gross realized gains and losses were $274,000 and $45,000, respectively, as compared to $422,000 and $163,000, respectively, for the same period of 1995. - -------------------------------------------------------------------------------- 20 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- TABLE 4 - REAL ESTATE OWNED (a) Real Estate Owned by Type of Project At September 30, 1996 and December 31, 1995, real estate owned by type of project is presented in the following table:
------------------------------------------------------------------------ September 30, December 31, (In Thousands) 1996 1995 ------------------------------------------------------------------------ Acquisition and land development........ $2,708 $ 6,908 Multi-family residential................ -- 162 Single-family residential............... 78 1,325 ------------------------------------------------------------------------ Total residential $2,786 $ 8,395 ------------------------------------------------------------------------ Acquisition and land development........ 200 5,420 Retail facilities....................... -- 1,200 ------------------------------------------------------------------------ Total non-residential $ 200 $ 6,620 ------------------------------------------------------------------------ REO, gross $2,986 $ 15,015 ------------------------------------------------------------------------ Less valuation allowance................ (307) (4,686) ------------------------------------------------------------------------ REO, net $2,679 $ 10,329 ------------------------------------------------------------------------
(b) Net Real Estate Owned Expense For the three and nine months ended September 30, 1996 and 1995, net real estate owned expense was comprised of the following:
------------------------------------------------------------------------ Three months ended Nine months ended September 30, September 30, (In Thousands) 1996 1995 1996 1995 ------------------------------------------------------------------------ Net loss (gain) on sale of real estate owned......... $ 180 $ (94) $ 157 $ (134) Valuation adjustments charged to operations..... - 1,675 (5) 2,664 Direct holding costs....... 141 1,371 1,117 2,750 ------------------------------------------------------------------------ Net real estate owned expense $ 321 $ 2,952 $1,269 5,280 ------------------------------------------------------------------------ The following table sets forth information regarding the Company's valuation allowance for REO. ------------------------------------------------------------------------ September 30, December 31, (In Thousands) 1996 1995 ------------------------------------------------------------------------ Balance, beginning of year.............. $ 4,686 $ 6,475 (Reversal) provision for REO............ (5) 4,547 REO charged off......................... (4,374) (6,336) ------------------------------------------------------------------------ Balance, end of period $ 307 $ 4,686 ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 21 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- TABLE 5 - FINANCIAL RATIOS
------------------------------------------------------------------------ Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ------------------------------------------------------------------------ Net income as a percentage of:(1) Average stockholders' equity 12.81% 9.70% 23.31% 9.33% Average total assets 1.20 0.85 2.17 0.84 Average earning assets 1.35 0.97 2.47 0.96 Average stockholders' equity as a percentage of: Average assets 9.33% 8.80% 9.33% 9.00% Average loans 14.51 13.40 14.08 13.72 Average deposits 10.89 10.15 10.77 10.48 Stockholders' equity at period end as a percentage of: Total assets at period end -- -- 8.44% 7.79% Total loans at period end -- -- 14.58 13.12 Total deposits at period end -- -- 9.81 9.38 ------------------------------------------------------------------------ (1) Annualized
- -------------------------------------------------------------------------------- 22 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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 September 30, 1996 and 1995, 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 September 30, Nine months ended September 30, ---------------------------------------------------------------------- 1996 1995(1) 1996 1995(1) --------------- ---------------------------------- --------------- 23,975,171 23,087,584 23,552,979 22,880,287
On September 26, 1996, the Company declared a three-for-two stock split which was distributed on October 18, 1996 to shareholders of record on October 11, 1996. The weighted average shares above reflect the impact of this stock split. (1) Adjusted for an 8% stock dividend paid in the first quarter of 1996. 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. - -------------------------------------------------------------------------------- 23 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- ITEM 5 Other Information No events have transpired which would make response to this item appropriate. 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. - -------------------------------------------------------------------------------- 24 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] - -------------------------------------------------------------------------------- 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: November 12, 1996 By: /s/ Robert M. Franko ---------------------------- Robert M. Franko Executive Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- 25 IMPERIAL BANCORP [LETTERHEAD OF IMPERIAL BANCORP APPEARS HERE] EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 286,899 0 500,000 83,108 399,170 4,244 4,244 1,893,466 39,540 3,271,057 2,812,780 124,247 53,539 4,501 0 0 163,727 112,263 3,271,057 127,236 17,909 7,784 152,929 47,081 49,735 103,194 9,829 229 93,670 84,212 49,750 (5,625) 0 44,125 1.87 1.87 .058 22,308 0 44,764 0 37,402 9,112 1,399 39,540 39,540 0 0
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