-----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, CcdQYav6I8LAIt8IW8vIMrv+A93e/d9d1i2QnbaP4eHprs3ODoMcGTL6GEHC9rGI CzMnLD8wmcFWWDR/Z0RMPg== 0000944209-00-000870.txt : 20000516 0000944209-00-000870.hdr.sgml : 20000516 ACCESSION NUMBER: 0000944209-00-000870 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 001-08196 FILM NUMBER: 632859 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 FORM 10-Q 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 March 31, 2000 IMPERIAL BANCORP (Exact name of registrant as specified in its charter) California 95-2575576 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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 May 1, 2000: 45,087,408 shares. Debt Securities: Imperial Bank 8.5% Subordinated Capital Notes Due 2009. As of March 31, 2000, $100,000,000 in principal amount of such Notes was outstanding. Capital Securities: 9.98% Series B Capital Securities of Imperial Capital Trust I Due 2026. As of March 31, 2000, $75,000,000 in principal amount was 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.
INDEX Page Part I Item 1. Financial Statements 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A Part II Item 1. Legal Proceedings 24 Item 2. Changes in Securities and Use of Proceeds 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 25
Page 1 of 25
PART I. ITEM 1. CONSOLIDATED BALANCE SHEETS =============================================================================================================================== Imperial Bancorp and Subsidiaries March 31, December 31, (Dollars in thousands) 2000 1999 =============================================================================================================================== ASSETS Cash and due from banks $ 410,983 $ 307,770 Federal funds sold and securities purchased under resale agreements 1,485,000 1,555,000 Trading instruments 143,157 86,540 Securities available for sale, at fair value 911,904 1,040,285 Securities held to maturity (fair value of $3,702 and $3,744 for 2000 and 1999, respectively) 3,702 3,744 Loans held for sale (fair value of $81,334 and $83,613 for 2000 and 1999, respectively) 80,148 83,044 Loans: Loans, net of unearned income and deferred loan fees 3,794,929 3,612,148 Less allowance for loan losses (78,528) (71,677) - ------------------------------------------------------------------------------------------------------------------------------- Total net loans 3,716,401 3,540,471 - ------------------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 46,003 41,245 Accrued interest receivable 42,447 33,565 Real estate and other assets owned, net 935 935 Deferred tax asset 26,366 26,092 Other assets 134,460 138,011 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $7,001,505 $6,856,702 =============================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand $3,196,396 $2,538,850 Savings 23,759 21,075 Money market 1,269,554 1,492,138 Time - under $100 117,062 154,597 Time - $100 and over 1,480,428 1,697,940 - ------------------------------------------------------------------------------------------------------------------------------- Total deposits 6,087,199 5,904,600 - ------------------------------------------------------------------------------------------------------------------------------- Accrued interest payable 15,809 15,883 Income taxes payable 3,471 - Short-term borrowings 94,423 156,663 Long-term borrowings: Notes and debentures 99,427 99,411 Other borrowed funds 3,590 4,125 Capital securities of subsidiary trust: Company-obligated mandatorily redeemable capital securities of subsidiary trust holding solely junior subordinated deferrable interest debentures of the Company, net 73,444 73,430 Minority interest 33,502 35,528 Other liabilities 98,572 93,655 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 6,509,437 6,383,295 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Common Stock - no par, 50,000,000 shares authorized; 44,931,945 shares at March 31, 2000, and 44,903,937 shares at December 31, 1999, issued and outstanding 399,008 312,677 Unearned employee stock ownership plan shares: 141,289 (2,923) (3,659) Deferred stock compensation (35,930) (37,615) Accumulated other comprehensive income, net of tax 5,519 9,998 Retained earnings 126,394 192,006 - ------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 492,068 473,407 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $7,001,505 $6,856,702 =============================================================================================================================== See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------------------------------------------------------
Page 2 of 25 CONSOLIDATED STATEMENTS OF INCOME
======================================================================================================================== Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands, except per share data) 2000 1999 ======================================================================================================================== Interest income: Loans $ 90,591 $ 74,587 Trading instruments 1,698 889 Interest-bearing deposits 95 - Securities available for sale 12,775 7,394 Securities held to maturity 66 72 Federal funds sold and securities purchased under resale agreements 11,125 4,055 Loans held for sale 1,462 435 - ------------------------------------------------------------------------------------------------------------------------ Total interest income 117,812 87,432 - ------------------------------------------------------------------------------------------------------------------------ Interest expense: Deposits 33,746 21,768 Short-term borrowings 1,481 1,259 Long-term borrowings 3,933 1,578 - ------------------------------------------------------------------------------------------------------------------------ Total interest expense 39,160 24,605 - ------------------------------------------------------------------------------------------------------------------------ Net interest income 78,652 62,827 Provision for loan losses 11,894 4,794 - ------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 66,758 58,033 - ------------------------------------------------------------------------------------------------------------------------ Noninterest income: Service charges on deposit accounts 1,860 1,843 Trust fees - 2,215 Gain on origination and sale of loans 493 1,221 Gain from exercise of Official Payments Corp. stock options 915 - Equity in net income of Imperial Credit Industries, Inc. - 2,240 Other service charges and fees 6,187 4,448 Merchant and credit card fees 3,694 2,236 International income and fees 3,928 2,800 Gain on securities available for sale 5,185 - Gain on trading instruments 582 19 Gain on exercise of warrants and related sale of equity securities 9,699 4,228 Other income 2,022 738 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest income 34,565 21,988 - ------------------------------------------------------------------------------------------------------------------------ Noninterest expense: Salary and employee benefits 43,826 30,715 Net occupancy expense 2,844 2,695 Furniture and equipment 3,872 2,904 Data processing 2,547 2,526 Customer services 4,453 6,351 Professional and legal fees 2,795 2,843 Business development 5,337 1,385 Other expense 9,470 7,054 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest expense 75,144 56,473 - ------------------------------------------------------------------------------------------------------------------------ Minority interest in loss of consolidated subsidiary 3,930 18 Income before income taxes 30,109 23,566 Income tax provision 10,794 9,343 - ------------------------------------------------------------------------------------------------------------------------ Net income $ 19,315 $ 14,223 ======================================================================================================================== Basic earnings per share $ 0.43 $ 0.31 Diluted earnings per share 0.41 0.30 ======================================================================================================================== See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------
Page 3 of 25 CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================================= Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands) 2000 1999 ================================================================================================================= Cash flows from operating activities: Net income $ 19,315 $ 14,223 Adjustments for noncash charges (credits): Depreciation and amortization (3,136) (1,648) Provision for loan losses 11,894 4,794 Equity in net income of Imperial Credit Industries, Inc. - (2,240) Gain on exercise of warrants and sale of equity securities (9,699) (3,952) Gain resulting from exercise of OPAY stock options 915 - Gain on sale of real estate and other assets owned - (1) Loss (gain) on sale of premises and equipment 344 (3) (Benefit) provision for deferred taxes (274) 6,110 Gain on securities available for sale (5,185) - Net change in trading instruments (56,617) (24,054) Net change in loans held for sale 2,660 3,579 Net change in accrued interest receivable/payable (8,956) (164) Net change in income taxes receivable/payable 14,065 (748) Net change in other assets/liabilities (926) (35,260) Net change in minority interest (2,026) (18) - ----------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (37,626) (39,382) - ----------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from securities held to maturity 42 38 Proceeds from maturities of securities available for sale 1,858,099 1,143,480 Proceeds from sale of securities available for sale 177,625 - Purchase of securities available for sale (1,904,593) (1,123,627) Proceeds from exercise of warrants and sale of equity securities 9,699 3,952 Net change in Federal funds sold and securities purchased under resale agreements 70,000 688,500 Net change in loans (180,721) (66,194) Capital expenditures (8,673) (3,713) Proceeds from sale of real estate and other assets owned - 413 Proceeds from sale of premises and equipment 281 25 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 21,759 642,874 - ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net change in demand deposits, savings, and money market accounts 437,646 185,700 Net change in time deposits (255,047) 71,255 Net change in short-term borrowings (62,240) (9,687) Net proceeds from ESOP loan - 5,985 Net change in long-term borrowings (535) (19) Repurchase of common stock for ESOP - (5,985) Repurchase of common stock (2,109) - Proceeds from exercise of employee stock options 1,384 166 Other (20) (18) - ----------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 119,079 247,397 - ----------------------------------------------------------------------------------------------------------------- Net change in cash and due from banks 103,212 850,889 - ----------------------------------------------------------------------------------------------------------------- Cash and due from banks, beginning of year 307,770 355,317 - ----------------------------------------------------------------------------------------------------------------- Cash and due from bank, end of period $ 410,982 $ 1,206,206 ================================================================================================================= See accompanying notes to consolidated financial statements. - -----------------------------------------------------------------------------------------------------------------
Page 4 of 25 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
================================================================================================================ Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------- Net income $ 19,315 $ 14,223 Other comprehensive loss, net of tax: Reclassification adjustments for gains included in net income net of tax effect ($2,215) (2,970) - Unrealized loss on securities available for sale, net of tax effect of ($1,361) and ($1,608) (1,509) (2,217) - ---------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 14,836 $ 12,006 ================================================================================================================
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, changes in cash flows and comprehensive income 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 Sheets, Consolidated Statements of Income and Consolidated Statements 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 and majority-owned subsidiaries. NOTE (2) STATEMENTS OF CASH FLOWS The following information supplements the statements of cash flows:
For the three months ended March 31, (Dollars in thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Interest paid $ 39,234 $ 23,178 Taxes paid - 3,153 Federal tax refund received 8,800 - Significant noncash transactions: Loans transferred to OREO - 132 Net change in accumulated other comprehensive income, net of tax 4,479 2,217 =====================================================================================================================
NOTE (3) EARNINGS PER SHARE Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from issuance of common stock that then shared in earnings. Unearned ESOP shares are not considered to be outstanding shares for purposes of determining the number of weighted average shares for the EPS calculation. Reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation is presented in the following tables for the three months ended March 31, 2000 and 1999: Page 5 of 25
====================================================================================================================== For the three months ended March 31, 2000 1999 ------------------------------- ---------------------------------- Per Per (Dollars in thousands, except per share Share Share data) Income Shares Amount Income Shares Amount - ---------------------------------------------------------------------------------------------------------------------- Basic EPS Net income $19,315 44,803,200 $ 0.43 $14,223 45,236,399 $ 0.31 Effect of dilutive securities Incremental shares from outstanding common stock options 1,999,416 1,644,359 ----------- ---------- Diluted EPS Net income $19,315 46,802,616 $ 0.41 $14,223 46,880,759 $ 0.30 ======================================================================================================================
The number of shares used to compute basic and diluted income per share for 1999 have been adjusted to reflect an 8% stock dividend paid on February 18, 2000, to shareholders of record on February 4, 2000. Securities that could potentially dilute earnings per share that were not included in the calculation of diluted earnings per share for first quarter 2000 because their effect was antidilutive totaled 9,384. NOTE (4) OFFICIAL PAYMENTS CORPORATION At March 31, 2000, the Company owned 12,000,000 shares, or 56.2% of total outstanding shares, of Official Payments Corporation ("OPAY") (Nasdaq: OPAY) common stock. OPAY's operating results are reported on a consolidated basis for financial reporting purposes. OPAY reported an operating loss of $8.9 million for the three months ended March 31, 2000. The Company's share of OPAY's operating loss was $5.0 million. On an after-tax basis, the Company's net income for first quarter 2000 includes a $2.7 million loss, or $0.6 a share, related to its investment in OPAY. This loss is net of a $590,600 after-tax gain related to the exercise of OPAY stock options. During August 1999, OPAY and Imperial Bank entered into an employment agreement with Thomas R. Evans, OPAY's Chairman and Chief Executive Officer. The employment agreement provides for, among other items, Mr. Evans being granted options to purchase 1,325,460 shares of OPAY common stock at $1.33 per share. Imperial Bank guaranteed that the "value" --as defined in the agreement--of Mr. Evans vested options would be $10,000,000 on or before the third anniversary of the date of the agreement or Imperial Bank would pay Mr. Evans an amount equal to the difference between $10,000,000 and the highest value of the vested options on or before the third anniversary. OPAY recorded Mr. Evan's' stock option as unamortized stock compensation which is being amortized into income over three years. Imperial Bank consolidates its investment in OPAY and, accordingly, it records its ownership interest in OPAY's operating loss which includes the amortization expense of the Evans stock option guarantee. Approximately $1.5 million has been cumulatively amortized through March 31, 2000. The initial determination of amounts, if any, that could potentially be owed Evans cannot be determined until the first anniversary of his employment agreement (August 2000). In the event that an obligation to fund the guarantee is deemed probable, the amount of that estimated obligation over that previously recorded in consolidation will be recorded as expense and prior amortization as additional investment in OPAY, subject to a recoverability analysis. NOTE (5) OPERATING SEGMENT RESULTS Management of the Company, for purposes of assessing performance and allocating resources, evalutates these principal operating segments that both earn revenue and incur expenses: Commercial Banking - traditional banking services to mid-sized companies originated principally by direct relationships with customers Emerging Growth Division - venture banking for early-stage and emerging companies originated principally through relationships with venture capitalists Real Estate - traditional banking services to residential homebuilders originated by direct relationships with customers Page 6 of 25 Entertainment - traditional banking services to mid-sized entertainment and independent film companies originated by direct relationships with customers Syndicated Finance - purchasing of nationally syndicated loans originated on an indirect basis SBA Division - traditional small business lending originated principally by direct relationships with customers Imperial Creditcorp and Imperial Ventures - bridge loans and direct equity investments in early-stage and emerging companies and equity investments in venture capital funds, each originated principally through relationships with venture capitalists Merchant Banking - participations in loans originated on an indirect basis For measuring segment profitability, the company applies full absorption cost accounting and, accordingly, the costs of the following support units are allocated in full to the above operating segments: Treasury Management - the interest expense of the company's public debt and brokered deposits is allocated to the operating segments based upon their funding requirements Financial Services Division - the interest and operating cost of this Division, which offers depository services to particular industries (including escrow and title companies, bankruptcy trustees, homeowners associations and property management companies) is allocated to the operating segments based upon their funding requirements Operations and Administrative - the majority of the operating and administrative costs are allocated based upon usage and the remainder is allocated based upon balance sheet determinants For reporting segment information, the company aggregates segments with similar long-term financial performance and similar economic characteristics. The company aggregates based upon similar customer origination processes: Commercial Banking Segment - in this aggregate segment, the Company reports on segments that originate business principally by direct relationships with customers. This segment includes Commercial Banking, Real Estate, Entertainment and SBA. Special Markets Segment - in this aggregate segment, the Company reports on segments that originate business principally through relationships with venture capitalists. This segment includes the Emerging Growth Division, Imperial Creditcorp and Imperial Ventures. Syndicated Finance Segment - in this aggregate segment, the Company reports on segments that originate business on an indirect basis through other financial institutions, principally banks. This segment includes the Syndicated Finance Division and the Merchant Banking Group. Other Segments - in this segment, the Company reports activities not individually material including OPAY, the Merchant Card Division, and subsidiaries of the holding company. The segment information for the prior year has been restated to conform to the current year's presentation, including approximating the impact of using full absorption cost accounting in the prior year. Page 7 of 25
============================================================================================================================ For the three month ended March 31, 2000 Commercial Special Syndicated Other (Dollars in thousands) Banking Markets Finance Segments Total - ---------------------------------------------------------------------------------------------------------------------------- Net interest income $ 45,227 $ 13,052 $ 6,283 $ 14,090 $ 78,652 Provision for loan losses 10,109(1) 1,004 331 450 11,894 Noninterest income 6,883 16,328 628 10,726 34,565 Noninterest expense 29,915 10,357 1,713 29,229 71,214 - ---------------------------------------------------------------------------------------------------------------------------- Income before taxes 12,086 18,019 4,867 (4,863) 30,109 Income taxes 4,284 6,388 1,726 (1,604) 10,794 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 7,802 $ 11,631 $ 3,141 $ (3,259) $ 19,315 - ---------------------------------------------------------------------------------------------------------------------------- Average net loans $ 2,620,767 $ 377,377 $ 543,698 $ 419,604 $ 3,961,446 Average assets 2,742,428 394,933 548,785 2,720,933 6,407,079 Average deposits 1,565,980 1,182,167 15,164 2,729,032 5,492,343 ============================================================================================================================
============================================================================================================================ For the three month ended March 31, 1999 Commercial Special Syndicated Other (Dollars in thousands) Banking Markets Finance Segments Total - ---------------------------------------------------------------------------------------------------------------------------- Net interest income $ 40,992 $ 7,318 $ 5,747 $ 8,770 $ 62,827 Provision for loan losses 2,774 1,972 48 - 4,794 Noninterest income 3,226 4,468 652 13,642 21,988 Noninterest expense 25,627 6,806 1,536 22,486 56,455 - ---------------------------------------------------------------------------------------------------------------------------- Income before taxes 15,817 3,008 4,815 (74) 23,566 Income taxes 6,004 1,458 1,910 (29) 9,343 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 9,813 $ 1,550 $ 2,905 $ (45) $ 14,223 - ---------------------------------------------------------------------------------------------------------------------------- Average net loans $ 2,316,039 $ 337,828 $ 602,160 $ 497,645 $ 3,753,672 Average assets 2,336,835 347,017 606,832 2,095,923 5,386,607 Average deposits 1,472,884 452,776 11,405 2,794,167 4,731,232 ============================================================================================================================
(1) $2 million of this provision relates to a nationally syndicated credit administered in a regional office. PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 Except for the historical information contained herein, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology including "may", "will", "intend", "should", "expect", "anticipate", "estimate" or "continue" or the negatives thereof or other comparable terminology. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of various factors, including those set forth in documents filed with the Securities and Exchange Commission. The following discussion presents information about the results of operations, financial condition, liquidity, and capital resources of Imperial Bancorp (the "Company") as of and for the three months ended March 31, 2000. This information should be read in conjunction with the Company's 1999 consolidated financial statements and notes thereto, and the accompanying quarterly unaudited consolidated financial statements and notes thereto. Page 8 of 25 FINANCIAL RESULTS Net income increased 36% to $19.3 million, or $0.41 per share, for the three months ended March 31, 2000, from $14.2 million, or $0.30 a share, for the year-earlier quarter. The annualized return on average assets and average equity increased to 1.21% and 16.08%, respectively, for first quarter 2000, from 1.07% and 14.89%, respectively, for the year-earlier quarter. First quarter results reflect growth in earning assets, net interest income and noninterest income, principally from gains realized on warrants and sales of equity investments in emerging growth companies and venture capital funds, from the year-earlier quarter. Net income includes certain amounts that management has historically viewed as other than core income. Net income for first quarter 2000 includes a $2.7 million, or $0.06 a share, net after-tax loss comprised of the company's share of Official Payment Corporation's ("OPAY") (Nasdaq: OPAY) first quarter operating losses net of a gain related to the exercise of OPAY stock options. OPAY is expected to report operating losses for the remainder of the year. Net income for first quarter 1999 includes $1.3 million, or $0.02 per share, representing the Company's equity in the net income of Imperial Credit Industries, Inc. ("ICII") (Nasdaq: ICII). Earnings per share amounts are reported on a diluted basis and reflect an 8% stock dividend paid on February 18, 2000. First quarter results are summarized in the following tables:
====================================================================================================================== Imperial Bancorp and Subsidiaries Three months ended March 31, ------------------------------------------------------------------- Change (Dollars in thousands, except per share data) 2000 1999 Amount Percent - ---------------------------------------------------------------------------------------------------------------------- Interest income $ 117,812 $ 87,432 $ 30,380 34.7% Interest expense 39,160 24,605 14,555 59.2 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 78,652 62,827 15,825 25.2 Provision for loan losses 11,894 4,794 7,100 148.1 - ---------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 66,758 58,033 8,725 15.0 - ---------------------------------------------------------------------------------------------------------------------- Noninterest income 34,565 21,988 12,577 57.2 Noninterest expense: Salaries and benefits 43,826 30,715 13,111 42.7 Other noninterest expense 31,318 25,758 5,560 21.6 - ---------------------------------------------------------------------------------------------------------------------- Total 75,144 56,473 18,671 33.1 - ---------------------------------------------------------------------------------------------------------------------- Minority interest in loss of consolidated subsidiary 3,930 18 3,912 N/A Income before income taxes 30,109 23,566 6,543 27.8 Income tax provision 10,794 9,343 1,451 15.5 - ---------------------------------------------------------------------------------------------------------------------- Net income $ 19,315 $ 14,223 $ 5,092 35.8% ====================================================================================================================== Core net income (1) $ 22,010 $ 12,968 $ 9,042 69.7% Earnings per share: Basic earnings per share $ 0.43 $ 0.31 $ 0.12 38.7% Diluted earnings per share 0.41 0.30 0.11 36.7 Core earnings per share $ 0.47 $ 0.28 $ 0.19 67.9 - ----------------------------------------------------------------------------------------------------------------------
(1) Core net income for 2000 excludes OPAY's operating losses and the gain on the exercise of OPAY options. Core net income for 1999 excludes OPAY's operating losses and equity in the net income of ICII. ================================================================================ Page 9 of 25 Key financial performance ratios for the three months ended March 31, 2000 and 1999, are provided in the following table:
================================================================================================================== Three months ended March 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Performance ratios Reported: Return on average assets (annualized) 1.21% 1.07% Return on average equity (annualized) 16.08 14.89 Return on average earning assets (annualized) 1.34 1.19 Net interest margin 5.38 5.24 Efficiency ratio 62.90 66.56 Average equity-to-average assets 7.54 7.19 Core: Core return on average assets (annualized) 1.40 0.98 Core return on average equity (annualized) 18.32 13.53 Core net interest margin 5.37 5.24 Core efficiency ratio 57.93 68.17 Credit quality ratios Nonaccrual loans to total loans 0.95 1.22 Nonaccrual and restructured loans to total loans 1.13 1.43 Allowance for credit losses to total loans 2.07 1.81 Net charge-offs as a percentage of total average loans (annualized) 0.50% 0.39% ==================================================================================================================
INCOME STATEMENT ANALYSIS Net Interest Income: The Company's operating results depend primarily on net interest income. Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest margin is net interest income expressed as a percentage of average earning assets. Net interest income increased to $78.7 million for the three months ended March 31, 2000, from $62.8 million for the year-earlier quarter. Net interest income for the current quarter includes $1.1 million related to OPAY. The increase in net interest income is due to growth in average earning assets, which increased 21% to $5.9 billion for the quarter ended March 31, 2000, from $4.9 billion for the year-earlier quarter. Average loans increased $218.2 million, or 6%, to $4.0 billion for the current quarter from $3.8 billion for first quarter 1999. Loans comprised approximately 69% of average earnings assets for the current quarter compared with approximately 79% for the year-earlier quarter. The remaining increase in average earning assets from the prior year relates to increases in trading instruments and investments. Deposit growth for first quarter 2000 exceeded loan funding requirements compared to the year earlier, resulting in a decline in average loans as a percentage of average earning assets. The following table provides information on average interest-earning assets and interest-bearing liabilities and the yields thereon for the periods indicated: Page 10 of 25
============================================================================================================================ Three months ended March 31, 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Interest Interest Average Income/ Average Average Income/ Average (Dollars in thousands) Balance Expense Rate(1) Balance Expense Rate(1) - ---------------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans-net of unearned income and deferred loan fees (2) $ 4,035,455 $ 90,591 (3) 9.03% $ 3,817,300 $ 74,587 (3) 7.92% Trading instruments 114,059 1,698 5.99 66,672 889 5.41 Interest-bearing deposits 5,188 95 7.36 - - - Securities available for sale (4) 874,831 12,775 5.93 611,295 7,394 4.88 Securities held to maturity 3,718 66 7.14 3,874 72 7.54 Federal funds sold and securities purchased under resale agreements 778,599 11,125 5.75 339,495 4,055 4.84 Loans held for sale 82,044 1,462 7.17 18,597 435 9.49 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 5,893,894 117,812 8.05% 4,857,233 87,432 7.30% - ---------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses (74,009) (63,628) Cash 350,222 357,792 Other assets 236,972 235,210 ----------- ----------- Total assets $ 6,407,079 $ 5,386,607 =========== =========== Interest-bearing liabilities: Savings $ 21,429 $ 94 1.76% $ 36,653 $ 151 1.67% Money market 1,364,423 10,049 2.96 1,067,070 7,455 2.83% Time-under $100,000 144,319 2,000 5.57 121,571 1,769 5.90 Time-$100,000 and over 1,563,864 21,603 5.56 1,055,980 12,393 4.76 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 3,094,035 33,746 4.39 2,281,274 21,768 3.87 - ---------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 107,116 1,481 5.56 105,978 1,259 4.82 Long-term borrowings 103,606 2,225 8.64 2,989 49 6.65 Capital securities 73,436 1,708 9.35 73,379 1,529 8.45 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 3,378,193 39,160 4.66% 2,463,620 24,605 4.05% - ---------------------------------------------------------------------------------------------------------------------------- Demand deposits 2,398,308 2,449,958 Other liabilities 147,465 85,630 Shareholders' equity 483,113 387,399 Total liabilities and ----------- ----------- shareholders' equity $ 6,407,079 $ 5,386,607 =========== =========== Net interest income/Net interest margin $ 78,652 5.38% $ 62,827 5.24% ======== ====== ======== ====== ====================================================================================================================================
(1) The yields are not presented on a tax equivalent basis as the effects of doing so would not be material. (2) Average loan balance includes nonaccrual loans. (3) Includes net loan fee income and amortization of $7.0 million and $4.9 million for the three months ended March 31, 2000 and 1999, respectively. (4) Average balance includes unrealized gains and losses and yield is calculated upon amortized cost. Page 11 of 25 Net interest margin increased to 5.38% and 5.24% for the three months ended March 31, 2000 and 1999, respectively. The increase in loan yields, due to increases in the prime rate, more than offset the higher rates paid on certificates of deposit. The asset-sensitive nature of the Company's balance sheet (variable rate loan portfolio funded in large part by demand deposits and fixed rate liabilities) enables the Company to benefit from increases in short-term interest rates. The average yield on loans increased to 9.03% for the three months ended March 31, 2000, from 7.92% for the year-earlier quarter. A majority of the Company's variable rate loans are tied to the prime rate. Certain loans, including entertainment loans and syndicated loans, are tied to the London Interbank Offered Rate ("LIBOR"). The prime rate averaged 8.69% for first quarter 2000 compared with 7.75% for the year-earlier quarter. Interest income for the three months ended March 31, 2000 and 1999, was reduced by approximately $525,000 and $441,000, respectively, due to interest reversals on nonaccrual loans. The average cost of funds increased to 4.66% for the three months ended March 31, 2000, from 4.05% for the year- earlier quarter, primarily due to higher rates paid on time certificates of deposit. The average balance of time certificates of deposit ("TCD") increased to $1.7 billion for first quarter 2000 from $1.2 billion a year ago. The growth is primarily due to a $291 million increase in TCD balances generated by the Emerging Growth Division compared with a year ago, and to a $284 million increase in brokered TCD balances. Demand deposits continue to be a significant funding source for the Company. Demand deposit balances averaged $2.4 billion for first quarter 2000 and 1999. Average demand deposits comprised 44% of total average deposits for first quarter 2000, a decrease from 52% of total average deposits for the year-earlier quarter. The balance of long-term borrowings increased for the current quarter compared with a year earlier due to the issuance of $100 million of 8.5% Subordinated Capital Notes by Imperial Bank during the second quarter of 1999. Management expects continued increases in net interest income and net interest margin for the remainder of 2000, assuming continued growth in loan balances and increases in market interest rates. Actual results may vary if these assumptions prove to be incorrect. Analysis of Changes in Net Interest Income 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 three months ended March 31, 2000 and 1999. 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 for these computations. The table is not presented on a tax equivalent basis as the effects are not material. Page 12 of 25
======================================================================================================================== Three months ended March 31, 2000 over 1999 (Dollars in thousands) Volume Rate Rate/Volume Total - ------------------------------------------------------------------------------------------------------------------------ Loans $ 4,298 $ 10,484 $ 1,222 $ 16,004 Trading instruments 63,713 9,613 (72,517) 809 Interest-bearing deposit 95 - - 95 Securities available for sale 319,839 159,682 (474,140) 5,381 Securities held to maturity (293) (383) 670 (6) Federal funds sold and securities purchased under resale agreements 528,853 76,202 (597,985) 7,070 Loans held for sale 149,647 (10,724) (137,896) 1,027 - ------------------------------------------------------------------------------------------------------------------------ Total interest income 1,066,152 244,874 (1,280,646) 30,380 - ------------------------------------------------------------------------------------------------------------------------ Savings (64) 9 (2) (57) Money market 209,478 34,175 (241,059) 2,594 Time-under $100,000 33,377 (9,901) (23,245) 231 Time-$100,000 and over 601,030 209,070 (800,890) 9,210 - ------------------------------------------------------------------------------------------------------------------------ Total deposit 843,821 233,353 (1,065,196) 11,978 - ------------------------------------------------------------------------------------------------------------------------ Short-term borrowings 1,365 19,575 (20,718) 222 Long-term borrowings 166,323 1,478 (165,625) 2,176 Capital securities 120 16,491 (16,432) 179 - ------------------------------------------------------------------------------------------------------------------------ Total interest expense 1,011,629 270,897 (1,267,971) 14,555 - ------------------------------------------------------------------------------------------------------------------------ Change in net interest income $ 54,523 $ (26,023) $ (12,675) $ 15,825 ========================================================================================================================
In conformity with banking industry practice, payments for accounting, courier and other deposit-related services provided to the Company's real estate services customers are recorded as noninterest expense. If these deposits were treated as interest-bearing and the payments reclassified as interest expense, the Company's reported net interest income and noninterest expense would have been reduced by $4.5 million and $6.4 million for the three months ended March 31, 2000 and 1999, respectively. The net interest margin would have decreased to 5.07% and 4.71% for the same periods. Noninterest Income: Noninterest income increased 57% to $34.6 million for first quarter 2000, from $22.0 million for first quarter 1999. The following table summarizes noninterest income by category for the periods indicated: Page 13 of 25
======================================================================================================================= Three months ended March 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts $ 1,860 $ 1,843 Trust fees - 2,215 Gain on origination and sale of loans 493 1,221 Gain from exercise of Official Payments Corp. stock options 915 - Equity in net income of Imperial Credit Industries, Inc. - 2,240 Other service charges and fees 6,187 4,448 Merchant and credit card fees 3,694 2,236 International income and fees 3,928 2,800 Gain on securities available for sale 5,185 - Gain on trading instruments 582 19 Gain on exercise of warrants and related sale of equity securities 9,699 4,228 Other income 2,022 738 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest income 34,565 21,988 - ----------------------------------------------------------------------------------------------------------------------- Increases (decreases) to noninterest income: Equity in the net income of ICII - (2,240) Gain related to the exercise of Official Payments Corp. stock options (915) - OPAY noninterest income (161) (289) - ----------------------------------------------------------------------------------------------------------------------- Core noninterest income $ 33,489 $19,459 =======================================================================================================================
The growth in noninterest income is largely due to increased gains realized on sales of equity securities obtained through the exercise of warrants and on sales of equity investments in emerging growth companies and venture capital funds. Gains derived from these activities increased to $15.4 million for first quarter 2000 from $4.2 million for the year-earlier quarter. For the three months ended March 31, 2000 and 1999, these gains are reflected in the noninterest income categories in the table below:
======================================================================================================================= Three months ended March 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Gain on securities available for sale $ 5,710 $ - Gain on exercise of warrants and related sale of equity securities 9,699 4,228 - ----------------------------------------------------------------------------------------------------------------------- Total $ 15,409 $ 4,228 =======================================================================================================================
The Company obtains rights to acquire stock (in the form of warrants) from certain customers as part of negotiated credit facilities. The receipt of warrants does not change the loan convenants or other collateral control techniques employed by the Company to mitigate the risk of a loan becoming nonaccrual. Likewise, collateral requirements on loans with warrants are similar to lending arrangements where warrants are not obtained. As of April 19, 2000, the last time the Company reported on unrealized warrant gains, the Company had potential unrealized gains associated with warrants and equity positions of $31.7 million. The amount of income realized by the Company from these equity rights in future periods may vary materially from that unrealized amount due to fluctuations in the market prices of the underlying common stock of these companies. The Company is restricted from liquidating a portion of these positions, although most of these restrictions will have expired by the end of the year. The Company views this income as a growing core contributor to its noninterest income stream. The Company experienced growth in fee income related to merchant card processing, sales of nonproprietary Page 14 of 25 mutual funds and international services from the year-earlier quarter. Other income for first quarter 2000 includes a $700,000 nonrefundable fee received on an option granted to a third party to buy the charter of Crown American Bank. The option expires on July 31, 2000. The reduction in trust fee income compared with the year-earlier quarter is due to the sale of the Company's trust business in May 1999. Noninterest Expense: Noninterest expense before minority interest totaled $75.1 million for first quarter 2000, an increase of 33% from $56.5 million for first quarter 1999. Noninterest expense, including minority interest, increased 26% to $71.2 million for first quarter 2000, from $56.5 million a year earlier. Noninterest expense for the current year includes $5.1 million of salaries and benefits expense and $1.3 million of other expenses related to OPAY, compared with $357,000 for the year-earlier quarter. The following table summarizes noninterest expense by category for the periods indicated:
====================================================================================================================== Three months ended March 31, (Dollars in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Salary and employee benefits $ 43,826 $ 30,715 Net occupancy expense 2,844 2,695 Furniture and equipment 3,872 2,904 Data processing 2,547 2,526 Customer services 4,453 6,351 Professional and legal fees 2,795 2,843 Business development 5,337 1,385 Other expense, including minority interest 5,540 7,036 - ---------------------------------------------------------------------------------------------------------------------- Total noninterest expense including minority interest 71,214 56,455 - ---------------------------------------------------------------------------------------------------------------------- Increases (decreases) to noninterest expense: OPAY salaries and benefits (5,069) (260) OPAY other noninterest expense (1,303) (97) - ---------------------------------------------------------------------------------------------------------------------- Core noninterest expense $ 64,842 $ 56,098 ======================================================================================================================
Exclusive of OPAY, compensation expense is higher than the prior year due to a $5.0 million increase in incentive accruals tied to Company performance and higher commissions associated with the sale of equity securities. Increases in occupancy and business development expense compared with the prior quarter are due to the growth of the Company's operations. Customer services expense decreased to $4.5 million for the current quarter from $6.4 million a year earlier due to a decline in title and escrow deposit balances. Income Taxes: The Company recorded income tax expense of $10.8 million and $9.3 million for the three months ended March 31, 2000 and 1999, respectively. On April 24, 2000, the Company formed Imperial Special Investments, Inc. ("ISII"). ISII is a closed-end, non-diversified Regulated Investment Company registered under the Investment Company Act of 1940. ISII's holdings will consist of cash, investments and loans. The formation of ISII provides the Company with the capability to raise capital in a tax efficient manner for future business opportunities if deemed necessary. The formation of ISII resulted in an estimated effective income tax rate of 35.9% for the current year compared with 40.4% for the prior year. Page 15 of 25 BALANCE SHEET ANALYSIS Investment Securities The following tables provide comparative period-end balances of securities held to maturity and securities available for sale for the periods indicated:
======================================================================================================================== Securities Held to Maturity Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------ March 31, 2000 Industrial development bonds $ 3,702 $ - $ - $ 3,702 - ------------------------------------------------------------------------------------------------------------------------ Total $ 3,702 $ - $ - $ 3,702 ======================================================================================================================== December 31, 1999 Industrial development bonds $ 3,744 $ - $ - $ 3,744 - ------------------------------------------------------------------------------------------------------------------------ Total $ 3,744 $ - $ - $ 3,744 ========================================================================================================================
======================================================================================================================== Securities Available for Sale Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------ March 31, 2000 U.S. Treasury and federal agencies $ 765,867 - $ (5,882) $ 759,985 Mutual funds 39,134 - - 39,134 Other securities 97,330 15,455 - 112,785 - ------------------------------------------------------------------------------------------------------------------------ Total $ 902,331 $ 15,455 $ (5,882) $ 911,904 ======================================================================================================================== December 31, 1999 U.S. Treasury and federal agencies $ 678,462 $ - $ (4,322) $ 674,140 Commercial Paper 228,670 - - 228,670 Mutual funds 92,184 - - 92,184 Other securities 23,718 21,573 - 45,291 - ------------------------------------------------------------------------------------------------------------------------ Total $1,023,034 $ 21,573 $ (4,322) $1,040,285 ========================================================================================================================
Gross gains totaling $5.7 million and gross losses totaling $525,000, respectively, were realized on sales of securities available for sale during the three months ended March 31, 2000. The gains on sales of equity securities available for sale arose from sales of equity securities obtained through the exercise of warrants. Loans held for sale Loans held for sale totaled $80.1 million, $83.0 million and $14.7 million at March 31, 2000, December 31, 1999, and March 31, 1999, respectively. The increase in loans held for sale at March 31, 2000, compared with a year ago reflects the reclassification of the loans of the Lewis Horwitz Organization ("LHO") to the held for sale category. These loans were reclassified in October 1999 following finalization of an agreement to sell the loans to ICII at a fixed price (effectively the book value less the allocated allowance less the interest spread over the sale period as defined in the agreement) over a 15-month period. Subsequent to quarter end, ICII purchased $30.8 million of LHO loans from Imperial Bank. At May 5, 2000, the balance of LHO loans held for sale was $22.7 million. The balance of loans made to ICII by Imperial Bank to facilitate their purchase of LHO loans was $8.2 million as of May 5, 2000. Management expects the remaining loans to be either paid by the borrowers in the normal course of business or purchased by ICII on or before December 29, 2000. Page 16 of 25 Loans The following table provides a summary of loans by category for the periods indicated:
======================================================================================================================== (Dollars in thousands) March 31, 2000 December 31, 1999 March 31, 1999 - ------------------------------------------------------------------------------------------------------------------------ Balance Percent Balance Percent Balance Percent Commercial $ 3,107,232 81.88% $ 3,016,695 83.52% $ 3,027,969 86.15% Loan secured by real estate: Real estate term loans 98,110 2.59 100,012 2.77 140,138 3.99 Residential tract construction loans 550,779 14.51 457,337 12.66 312,041 8.88 Consumer loans 38,808 1.02 38,104 1.05 34,560 0.98 - ------------------------------------------------------------------------------------------------------------------------ Gross loans 3,794,929 100.00% 3,612,148 100.00% 3,514,708 100.00% Less allowance for loan losses (78,528) (71,677) (63,732) - ------------------------------------------------------------------------------------------------------------------------ Total loans $ 3,716,401 $ 3,540,471 $ 3,450,976 ========================================================================================================================
Total loans grew to $3.8 billion at March 31, 2000, an increase of approximately 5% from $3.6 billion at December 31, 1999, and an increase of 8% from March 31, 1999. For purposes of these comparisons, total loans at March 31, 2000, excludes the LHO loans transferred to the held for sale category as discussed above. At March 31, 1999, LHO loans included in commercial loans totaled $95.6 million. The increase in average loan balances outstanding to $4.0 billion for the current quarter from $3.8 billion for the year-earlier quarter was driven by growth in loans to middle market and real estate services companies, net of a decline in syndicated loans. The commercial loan portfolio remains broadly diversified among many industries including manufacturing, entertainment, real estate services, high technology, venture capital backed emerging growth companies, retail trade and professional services. Management anticipates loan growth in the 15% range for the remainder of the year. ASSET QUALITY Nonaccrual Loans, Restructured Loans and Real Estate and Other Assets Owned Nonaccrual loans, which include loans 90 days or more past due, totaled $35.9 million, or 0.95% of total loans, at March 31, 2000, compared with $ 27.6 million, or 0.76% of total loans, at December 31, 1999, and $43.0 million, or 1.22% of total loans, at March 31, 1999. Nonaccrual loans at March 31, 2000 include an $8.8 million syndicated national credit to a worker's compensation insurance company to finance an acquisition. An unsuccessful integration of this acquisition resulted in substantial difficulty for the borrower. Management has allocated a $7.4 million specific allowance to this credit. Although this is a syndicated credit, the Company administers the loan in its Commercial Banking Division due to a deposit relationship. The remaining nonaccrual loans at quarter end consisted of commercial loans individually no greater than $3 million. The Company's primary focus has been to establish strong commercial banking relationships with borrowers that enhance its deposit base and generate fee income in addition to yielding interest income through credit products. When deposit growth from title and escrow customers outpaced relationship-based loan growth in 1998, the Company invested a portion of this liquidity in syndicated national credits to maximize net interest income. Recognizing that purchased loans provide no supplemental noninterest income and that these credits cannot be monitored as closely as companies with which the Company has a direct relationship, management is emphasizing relationship-based loans and, accordingly, does not plan on increasing its syndicated loan portfolio. Loans totaling $20.0 million were placed on nonaccrual status during the first quarter, partially offset by $5.4 million in charge-offs, $5.1 million in payments and $1.2 million in loans returned to accrual status. The Company's focus on business customers generates a relatively large average loan size that contributes to the variability of its nonaccrual asset totals. Management expects that reported loan charge-offs for the second quarter of year 2000 will significantly increase over that reported for the current quarter principally due to the disposition of the substantially reserved nationally syndicated credit discussed above and that it may also increase as a result of other nationally syndicated credits that the agent banks have only recently informed the company about the borrowers' expected difficulties in making future payments of principal and interest. Increases in loan charge-offs will result in increases in the provision for loan losses. Page 17 of 25 Restructured loans, loans that have had their original terms modified, totaled $6.9 million, $4.1 million and $7.3 million at March 31, 2000, December 31, 1999, and March 31, 1999, respectively. The net increase in restructured loans since December 31, 1999, is due to the addition of one $3.7 million commercial loan net of $0.9 million in payments received on existing restructured loans. All restructured loans were performing in accordance with their modified terms as of March 31, 2000. Real estate and other assets owned ("OREO") include properties acquired through foreclosure or through full or partial satisfaction of loans. The difference between the fair value of the collateral, less the estimated costs of disposal, and the loan balance at the time of transfer to OREO is reflected in the allowance for loan losses as a charge-off. Any subsequent declines in the fair value of the property after the date of transfer are recorded through a provision for write-downs on OREO. OREO, net of valuation allowances, totaled $935,000, $935,000 and $2.0 million at March 31, 2000, December 31, 1999 and March 31, 1999, respectively. There were no sales or additions to OREO during the quarter ended March 31, 2000. The following table provides information on nonaccrual loans, restructured loans and real estate and other assets owned for the periods indicated:
======================================================================================================================== Mar. 31, Dec. 31, Sept. 30, June 30, March 31, (Dollars in thousands) 2000 1999 1999 1999 1999 - ------------------------------------------------------------------------------------------------------------------------ Nonaccrual loans: Commercial $ 35,408 $ 27,020 $ 31,630 $ 39,032 $ 31,348 Real estate 480 569 496 10,576 11,604 Consumer - - - - - Loans held for sale at fair market value - - 10,909 - - - ------------------------------------------------------------------------------------------------------------------------ Total nonaccrual loans 35,888 27,589 43,035 49,608 42,952 ======================================================================================================================== Restructured loans 6,914 4,081 4,640 5,704 7,287 ======================================================================================================================== Real estate and other assets owned: Real estate and other assets owned, gross 935 935 1,237 1,741 2,023 Less valuation allowance - - - - - - ------------------------------------------------------------------------------------------------------------------------ Real estate and other assets owned, net 935 935 1,237 1,741 2,023 - ------------------------------------------------------------------------------------------------------------------------ Total $ 43,737 $ 32,605 $ 48,912 $ 57,053 $ 52,262 ========================================================================================================================
All loans on nonaccrual status are considered to be impaired; however, not all impaired loans are on nonaccrual status. Impaired loans on accrual status must meet the criteria of all payments being current and the loan underwriting must support the debt service requirements. Factors that contribute to a performing loan being classified as impaired include substantial doubt about the ability of the borrower to make all principal and interest payments under the original terms of the loan, a below market interest rate, delinquent taxes and debts to other lenders that cannot be serviced from existing cash flow. The following table contains information for loans classified as impaired: Page 18 of 25
======================================================================================================================= Net Carrying Specific Net (Dollars in thousands) Value Allowance Balance - ----------------------------------------------------------------------------------------------------------------------- March 31, 2000 Loans with specific allowances $ 40,071 $ (16,656) $ 23,415 Loans without specific allowances 11,917 - 11,917 - ----------------------------------------------------------------------------------------------------------------------- Total $ 51,988 $ (16,656) $ 35,332 ======================================================================================================================= December 31, 1999 Loans with specific allowances $ 28,779 $ (10,160) $ 18,619 Loans without specific allowances 11,978 - 11,978 - ----------------------------------------------------------------------------------------------------------------------- Total $ 40,757 $ (10,160) $ 30,597 =======================================================================================================================
Impaired loans were classified as follows:
======================================================================================================================= March 31, December 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Current $ 16,100 $ 12,920 Past due - 248 Nonaccrual 35,888 27,589 - ----------------------------------------------------------------------------------------------------------------------- Total $ 51,988 $ 40,757 =======================================================================================================================
Loans classified as impaired totaled $52.0 million at March 31, 2000, compared with $40.8 million at December 31, 1999. During the first quarter, $23.9 million of loans were newly classified as impaired. The additions to the impaired loans were partially offset by $5.4 million in charge-offs, the receipt of $6.1 million in payments on impaired loans, and $1.2 million in loans removed from impaired status. The Company's average recorded investment in impaired loans for the first quarter was $37.9 million. Interest income collected on impaired loans totaled approximately $365,000 in the first three months of 2000, compared with $815,000 for the year-earlier quarter. Allowance and Provision for Loan Losses The allowance for loan losses is maintained at a level considered appropriate by management to be adequate to absorb estimated known and inherent risks in the existing portfolio. The Company's Credit Review Department performs 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 utilizes a migration model, a technique that estimates the inherent loss in the portfolio by applying loss factors to grades of loans, to determine the level of the allowance and provision for loan losses. The migration model utilizes an average loss rate over a rolling twelve quarter base period and incorporates a standard deviation analysis to provide probabilities for loss experience. The loss factors used in the model are updated quarterly. The primary qualitative factors considered in the assessment of loss factors are: changes in local economic and business conditions, including the condition of specific market segments; changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices; the existence and effect of any concentrations within the portfolio and changes in the level of such concentrations; changes in the trend of delinquencies and in the volume and nature of adversely graded nonaccrual and impaired loans; and external factors such as competition and legal and regulatory requirements that could potentially impact the level of credit losses in the portfolio. Management believes that the allowance for loan losses at March 31, 2000 is adequate. Future additions to the allowance will be subject to continuing evaluation of inherent risk in the loan portfolio. At March 31, 2000, the allowance for loan losses was $78.5 million, or 2.07% of total loans, compared with $71.7 million, or 1.98% of total loans at December 31, 1999, and $63.7 million, or 1.81% of total loans, at March 31, 1999. The allowance for loan losses represented 219% of nonaccrual loans at March 31, 2000, compared with 260% of nonaccrual loans at December 31, 1999, and 148% of nonaccrual loans at March 31, 1999. The following table summarizes activity in the allowance for loan losses: Page 19 of 25
===================================================================================================== Three months ended March 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------- Balance, beginning of period $ 71,677 $ 62,649 ===================================================================================================== Loans charged off: Commercial (5,390) (4,160) Real estate - (21) Consumer - - - ----------------------------------------------------------------------------------------------------- Total charge-offs (5,390) (4,181) - ----------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial 314 405 Real estate 28 63 Consumer 5 2 - ----------------------------------------------------------------------------------------------------- Total recoveries 347 470 - ----------------------------------------------------------------------------------------------------- Net loans charged off (5,043) (3,711) Provision for loan losses 11,894 4,794 - ----------------------------------------------------------------------------------------------------- Balance, end of period $ 78,528 $ 63,732 ===================================================================================================== Loans outstanding, end of period 3,794,929 3,514,708 - ----------------------------------------------------------------------------------------------------- Average loans outstanding 4,035,455 3,817,300 ===================================================================================================== Ratio of net charge-offs to average loans (annualized) 0.50% 0.39% Ratio of allowance for loan losses to loans outstanding at March 31 2.07 1.81 Ratio of allowance for loan losses to nonaccrual loans 218.81 148.38 Ratio of provision for loan losses to net charge-offs 235.85 129.18 =====================================================================================================
The provision for loan losses totaled $11.9 million and $4.8 million, for the three months ended March 31, 2000 and 1999, respectively. Net charge-offs increased to $5.0 million, or 0.50% of average loans on an annualized basis, for first quarter 2000, from $3.7 million, or 0.39% of average loans on an annualized basis, for the year-earlier quarter. The increase in the current provision is attributable to a strengthening of the allowance based upon a current assessment of the portfolio, the nationally syndicated credit discussed above, and to growth in the Company's loan portfolio. ASSET/LIABILITY MANAGEMENT Liquidity Liquidity management relates to the Company's ability to meet its cash requirements and is managed through its asset liability management process. The Company monitors its cash inflows and outflows associated with its lending and deposit activities and modifies its asset and liability positions as liquidity requirements change. The Company also relies on projections of loan and deposit growth in managing its liquidity position. The Company's primary source of liquidity is its deposit base. This source has historically provided a significant majority of the Company's liquidity needs. Total deposits grew to $6.1 billion at March 31, 2000, from $5.9 billion at December 31, 1999, and $5.8 billion at March 31, 1999. Demand deposits increased to $3.2 billion, or 53% of total deposits, at March 31, 2000, from $2.5 billion, or 43% of total deposits at December 31, 1999, and decreased from $3.5 billion, or 60% of total deposits, at March 31, 1999. The decrease in demand deposits at current quarter-end compared with a year earlier is due to a $759 million decline in deposit balances held by real estate services companies. This decrease is attributed to a slow down in mortgage refinancing activity due to higher interest rates. The decrease in real estate services deposits was partially offset by a $259 million increase in demand deposit balances generated by the Special Markets Division compared with a year ago. TCDs decreased to $1.6 billion at March 31, 2000, from $1.9 billion at December 31, 1999. The decrease is due to the run-off of short-term TCDs added during fourth quarter 1999 to increase liquidity in preparation for Year 2000. TCDs totaled $1.2 billion at March 31, 1999. The increase in TCDs at March 31, 2000, compared with a year ago is primarily due to a $263 million increase in balances generated by the Special Markets Division. Page 20 of 25 The Company also uses other methods of meeting its liquidity requirements including short-term borrowings in the form of federal funds purchased, repurchase agreements, commercial paper, Treasury, tax and loan notes and occasionally the sale of securities held in its available for sale portfolio. Short-term borrowings totaled $94.4 million, $156.7 million and $50.9 million at March 31, 2000, December 31, 1999, and March 31, 1999. At December 31, 1999, Imperial Bank held $150.0 million of short-term commercial paper that matured in January 2000. The Company has over the most recent period been in a position of having excess liquidity due primarily to strong demand deposit growth that surpassed loan funding requirements. The Company has a policy of maintaining net liquid assets to total deposits (the liquidity ratio) of at least 20%. During the first quarter of 2000, this ratio averaged 29%. Interest Rate Sensitivity Management The primary objective of the asset liability management process is to manage the Company's exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. In order to manage its interest rate sensitivity, the Company has adopted policies that attempt to limit the change in pretax 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 pretax 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 net interest income and the 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 these projected rate changes may have on its entire on- and off-balance sheet positions, on any particular segment of the balance sheet, and on overall profitability. The majority of the Company's loan portfolio is variable rate, therefore, net interest income is favorably impacted during a period of rising interest rates and adversely impacted during a period of declining interest rates. 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 generally 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. 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. The Company has developed strategies to protect both net interest income and net interest margin from significant movements in interest rates. These strategies involve purchasing interest rate floors, caps and swaps. CAPITAL At March 31, 2000, shareholders' equity increased to $492.1 million from $473.4 million at December 31, 1999, and $388.1 million at March 31, 1999. During the three months ended March 31, 2000, shareholders' equity was reduced by $2.1 million due to common stock repurchases under the Company's Stock Repurchase Program. The Company repurchased and retired 90,000 shares of its common stock during first quarter 2000. At quarter end, 2,189,124 shares remain available for repurchase under the Company's stock repurchase program. Shareholders' equity increased by $1.8 million during the period representing the Company's share of amortization of deferred stock compensation recorded by OPAY, and by $1.4 million for exercises of Imperial employee stock options. The tax benefit associated with nonqualified options exercised, which is recorded as a component of shareholders' equity, was $1.8 million for first quarter 2000. Management is committed to maintaining capital at a level sufficient to assure shareholders, customers and regulators that the Company and its bank subsidiaries are financially sound. The Company and its bank subsidiaries are subject to risk-based capital regulations promulgated by the federal banking regulators. These guidelines are used to evaluate capital adequacy and are based on an institution's asset risk profile and off-balance sheet exposures. The risk-based capital guidelines assign risk weightings to assets both on- and off-balance sheet and place increased emphasis on common equity. Federal law requires each federal banking agency to take prompt corrective action to resolve problems of insured depository institutions including, but not limited to, those that fall below one or more prescribed capital ratios. Page 21 of 25 According to the regulations, institutions whose Tier I and total capital ratios meet or exceed 6 percent and 10 percent, respectively, are deemed to be "well capitalized". Tier I capital basically consists of common shareholders' equity and noncumulative perpetual preferred stock and minority interest of consolidated subsidiaries minus intangible assets. Based on the guidelines, the Company's Tier I and total capital ratios at March 31, 2000, were 10.86% and 13.95% respectively, compared with 9.73% and 11.02%, respectively, at March 31, 1999. Capital Ratios for Imperial Bancorp and Imperial Bank /(1)/
========================================================================================================================= March 31, 2000 - ------------------------------------------------------------------------------------------------------------------------- To Be Well Capitalized For Capital Adequacy Under Prompt Corrective (Dollars in thousands) Actual Purposes Action Provisions - ------------------------------------------------------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets): Company $ 756,318 13.95% $ 433,872 8.00% $ 542,340 10.00% Bank 679,567 12.69% 428,413 8.00% 535,517 10.00% Tier I Capital (to risk-weighted assets): Company $ 588,966 10.86% $ 216,936 4.00% $ 325,404 6.00% Bank 513,060 9.58% 214,207 4.00% 321,310 6.00% Leverage (to average assets): Company $ 588,966 9.24% $ 191,159 3.00% $ 318,598 5.00% Bank $ 513,060 8.12% 189,666 3.00% 316,110 5.00% =========================================================================================================================
/(1)/ Includes common shareholders' equity (excluding unrealized gains on securities available for sale) less goodwill and other disallowed intangibles. Risk-weighted assets for the Company and Imperial Bank were $5,423.4 million and $5,355.2 million, respectively, at March 31, 2000. Risk-weighted assets for the Company and the Bank were $4,684.6 million and $4,616.7 million at March 31, 1999, respectively. In April 1999, Imperial Bank issued $100 million of 8.5% 10-year Subordinated Capital Notes. The notes qualify as Tier 2 capital under regulatory guidelines. 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 percent. The ratio is defined as Tier I capital to average total assets for the most recent quarter. The Company's leverage ratio was 8.45% at March 31, 2000, compared with 8.45% at March 31, 1999, well in excess of minimum regulatory requirements. The Company has filed an application with the Federal Reserve to become a Financial Holding Company ("FHC"). An FHC is a new type of financial services company created by the Gramm, Leach, Bliley Act enacted in late 1999 that expands the range of permissible activities that may be conducted by an FHC and its affiliated companies. The Company expects its application to be approved during the second quarter of 2000. RISK FACTORS AFFECTING FUTURE RESULTS This report contains statements that may be considered forward-looking. Actual results could differ materially from the results indicated by these statements because of many factors which are beyond our ability to control or predict. The following is a list of primary risks facing the Company: Interest Rate Risk: The Company's profitability is primarily dependent on the net interest spread between its earning assets and the related funding sources. A large portion of its earning asset base relates to the prime interest rate. Future reductions in the prime interest rate could have material and adverse effects on the Company's profitability. A large Page 22 of 25 portion of its funding sources are non-interest bearing and face the possibility of disintermediation either to a competing bank - creating a loss of market share and/or a need for replacement - or disintermediation into an interest-bearing account - causing a significant reduction to net interest income. The Company employs financial derivatives to hedge interest rate risk, specifically a $2 billion floor in effect each quarter. If the cost of the hedges increases, the Company would either have to pay the increased cost to maintain the hedge or find alternative methods to mitigate interest rate risk. Credit Risk: The Company generally faces risk from its borrower base in that they may fail to perform in accordance with the terms of their loans, especially the full repayment of loan principal. The Company has adopted underwriting standards in an effort to minimize these risks. The Company's profitability could be both materially and adversely effected should it need to replenish its loan loss allowance resulting from increased charge-off and loan default activity. Regulatory Risk: As a part of the banking industry, the Company is subject to extensive regulatory control and attention. Legislation such as the repeal of Glass-Steagal in the recently adopted Gramm-Leach-Bliley Act have moved the banking industry and financial intermediaries to the forefront in terms of regulatory attention and concern. Limitations concerning client activity, liquidity requirements, capital requirements, transactions with affiliates, business focus, tax consequences, interstate banking and treatment of subsidiaries could have material and adverse impact on profitability. Local and National Economic Risk: The Company has broadened its lending focus with expansion into Phoenix, Denver, Boston, Seattle, Austin and the Mid-Atlantic. However, the vast majority of clients and business still come from California. Therefore, the Company faces some concentrated risks concerning future economic status for California along with the nation as a whole. A significant reduction in demand for the Company's products could result from an economic slowdown either locally or nationally. Subsidiary Risk: The Company is a 56% owner of Official Payments Corporation ("OPAY"), a leading provider of electronic payment options to government entities. OPAY is in the early stages of operations and expects to incur losses from operations in the future, of which the Company will record its proportionate interest. Currently, OPAY generates most of its revenues from processing income tax payments. Tax payments are seasonal in nature and produce inconsistent earning streams. These inconsistent earnings will be reflected in the Company's financial statements and press releases. OPAY is extremely dependent on maintaining its relationship with the IRS to maintain future revenues. Loss of IRS processing would severely limit OPAY's ability to earn consistent future revenues and establish market share and name recognition. Warrants and Equity Investments Income Risk: In the past, the Company has been able to generate substantial income derived from the sale of stock, obtained by the Company through the exercise of warrants received from certain clients as provided in the loan terms. The Company has also realized income from equity investments in emerging growth companies and investments in venture capital funds. Many factors may influence the ability to collect future income from these sources such as equity market fluctuations, market acceptance for IPOs, the client's ability to establish and maintain a successful company and the unexercised expiration of the warrant agreements. The nature and timing of these factors could create situations that would greatly reduce gains on sales of equity securities. Competitive Risk: The Company faces constant competition for loans, deposits and fee-based income from other national, regional and community commercial banks as well as other financial intermediaries such as, savings and loans, finance companies, brokerage firms, insurance companies and credit unions. A loss of market share in its deposit base would force the Company to turn to higher priced funding sources to support its balance sheet. These higher priced funding sources would significantly reduce net interest income. On the asset side, the Company also faces intense competition for typical loan products. Legal Liability Risk: Claims and lawsuits against the Company arise throughout the normal course of operations. Currently, the Company believes that the liability, if any, relating to these actions will not have a material impact on the Company. However, future claims could have material and adverse impacts on profitability. Page 23 of 25 NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. It specifies necessary conditions to be met to designate a derivative as a hedge. Implementation of SFAS No. 133 has been postponed to fiscal periods beginning after June 15, 2000, and will be effective for the Company on January 1, 2001. Early implementation is permitted under this statement. The Company does not believe that the adoption of SFAS No. 133 will have a material impact on its results of operations and financial position. 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. 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 Security Holders No events have transpired which would make response to this item appropriate. ITEM 5. Other Information No events have transpired which would make response to this item appropriate. Page 24 of 25 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Index
Exhibit Number Description -------------- ----------- 10.1 Investment Advisory Agreement between Imperial Special Investments, Inc. and Imperial Asset Management, Inc. 10.2 Fund Accounting Agreement between Imperial Special Investments, Inc. and Imperial Bank 27.1 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 filed on Form 8-K: None 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, hereunto duly authorized. IMPERIAL BANCORP Dated: May 15, 2000 By: /s/ Dennis J. Lacey ----------------------------- Dennis J. Lacey Executive Vice President and Chief Financial Officer By: /s/ Paul E. Adkins ----------------------------- Paul E. Adkins Senior Vice President and Controller Page 25 of 25 EX-10.1 2 INVESTMENT ADVISORY AGREEMENT Exhibit 10.1 INVESTMENT ADVISORY AGREEMENT AGREEMENT made as of April 28, 2000 between the Imperial Special Investments, Inc., a California corporation (hereinafter called the "Fund"), and Imperial Asset Management, Inc., a California corporation registered under the Investment Adviser's Act of 1940, with its principal office in Inglewood, California (hereinafter called the "Investment Adviser"). WHEREAS, the Fund is registered as a closed-end, non-diversified, management investment company under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Fund desires to retain the Investment Adviser to furnish certain investment advisory and related services described below in connection with the management of the Fund, and the Investment Adviser represents that it is willing and possesses the legal authority to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Fund hereby appoints the Investment Adviser to act ----------- as investment adviser to the Fund for the period and on the terms set forth in this Agreement. The Investment Adviser accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. 2. Delivery of Documents. The Fund has furnished the Investment Adviser --------------------- with copies properly certified or authenticated of each of the following documents: (a) the Fund's Articles of Incorporation, dated April 24, 2000 and filed with the Secretary of State of the State of California, and all amendments thereto or restatements thereof (such Articles of Incorporation, as presently in effect and as it shall from time to time be amended or restated, is herein called the "Articles of Incorporation"); (b) the Fund's Bylaws and amendments thereto; (c) resolutions of the Fund's Board of Directors authorizing the appointment of the Investment Adviser and approving this Agreement; (d) the Fund's original Notification of Registration on Form N-8A under the 1940 Act as filed with the Securities and Exchange Commission on April 28, 2000 and all amendments thereto; (e) the Fund's most recent Private Offering Memorandum (such Private Offering Memorandum, as presently in effect, and all amendments and supplements thereto are herein collectively called the "Private Offering Memorandum"). The Fund will promptly furnish the Investment Adviser with copies of all amendments of or supplements to the foregoing documents. 3. Management. Subject to the supervision of the Fund's Board of ---------- Directors, the Investment Adviser will provide or cause to be provided a continuous investment program for the Fund, including investment research and management with respect to all securities and investments and cash equivalents in the Fund. The Investment Adviser will determine or cause to be determined from time to time what securities and other investments will be purchased, retained or sold by the Fund and will place or cause to be placed orders for purchase and sale on behalf of the Fund. The Investment Adviser will provide the services under this Agreement in accordance with the Fund's investment objective, policies and restrictions as stated in the Private Offering Memorandum, resolutions of the Fund's Board of Directors, and any undertakings with regulatory authorities which are provided by the Fund to the Investment Adviser. The Investment Adviser further agrees that it: (a) will use the same skill and care in providing such services as it uses in providing services to fiduciary accounts for which it has investment responsibilities; (b) will comply in all material respects with all applicable Rules and Regulations of the Securities and Exchange Commission under the Investment Company Act of 1940 and in addition will conduct its activities under this Agreement in accordance with any applicable regulations pertaining to the investment advisory activities of the Investment Adviser; (c) will place or cause to be placed orders for the Fund either directly with the issuer or with any broker or dealer and, in placing orders with brokers and dealers, the Investment Adviser or any sub-investment adviser employed by the Investment Adviser will attempt to obtain prompt execution of orders in an effective manner at the most favorable price. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Investment Adviser or any sub-investment adviser employed by the Investment Adviser may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide the Investment Adviser or any such subinvestment adviser with research advice and other services; and (d) will treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund and prior, present, or potential shareholders of the Fund learned by, or disclosed to, the Investment Adviser in the course of its performance of its responsibilities and duties under this Agreement, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Investment Adviser may be exposed -2- to civil, regulatory, or criminal sanctions for failure to comply when requested to divulge such information by duly constituted authorities, or when so requested by the Fund. 4. Use of Sub-Investment Adviser. The Investment Adviser may, subject to ----------------------------- the approvals required under the 1940 Act, employ a sub-investment adviser to assist the Investment Adviser in the performance of its duties under this Agreement. Such use does not relieve the Investment Adviser of any duty or liability it would otherwise have under this Agreement. Compensation of any such sub-investment adviser for services provided and expenses assumed under any agreement between the Investment Adviser and such sub-investment adviser permitted under this paragraph is the sole responsibility of the Investment Adviser. 5. Services Not Exclusive. The investment management services furnished ---------------------- by the Investment Adviser hereunder are not to be deemed exclusive. Except to the extent necessary to perform the Investment Adviser's obligations under this Agreement, nothing herein shall be deemed to limit or restrict the right of the Investment Adviser, or any subsidiary or affiliate of the Investment Adviser, or any employee of the Investment Adviser, to engage in any other business or to devote time and attention to any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other person. 6. Books and Records. In compliance with the requirements of Rule 3la-3 ----------------- under the 1940 Act, the Investment Adviser hereby agrees that all records which it maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Investment Adviser further agrees to preserve for the periods prescribed by Rule 3la-2 under the 1940 Act the records required to be maintained by Rule 3la-1 under the 1940 Act. 7. Expenses. During the term of this Agreement, the Investment Adviser -------- will pay all expenses incurred by it in connection with its activities under this Agreement other than the cost of securities (including brokerage commissions or charges, if any) purchased for the Fund. The Fund will be responsible for all of the Fund's expenses and liabilities. 8. Compensation. For the services provided and the expenses assumed ------------ pursuant to this Agreement, the Fund will pay the Investment Adviser and the Investment Adviser will accept as full compensation therefor an annual fee paid monthly on the first business day of each month equal to the lesser of (i) $200,000 or (ii) such fee as may from time to time be agreed upon in writing by the Fund and the Investment Adviser. If the fee payable to the Investment Adviser pursuant to this paragraph begins to accrue after the beginning of any month or if this Agreement terminates before the end of any month, the fee for the period from such date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. -3- 9. Limitation of Liability. The Investment Adviser shall not be liable ----------------------- for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of fiduciary duty under the Investment Company Act of 1940 with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. In no case shall the Investment Adviser be liable for actions taken or nonactions with respect to the performance of services under this Agreement based upon specific information, instructions, or requests given or made to the Investment Adviser by an officer of the Fund thereunto duly authorized. Notwithstanding the foregoing, nothing in this paragraph should be deemed to be a waiver or limitation of any rights the Fund may have under the Federal securities laws. 10. Duration and Termination. This Agreement will become effective as of ------------------------ the date first written above, provided that it shall have been approved by vote of a majority of the outstanding voting securities of the Fund, in accordance with the requirements under the 1940 Act, and, unless sooner terminated as provided herein, shall continue in effect until October 31, 2001. Thereafter, if not terminated, this Agreement shall continue in effect for successive periods of twelve months each ending on October 31 of each year, provided such -------- continuance is specifically approved at least annually (a) by the vote of a majority of those members of the Fund's Board of Directors who are not parties to this Agreement or interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the vote of a majority of the Fund's Board of Directors or by the vote of a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, this Agreement may be terminated at any time on sixty days' written notice, without the payment of any penalty, by the Fund (by vote of the Fund's Board of Directors or by vote of a majority of the outstanding voting securities of the Fund) or by the Investment Adviser. This Agreement will immediately terminate in the event of its assignment. (As used in this Agreement, the terms "majority of the outstanding voting securities", "interested persons" and "assignment" shall have the same meaning of such terms in the 1940 Act.) 11. Amendment of this Agreement. No provision of this Agreement may be --------------------------- changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 12. Legal Advice. The Investment Adviser shall notify the Fund at any ------------ time the Investment Adviser believes that it is in need of the advice of counsel with regard to its responsibilities and duties pursuant to this Agreement; if the Investment Adviser wishes to seek the advice of legal counsel to the Fund it must first notify the Fund and seek its approval, which shall not be unreasonably withheld, such advice to be at the expense of the Fund unless relating to a matter involving the Investment Adviser's willful misfeasance, bad faith, gross negligence or reckless disregard with respect to the Investment Adviser's responsibilities and duties hereunder -4- and the Investment Adviser shall in no event be liable to the Fund or any shareholder or beneficial owner of the Fund for any action reasonably taken pursuant to such advice. 13. Miscellaneous. The captions in this Agreement are included for ------------- convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Fund, at 9920 S. La Cienega Blvd., Suite 636, Inglewood, California 90301, Attention: Controller Department; and if to the Investment Adviser, at 9920 S. La Cienega Blvd., Suite 636, Inglewood, California 90301, Attention: Controller Department. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by the laws of the State of California. The names "Imperial Special Investments, Inc." and "Director of Imperial Special Investments, Inc." refer respectively to the Fund created and the Directors, as directors but not individually or personally, acting from time to time under Articles of Incorporation dated as of April 24, 2000 to which reference is hereby made and a copy of which is on file at the office of the Secretary of the State of California and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The obligations of "Imperial Special Investments, Inc." entered into in the name or on behalf thereof by any of the Directors, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Directors, shareholders or representatives of the Fund personally, but bind only the assets of the Fund, and all persons dealing with the Fund must look solely to the assets of the Fund for the enforcement of any claims against the Fund. -5- IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. Imperial Special Investments, Inc. By: /s/ Richard M. Baker ________________________________________________ Title: SVP & General Counsel Imperial Asset Management, Inc. By: /s/ Richard M. Baker ________________________________________________ Title: SVP & General Counsel -6- EX-10.2 3 FUND ACCOUNTING AGREEMENT EXHIBIT 10.2 FUND ACCOUNTING AGREEMENT AGREEMENT made this 28th day of April, 2000, between IMPERIAL SPECIAL INVESTMENTS, INC. (the "Fund"), a California corporation having its principal place of business at 9920 S. La Cienega Blvd., Suite 636, Inglewood, California 90301, and IMPERIAL BANK ("Fund Accountant"), a California banking corporation having its principal place of business at 9920 S. La Cienega Blvd., Suite 636, Inglewood, California 90301. WHEREAS, the Fund desires that Fund Accountant perform certain fund accounting services for the Fund, all as now or hereafter may be established from time to time; and WHEREAS, Fund Accountant is willing to perform such services on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth, the parties agree as follows: 1. Services as Fund Accountant. --------------------------- (a) Maintenance of Books and Records. Fund Accountant will keep and --------------------------------- maintain the following books and records of the Fund pursuant to Rule 31a-1 under the Investment Company Act of 1940 (the "Rule"): (i) Journals containing an itemized daily record in detail of all purchases and sales of securities, all receipts and disbursements of cash and all other debits and credits, as required by subsection (b)(1) of the Rule; (ii) General and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, including interest accrued and interest received, as required by subsection (b)(2)(i) of the Rule; (iii) Separate ledger accounts required by subsection (b)(2)(ii) and (iii) of the Rule; and (iv) A monthly trial balance of all ledger accounts (except shareholder accounts) as required by subsection (b)(8) of the Rule. (b) Performance of Accounting Services. In addition to the ----------------------------------- maintenance of the books and records specified above, Fund Accountant shall perform the following accounting services for the Fund: (i) Calculate the net asset value per share utilizing prices obtained from the sources described in subsection 1(b)(ii) below; (ii) Obtain security prices from independent pricing services, or if such quotes are unavailable, then obtain such prices from the Fund's investment adviser or its designee, as approved by the Fund's Board of Directors; (iii) Verify and reconcile with the Fund's custodian all daily trade activity; (iv) Compute, as appropriate, the Fund's net income and capital gains, dividend payables, dividend factors, 7-day yields, 7-day effective yields, 30-day yields, and weighted average portfolio maturity; (v) Review the net asset value calculation and dividend factor (if any) for the Fund prior to release to shareholders, check and confirm the net asset values and dividend factors for reasonableness and deviations; (vi) Determine unrealized appreciation and depreciation on securities held by the Fund; (vii) Amortize premiums and accrete discounts on securities purchased at a price other than face value, if requested by the Fund; (viii) Update fund accounting system to reflect rate changes, as received from the Fund's investment adviser, on variable interest rate instruments; (ix) Post Fund transactions to appropriate categories; (x) Accrue expenses of the Fund according to instructions received from the Fund's Investment Adviser; (xi) Determine the outstanding receivables and payables for all (1) security trades, (2) Fund share transactions, and (3) income and expense accounts; (xii) Provide accounting reports in connection with the Fund's regular annual audit and other audits and examinations by regulatory agencies; and (xiii) Provide such periodic reports as the parties shall agree upon, as set forth in a separate schedule. 2 (c) Special Reports and Services. ----------------------------- (i) Fund Accountant may provide additional special reports upon the request of the Fund's Investment Adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties. (ii) Fund Accountant may provide such other similar services with respect to the Fund as may be reasonably requested by the Fund, which may result in an additional charge, the amount of which shall be agreed upon between the parties. (d) Additional Accounting Services. Fund Accountant shall also ------------------------------- perform the following additional accounting services for the Fund: (i) Provide monthly a download (and hard copy thereof) of the financial statements described below, upon request of the Fund. The download will include the following items: Statement of Assets and Liabilities, Statement of Operations, Statement of Changes in Net Assets, and Condensed Financial Information; (ii) Provide accounting information for the following: (A) federal and state income tax returns and federal excise tax returns; (B) the Fund's semi-annual reports with the Securities and Exchange Commission ("SEC") on Form N-SAR; (C) the Fund's annual, semi-annual and quarterly (if any) shareholder reports; (D) registration statements on Form N-2 and other filings relating to the registration of shares; (E) the Investment Adviser's monitoring of the Fund's status as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended; (F) annual audit by the Fund's auditors; and (G) examinations performed by the SEC. 2. Subcontracting. -------------- Fund Accountant may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that Fund Accountant shall not be relieved of any of its obligations under this Agreement by the appointment of such 3 subcontractor and provided further, that Fund Accountant shall be responsible, to the extent provided in Section 7 hereof, for all acts of such subcontractor as if such acts were its own. 3. Compensation. ------------ The Fund shall pay Fund Accountant for the services to be provided by Fund Accountant under this Agreement in accordance with, and in the manner set forth in, Schedule A hereto, as such Schedule may be amended from time to time. 4. Reimbursement of Expenses. ------------------------- In addition to paying Fund Accountant the fees described in Section 3 hereof, the Fund agrees to reimburse Fund Accountant for its out-of-pocket expenses in providing services hereunder, including without limitation the following: (a) All freight and other delivery and bonding charges incurred by Fund Accountant in delivering materials to and from the Fund; (b) All direct telephone, telephone transmission and telecopy or other electronic transmission expenses incurred by Fund Accountant in communication with the Fund, the Fund's Investment Adviser or custodian, dealers or others as required for Fund Accountant to perform the services to be provided hereunder; (c) The cost of obtaining security market quotes pursuant to Section l(b)(ii) above; (d) The cost of microfilm or microfiche of records or other materials; and (e) Any expenses Fund Accountant shall incur at the written direction of an officer of the Fund thereunto duly authorized. 5. Effective Date. -------------- This Agreement shall become effective with respect to the Fund as of the date first written above (or, if the Fund is not in existence on that date, on the date the Fund commences operation) (the "Effective Date"). 6. Term. ---- This Agreement shall continue in effect with respect to the Fund, unless earlier terminated by either party hereto as provided hereunder, until April 28, 2002 and thereafter shall be renewed automatically for successive two-year terms unless written notice not to renew is given by the non-renewing party to the other party at least 60 days prior to the expiration of the then-current term; provided, however, that after such termination for so long as Fund Accountant, with the written consent of the Fund, in fact continues to perform any one or more of the services contemplated by this Agreement or any schedule or exhibit hereto, the provisions of this Agreement, including 4 without limitation the provisions dealing with indemnification, shall continue in full force and effect. Compensation due Fund Accountant and unpaid by the Fund upon such termination shall be immediately due and payable upon and notwithstanding such termination. Fund Accountant shall be entitled to collect from the Fund, in addition to the compensation described under Section 3 hereof, the amount of all of Fund Accountant's cash disbursements for services in connection with Fund Accountant's activities in effecting such termination, including without limitation, the delivery to the Fund and/or its designees of the Fund's property, records, instruments and documents, or any copies thereof. Subsequent to such termination, for a reasonable fee, Fund Accountant will provide the Fund with reasonable access to any Fund documents or records remaining in its possession. 7. Standard of Care; Reliance on Records and Instructions; ------------------------------------------------------- Indemnification. --------------- Fund Accountant shall use its best efforts to insure the accuracy of all services performed under this Agreement, but shall not be liable to the Fund for any action taken or omitted by Fund Accountant in the absence of bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties. The Fund agrees to indemnify and hold harmless Fund Accountant, its employees, agents, directors, officers and nominees from and against any and all claims, demands, actions and suits, whether groundless or otherwise, and from and against any and all judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising out of or in any way relating to Fund Accountant's actions taken or nonactions with respect to the performance of services under this Agreement with respect to the Fund or based, if applicable, upon reasonable reliance on information, records, instructions or requests with respect to the Fund given or made to Fund Accountant by a duly authorized representative of the Fund; provided that this indemnification shall not apply to actions or omissions of Fund Accountant in cases of its own bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties, and further provided that prior to confessing any claim against it which may be the subject of this indemnification, Fund Accountant shall give the Fund written notice of and reasonable opportunity to defend against said claim in its own name or in the name of Fund Accountant. 8. Record Retention and Confidentiality. ------------------------------------ Fund Accountant shall keep and maintain on behalf of the Fund all books and records which the Fund and Fund Accountant is, or may be, required to keep and maintain pursuant to any applicable statutes, rules and regulations, including without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books and records in connection with the services to be provided hereunder. Fund Accountant further agrees that all such books and records shall be the property of the Fund and to make such books and records available for inspection by the Fund or by the Securities and Exchange Commission at reasonable times and otherwise to keep confidential all books and records and other information relative to the Fund and its shareholders; except when requested to divulge such information by duly-constituted authorities or court process. 5 9. Uncontrollable Events. --------------------- Fund Accountant assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its reasonable control. 10. Reports. ------- Fund Accountant will furnish to the Fund and to its properly authorized auditors, investment advisers, examiners, distributors, dealers, underwriters, salesmen, insurance companies and others designated by the Fund in writing, such reports and at such times as are prescribed pursuant to the terms and the conditions of this Agreement to be provided or completed by Fund Accountant, or as subsequently agreed upon by the parties pursuant to an amendment hereto. The Fund agrees to examine each such report or copy promptly and will report or cause to be reported any errors or discrepancies therein no later than three business days from the receipt thereof. In the event that errors or discrepancies, except such errors and discrepancies as may not reasonably be expected to be discovered by the recipient within ten days after conducting a diligent examination, are not so reported within the aforesaid period of time, a report will for all purposes be accepted by and binding upon the Fund and any other recipient, and, except as provided in Section 7 hereof, Fund Accountant shall have no liability for errors or discrepancies therein and shall have no further responsibility with respect to such report except to perform reasonable corrections of such errors and discrepancies within a reasonable time after requested to do so by the Fund. 11. Rights of Ownership. ------------------- All computer programs and procedures developed to perform services required to be provided by Fund Accountant under this Agreement are the property of Fund Accountant. All records and other data except such computer programs and procedures are the exclusive property of the Fund and all such other records and data will be furnished to the Fund in appropriate form as soon as practicable after termination of this Agreement for any reason. 12. Return of Records. ----------------- Fund Accountant may at its option at any time, and shall promptly upon the Fund's demand, turn over to the Fund and cease to retain Fund Accountant's files, records and documents created and maintained by Fund Accountant pursuant to this Agreement which are no longer needed by Fund Accountant in the performance of its services or for its legal protection. If not so turned over to the Fund, such documents and records will be retained by Fund Accountant for six years from the year of creation. At the end of such six-year period, such records and documents will be turned over to the Fund unless the Fund authorizes in writing the destruction of such records and documents. 6 13. Representations of the Fund. --------------------------- The Fund certifies to Fund Accountant that: (1) as of the close of business on the Effective Date, each Fund that is in existence as of the Effective Date has authorized 10,000,000,000 shares, and (2) this Agreement has been duly authorized by the Fund and, when executed and delivered by the Fund, will constitute a legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 14. Representations of Fund Accountant. ---------------------------------- Fund Accountant represents and warrants that: (1) the various procedures and systems which Fund Accountant has implemented with regard to safeguarding from loss or damage attributable to fire, theft, or any other cause the records, and other data of the Fund and Fund Accountant's records, data, equipment facilities and other property used in the performance of its obligations hereunder are adequate and that it will make such changes therein from time to time as are required for the secure performance of its obligations hereunder, and (2) this Agreement has been duly authorized by Fund Accountant and, when executed and delivered by Fund Accountant, will constitute a legal, valid and binding obligation of Fund Accountant, enforceable against Fund Accountant in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 15. Insurance. --------- Fund Accountant shall notify the Fund should any of its insurance coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefor. Fund Accountant shall notify the Fund of any material claims against it with respect to services performed under this Agreement, whether or not they may be covered by insurance, and shall notify the Fund from time to time as may be appropriate of the total outstanding claims made by Fund Accountant under its insurance coverage. 16. Information to be Furnished by the Fund. --------------------------------------- The Fund has furnished to Fund Accountant the following: (a) Copies of the Articles of Incorporation of the Fund and of any amendments thereto, certified by the proper official of the state in which such document has been filed. (b) Copies of the following documents: (i) The Fund's Bylaws and any amendments thereto; and 7 (ii) Certified copies of resolutions of the Board of Directors covering the approval of this Agreement, authorization of a specified officer of the Fund to execute and deliver this Agreement and authorization for specified officers of the Fund to instruct Fund Accountant thereunder. (c) A list of all the officers of the Fund, together with specimen signatures of those officers who are authorized to instruct Fund Accountant in all matters. (d) Two copies of the Private Offering Memorandum ("Memorandum") for the Fund. 17. Information Furnished by Fund Accountant. ---------------------------------------- (a) Fund Accountant has furnished to the Fund the following: (i) Fund Accountant's Charter; and (ii) Fund Accountant's Bylaws and any amendments thereto. 18. Amendments to Documents. ----------------------- The Fund shall furnish Fund Accountant written copies of any amendments to, or changes in, any of the items referred to in Section 17 hereof forthwith upon such amendments or changes becoming effective. In addition, the Fund agrees that no amendments will be made to the Memorandum of the Fund which might have the effect of changing the procedures employed by Fund Accountant in providing the services agreed to hereunder or which amendment might affect the duties of Fund Accountant hereunder unless the Fund first obtains Fund Accountant's approval of such amendments or changes. 19. Compliance with Law. ------------------- Except for the obligations of Fund Accountant set forth in Section 8 hereof, the Fund assumes full responsibility for the preparation, contents and distribution of the Memorandum of the Fund as to compliance with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act and any other laws, rules and regulations of governmental authorities having jurisdiction. Fund Accountant shall have no obligation to take cognizance of any laws relating to the sale of the Fund's shares. The Fund represents and warrants that no shares of the Fund will be offered until the Fund's registration statement under the 1940 Act has become effective. 20. Notices. ------- Any notice provided hereunder shall be sufficiently given when sent by registered or certified mail to the party required to be served with such notice, at the following address: 9920 S. 8 La Cienega Blvd., Suite 636, Inglewood, California 90301, or at such other address as such party may from time to time specify in writing to the other party pursuant to this Section. 21. Headings. -------- Paragraph headings in this Agreement are included for convenience only and are not to be used to construe or interpret this Agreement. 22. Assignment. ---------- This Agreement and the rights and duties hereunder shall not be assignable with respect to the Fund by either of the parties hereto except by the specific written consent of the other party. 23. Governing Law. ------------- This Agreement shall be governed by and provisions shall be construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. IMPERIAL SPECIAL INVESTMENTS, INC. By:/s/ Richard M. Baker ---------------------- IMPERIAL BANK By:/s/ Richard M. Baker ---------------------- 9 Dated: , 2000 FORM OF SCHEDULE A TO THE FUND ACCOUNTING AGREEMENT BETWEEN IMPERIAL SPECIAL INVESTMENTS, INC. AND IMPERIAL BANK FEES ---- Imperial Bank shall be entitled to receive a fee from the Fund at the annual rate of $800,000 plus Imperial Bank's reasonable out-of-pocket expenses incurred in the performance of its services as provided in Section 4 of the Fund Accounting Agreement to which this Schedule A is attached. IMPERIAL SPECIAL INVESTMENTS, INC. IMPERIAL BANK By: /s/ Richard M. Baker By: /s/ Richard M. Baker --------------------- --------------------- 10 EX-27.1 4 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 410,982 0 1,485,000 143,157 911,904 3,702 3,702 3,794,929 (78,528) 7,001,505 6,087,199 94,423 151,354 176,461 0 0 360,155 131,913 7,001,505 90,591 14,634 12,587 117,812 33,746 39,160 78,652 11,894 5,185 71,214 30,109 19,315 0 0 19,315 0.43 0.41 5.38 35,888 0 6,914 0 71,677 5,390 347 78,528 0 0 0
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