-----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, Djm15lopzx+DX1RTbotHZ8Ihp7VgQWiHjgnibWsAOfJ279NeeLldhxZxWbq1PL0A IJe9xLzXQ/q1QMcu/mZXxA== 0000944209-99-000800.txt : 19990517 0000944209-99-000800.hdr.sgml : 19990517 ACCESSION NUMBER: 0000944209-99-000800 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623019 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, 1999 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 March 31, 1999: 41,899,886 shares. Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due 1999. As of March 31, 1999, $1,106,000 in principal amount of such Notes and $999,000 in principal amount of such Debentures were outstanding. Capital Securities: 9.98 percent Series B Capital Securities of Imperial Capital Trust I Due 2026. As of March 31, 1999, $73,386,000 in net 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. IMPERIAL BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS THREE MONTHS ENDED MARCH 31, 1999 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. FINANCIAL REVIEW The following discussion presents information about the results of operations, financial condition, liquidity, and capital resources of Imperial Bancorp ("the Company") for the three months ended March 31, 1999. This information should be read in conjunction with the Company's 1998 consolidated financial statements and notes thereto, and the accompanying quarterly unaudited consolidated financial statements and notes thereto. PERFORMANCE SUMMARY Net income for the three months ended March 31, 1999, increased to $14.2 million, or $0.33 a diluted share, from $13.4 million, or $0.30 a diluted share, for the year-earlier period. Normalized net income increased to $12.9 million for the three months ended March 31, 1999, from $11.7 million for the year- earlier period. Normalized earnings per share for the first quarter of 1999 increased approximately 15 percent to $0.30 a diluted share from $0.26 a diluted share for the first quarter of 1998. For purposes of these comparisons, normalized net income excludes equity in the earnings of Imperial Credit Industries, Inc. ("ICII") (NASDAQ-ICII). The normalizing adjustments reduced net income by $1.3 million and $1.7 million for the quarters ended March 31, 1999 and 1998, respectively. Net income growth continues to be driven by the Company's core commercial banking business. The following table provides the calculation of normalized net income for the periods indicated:
================================================================================ Three months ended March 31, (Dollars in thousands, except per share amounts) 1999 1998 ================================================================================ Net income $ 14,223 $ 13,375 After-tax adjustments: Equity in net income of ICII (1,298) (1,671) ---------- ----------- Normalized net income $ 12,925 $ 11,704 ========== ========== Normalized diluted earnings per share $ 0.30 $ 0.26 Normalized return on average assets (1) 0.98% 1.10% Normalized return on average equity 13.53% 13.21% ===============================================================================
(1) The balance of average assets excludes the Company's investment in ICII. Earnings per share for first quarter 1998 has been adjusted to reflect an 8 percent stock dividend paid on March 5, 1999. The annualized return on average assets decreased to 1.07 percent for the three months ended March 31, 1999, from 1.23 percent for the year-earlier period. The annualized return on average assets, based on normalized net income, declined to 0.98 percent for the three months ended March 31, 1999, from 1.10 percent for the year-earlier period. A 22 percent increase in average assets combined with a decline in the net interest margin contributed to the decrease in the annualized return on average assets for the first quarter of 1999 compared with the first quarter of 1998. The annualized return on average equity decreased to 14.89 percent for the three months ended March 31, 1999, from 15.10 percent for the year- 1 earlier period. The annualized return on average equity, based on normalized net income, increased to 13.53 percent for the first quarter of 1999 from 13.21 percent for the first quarter of 1998. Net interest income increased 3 percent for the three months ended March 31, 1999, to $62.8 million from $60.8 million for the three months ended March 31, 1998. The increase in net interest income is primarily due to growth in the loan portfolio. Average loan balances increased approximately $840.1 million, or 28 percent, for the three months ended March 31, 1999, compared with the year-earlier period. Net interest margin decreased to 5.25 percent for the three months ended March 31, 1999, from 6.24 percent for the year-earlier period. The decline in net interest margin compared with the prior year is primarily due to a decrease in the yield on commercial loans. The decrease in yield is due in part to a 75 basis point decline in the average prime rate for the first quarter of 1999 compared with the first quarter of 1998. The Company's overall cost of funds decreased to 4.05 percent for the three months ended March 31, 1999, from 4.96 percent for the prior year.
============================================================================ Three Months Ended March 31, (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------- Interest income $ 87,432 $ 84,258 Interest expense 24,605 23,434 - ---------------------------------------------------------------------------- Net interest income $ 62,827 $ 60,824 ______________________________________________________________________________ Net interest margin 5.25% 6.24% ==============================================================================
The loan loss provision totaled $4.8 million and $5.8 million for the three months ended March 31, 1999 and 1998, respectively. Net charge-offs were $3.7 million, or 0.39 percent of average loans on an annualized basis, for the first quarter of 1999 compared with $1.3 million, or 0.18 percent of average loans on an annualized basis, for the year-earlier quarter. The ratio of the allowance for loan losses to period-end outstanding loans was 1.81 percent at March 31, 1999, 1.82 percent at December 31, 1998, and 1.83 percent at March 31, 1998. Noninterest income increased to $22.0 million for the three months ended March 31, 1999, from $17.9 million for the year-earlier period. Excluding equity in the net income of ICII, noninterest income increased 31 percent to $19.7 million for the first quarter of 1999 from $15.0 million for the first quarter of 1998. The Company experienced growth in most noninterest income categories, including gains on the exercise and sale of equity warrants, fees derived from the sale of nonproprietary mutual funds and merchant card processing fees. Noninterest expense increased approximately 13 percent to $56.5 million for the three months ended March 31, 1999, from $50.1 million for the year-earlier period. The increase in noninterest expense for the first quarter of 1999 compared with the same period of 1998 occurred primarily in salaries and benefits expense, occupancy and equipment expense, telephone expense, professional fees and customer services expense. The increase in salaries and benefits expense and occupancy and equipment expense is the result of growth in the Company's lending and deposit businesses and support operations. The average number of full-time equivalent staff increased to 1,255 for the first quarter of 1999 from 1,048 for the first quarter of 1998. Salaries expense for the three months ended March 31, 1999, includes commissions totaling $1.2 million associated with the exercise and sale of equity warrants compared with $8,000 for the year-earlier quarter. The increase in customer services expense is directly related to growth in deposit balances generated by the Financial Services Division. Total assets at March 31, 1999, were $6.4 billion, a 4 percent increase from $6.2 billion at December 31, 1998, and a 12 percent increase from $5.7 billion reported at March 31, 1998. Total loans were $3.5 billion at March 31, 1999, and $3.4 billion at December 31, 1998, an increase of 15 percent from $3.0 billion at March 31, 1998. The growth in the loan portfolio at March 31, 1999, occurred in commercial and construction loans which increased 17 and 55 percent, respectively, over March 31, 1998. Total deposits increased to $5.8 billion at March 31, 1999, from $5.6 billion at December 31, 1998, and $5.1 billion at March 31, 1998. The increase in total deposits compared with a year ago is due to a $388.2 million, or 12 percent, increase in noninterest-bearing demand deposits to $3.5 billion at March 31, 1999, from $3.1 billion at March 31, 1998. Noninterest-bearing demand deposits comprised 60 percent of total deposits at 2 March 31, 1999, down slightly from 61 percent at March 31, 1998. Shareholders' equity increased to $388.1 million at March 31, 1999, from $381.8 million at December 31, 1998, and $369.6 million at March 31, 1998. Nonaccrual loans totaled $43.0 million, or 1.22 percent of total loans, at March 31, 1999, compared with $30.6 million, or 0.89 percent of total loans, at December 31, 1998, and $12.3 million, or 0.40 percent of total loans, at March 31, 1998. Restructured loans decreased to $7.3 million at March 31, 1999, from $9.8 million at December 31, 1998, and $23.1 million at March 31, 1998. The percentage of nonaccrual and restructured loans to total loans increased to 1.43 percent at March 31, 1999, from 1.17 percent at December 31, 1998, and 1.16 percent at March 31, 1998. The increase in nonaccrual loans at March 31, 1999, compared with December 31, 1998, includes a $10.0 million commercial real estate loan. All restructured loans were performing in accordance with their modified terms at March 31, 1999. The balance of real estate and other assets owned net of allowance ("OREO") decreased to $2.0 million at March 31, 1999, from $2.3 million at December 31, 1998, and $3.0 million at March 31, 1998. Imperial Bancorp is classified as well capitalized with leverage, Tier 1 and total capital ratios of 8.45 percent, 9.73 percent and 11.02 percent, respectively, at March 31, 1999. Stock Dividend On February 3, 1999, the Company announced an 8 percent stock dividend paid on March 5, 1999, to shareholders of record as of February 19, 1999. Subordinated Debt Issue On April 7, 1999, Imperial Bank completed a $100 million offering of 8.5 percent Subordinated Capital Notes due 2009. The Notes qualify as Tier 2 capital under FDIC guidelines. Sale of Imperial Trust Company On April 23, 1999, the Company announced the sale of the business portfolio of Imperial Trust Company ("ITC") to Union Bank of California, N.A. ("UBOC"). Regulatory approval has been received and the sale is expected to close prior to the end of May 1999. The Company expects to record a pretax gain of approximately $9.0 million in the second quarter of 1999 and an additional gain of up to $3.5 million in the second quarter of 2000, based on the earnings performance of the trust business for UBOC. ITC currently has over $10.0 billion of assets under administration. EARNINGS PERFORMANCE 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 interest-earning assets. Net interest income increased to $62.8 million for the three months ended March 31, 1999, from $60.8 million for the year-earlier period. The increase in net interest income is due to growth in average earning assets, primarily loans which increased by $840.1 million, or 28 percent, over the year- earlier period. Increases of $40.5 million and $39.2 million in trading instruments and Federal funds sold, respectively, for the three months ended March 31, 1999, more than offset a $29.8 million decrease in the balance of securities available for sale compared with the same period of 1998. The increase in net interest income due to growth in earning asset balances for the current quarter compared with the year-earlier quarter exceeded the impact of a decline in the overall yield on earning assets to 7.30 percent from 8.64 percent. 3
================================================================================================================================= Three months ended March 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- 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) $ 3,817,300 $ 74,587 (3) 7.92% $ 2,977,204 $ 70,230 (3) 9.57% Trading instruments 66,672 889 5.41% 26,140 350 5.43% Securities available for sale 611,295 7,394 4.91% 641,085 9,343 5.91% Securities held to maturity 3,874 72 7.54% 4,021 70 7.06% Federal funds sold and securities purchased under resale agreements 339,495 4,055 4.84% 300,251 4,121 5.57% Loans held for sale 18,597 435 9.49% 5,245 144 11.13% - --------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $ 4,857,233 $ 87,432 7.30% $ 3,953,946 $ 84,258 8.64% ================================================================================================================================= Allowance for loan losses (63,628) (52,101) Cash 357,792 310,793 Other assets 235,210 195,837 ----------- ----------- Total assets $ 5,386,607 $ 4,408,475 =========== =========== Interest-bearing liabilities: Savings $ 36,653 $ 151 1.67% $ 25,346 $ 159 2.54% Money market 1,067,070 7,455 2.83% 778,893 7,483 3.90% Time-under $100,000 121,571 1,769 5.90% 149,822 2,233 6.04% Time-$100,000 and over 1,055,980 12,393 4.76% 782,012 10,482 5.44% - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits $ 2,281,274 $ 21,768 3.87% $ 1,736,073 $ 20,357 4.76% - --------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 105,978 1,259 4.82% 101,743 1,375 5.48% Long-term borrowings 2,989 49 6.65% 3,643 65 7.24% Capital securities 73,379 1,529 8.45% 73,320 1,637 9.05% - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $ 2,463,620 $ 24,605 4.05% $ 1,914,779 $ 23,434 4.96% - --------------------------------------------------------------------------------------------------------------------------------- Demand deposits 2,449,958 2,068,907 Other liabilities 85,630 65,478 Shareholders' equity 387,399 359,311 ----------- ------------ $ 5,386,607 $ 4,408,475 =========== ============ Net interest income/Net interest margin $ 62,827 5.25% $ 60,824 6.24% ======== ==== ======== ===== - ---------------------------------------------------------------------------------------------------------------------------------
(1) The yields are not presented on a tax equivalent basis as the effects are not material. (2) Average loan balance includes nonaccrual loans. (3) Includes net loan fee income and amortization of $4.9 million and $6.1 million for the three months ended March 31, 1999 and 1998, respectively. The Company's net interest margin decreased to 5.25 percent for the three months ended March 31, 1999, from 6.24 percent for the year-earlier period. The decrease in the net interest margin is largely due to a decline in the yield on 4 loans. The average yield on loans decreased to 7.92 percent for the first quarter of 1999 from 9.57 percent for the same period of 1998. The Company's loans are generally tied to a rate index, with the majority tied to the prime rate. Some loans, including entertainment loans and purchased loan participations, are tied to the London Interbank Offered Rate ("LIBOR"). The prime rate averaged 7.75 percent for the first quarter of 1999 compared with an average of 8.50 percent for the first quarter of 1998. The yield on loans for the current quarter was also impacted by the level of nonaccrual loans compared with the prior year. Interest income for the three months ended March 31, 1999, was reduced by approximately $441,000 due to interest reversals on nonaccrual loans. Average demand deposits increased to $2.4 billion, or 52 percent of total average deposits, for the first quarter of 1999 from $2.1 billion, or 54 percent of total average deposits, for the year-earlier quarter. The Company benefited from a decrease in the overall cost of funds to 4.05 percent for the three months ended March 31, 1999, from 4.96 percent for the same period of 1998. This decrease is largely due to a reduction in the cost of deposits. 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, 1999 and 1998. 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 tables are not presented on a tax equivalent basis as the effects are not material.
- --------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 1999 over 1998 (Dollars in thousands) Volume Rate Rate/Volume Total - --------------------------------------------------------------------------------------------------------------------- Loans $ 19,817 $ (12,058) $ (3,402) $ 4,357 Trading instruments 542 (1) (2) 539 Securities available for sale (434) (1,589) 74 (1,949) Securities held to maturity (3) 5 - 2 Federal funds sold and securities purchased under resale agreements 539 (535) (70) (66) Loans held for sale 366 (21) (54) 291 - --------------------------------------------------------------------------------------------------------------------- Total interest income $ 20,827 $ (14,199) $ (3,454) $ 3,174 - --------------------------------------------------------------------------------------------------------------------- Savings $ 71 $ (55) $ (24) $ (8) Money market 2,768 (2,041) (755) (28) Time-under $100,000 (421) (53) 10 (464) Time-$100,000 and over 3,672 (1,304) (457) (1,911) - --------------------------------------------------------------------------------------------------------------------- Time deposits $ 6,090 $ (3,453) $ (1,226) $ 1,411 - --------------------------------------------------------------------------------------------------------------------- Short-term borrowings 57 (166) (7) (166) Long-term borrowings (12) (5) 1 (16) Capital securities 1 (109) 0 (108) - --------------------------------------------------------------------------------------------------------------------- Total interest expense $ 6,136 $ (3,733) $ (1,232) $ 1,171 - --------------------------------------------------------------------------------------------------------------------- Change in net interest income $ 14,691 $ (10,466) $ (2,222) $ 2,003 - ---------------------------------------------------------------------------------------------------------------------
5 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 $6.4 million and $5.9 million, respectively, for the three months ended March 31, 1999 and 1998. The net interest margin for the three months ended March 31, 1999 and 1998, would have been 4.72 percent and 5.63 percent, respectively. Noninterest Income: Noninterest income increased to $22.0 million for the three months ended March 31, 1999, from $17.9 million for the year-earlier period. Excluding equity in the net income of Imperial Credit Industries, Inc. ("ICII"), noninterest income increased 31 percent to $19.7 million for the first quarter of 1999 from $15.0 million a year earlier. The following table provides the components of noninterest income for the periods indicated:
- ---------------------------------------------------------------------------------------------------------------- Three months ended March 31, (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts $ 1,843 $ 1,432 Trust fees 2,215 2,091 Gain on origination and sale of loans 1,221 1,084 Equity in net income of Imperial Credit Industries, Inc. 2,240 2,884 Other service charges and fees 4,448 2,727 Merchant and credit card fees 2,236 1,475 International income and fees 2,800 2,940 Gain on securities available for sale - 4 Gain on trading instruments 19 208 Gain on exercise and sale of equity warrants 3,952 423 Other income 1,014 2,648 - ---------------------------------------------------------------------------------------------------------------- Total $ 21,988 $ 17,916 - ---------------------------------------------------------------------------------------------------------------- Noninterest income excluding equity in net income of ICII $ 19,748 $ 15,032 ================================================================================================================
The Company experienced growth in most noninterest income categories including, gains on the exercise and sale of equity warrants ($3.5 million), other service charges and fees ($1.7 million), merchant card processing fees ($761,000) and service charges on deposits ($411,000). These increases were offset in part by a $1.6 million reduction in other miscellaneous income. Noninterest Expense: Noninterest expense increased approximately 13 percent to $56.5 million for the three months ended March 31, 1999, from $50.1 million for the year-earlier period. The increase in noninterest expense for the first quarter of 1999 compared with the same period of 1998 occurred primarily in salaries and benefits expense, occupancy and equipment expense, telephone expense, professional fees and customer services expense. The table below provides detail of noninterest expense by category for the periods indicated: 6
=========================================================================================================== Three months ended March 31, (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------------------------------------------- Salary and employee benefits $30,715 $28,711 Net occupancy expense 2,695 2,323 Furniture and equipment 2,904 2,218 Data processing 2,526 2,200 Customer services 6,351 5,906 Professional and legal fees 2,843 2,299 Business development 1,385 1,126 Other expense 7,036 5,300 - ----------------------------------------------------------------------------------------------------------- Total $56,455 $50,083 - -----------------------------------------------------------------------------------------------------------
The increase in salary and benefits expense, occupancy and equipment expense and telephone expense is the result of growth in the Company's lending and deposit businesses and support operations. Along with expanded operations within California, the addition of out-of-state offices contributed to the increase in noninterest expense for the current quarter compared with the year-earlier quarter. New out-of-state locations include a loan production office in Reston, Virginia (opened July 1998); Altair Corporation located in Houston, Texas (acquired in September 1998) and a regional banking office in Denver, Colorado (opened November 1998). The average number of full-time equivalent staff increased to 1,255 for the first quarter of 1999 from 1,048 for the first quarter of 1998. Salary and employee benefits expense for the three months ended March 31, 1999, includes commissions totaling $1.2 million associated with the exercise and sale of equity warrants compared with $8,000 for the year-earlier period. The increase in professional fees for the current quarter compared with the prior year is due to costs related to the Company's Year 2000 project (see-"Year 2000") and to the implementation of a new wire transfer system. Customer services expense increased to $6.4 million for the three months ended March 31, 1999, from $5.9 million for the year-earlier period. Customer services expense includes accounting and courier expenses that the Company pays on behalf of its depositors in the real estate services industry. Customer services expense is a function of the volume of these deposits and interest rates. The average balance of these demand deposits increased to $1.5 billion for the three months ended March 31, 1999, from $1.1 billion for the comparable period of 1998. Other noninterest expense for the three months ended March 31, 1999, increased to $7.0 million from $5.3 million for the year-earlier period. The increase for the current period is due to expenses associated with the Company's factoring business ($388,400), expense related to the Company's investment in qualified low income housing tax credits ($318,700), broker commissions paid on the origination and purchase of government-insured Small Business Administration ("SBA") loans ($270,000) and expense associated with the writedown of certain equity investments to fair value ($179,000). The remaining increases occurred in a number of smaller categories. The Company's gross investment in low income housing tax credits increased to $9.5 million at March 31, 1999, from $4.2 million at March 31, 1998. This investment generates tax credits and deductible operating expenses that reduce the Company's effective tax rate. Income Taxes: The Company recorded income tax expense of $9.3 million and $9.4 million, for the quarters ended March 31, 1999 and 1998, respectively. Tax expense for the first quarter of 1999 includes estimated tax credits totaling $480,000 related to the Company's investment in low income housing projects. LOANS The following table provides a summary of loans by category for the periods indicated: 7
- ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) March 31, 1999 December 31, 1998 March 31, 1998 - ---------------------------------------------------------------------------------------------------------------------------- Balance Percent Balance Percent Balance Percent Commercial $3,027,969 86.15% $3,010,555 87.32% $2,594,336 85.21% Loan secured by real estate: - Real estate term loans 140,138 3.99 142,866 4.14 218,929 7.19 Interim construction loans 312,041 8.88 258,763 7.51 201,956 6.64 Consumer loans 34,560 0.98 35,354 1.03 29,334 0.96 - ---------------------------------------------------------------------------------------------------------------------------- Gross loans 3,514,708 100.00% 3,447,538 100.00% 3,044,555 100.00% Less allowance for loan losses (63,732) (62,649) (55,635) - ---------------------------------------------------------------------------------------------------------------------------- Total loans $3,450,976 $3,384,889 $2,988,920 - ----------------------------------------------------------------------------------------------------------------------------
The Company continued to experience increased loan demand although the rate of growth has moderated from that experienced in 1998. Total loans increased by $67.2 million, or 2 percent, to $3.5 billion at March 31, 1999, from $3.4 billion at December 31, 1998, and by $470.2 million, or 15 percent, from March 31, 1998. The commercial loan portfolio remains broadly diversified among many industries including manufacturing, entertainment, real estate services, high technology, healthcare, retail trade and professional services. The increase in construction loans compared with December 31, 1998, and March 31, 1998, occurred primarily in the affordable housing segment of the market. ASSET QUALITY Nonaccrual Loans, Restructured Loans and Real Estate Owned: Nonaccrual loans, which include loans 90 days or more past due, totaled $43.0 million, or 1.22 percent of total loans, at March 31, 1999, compared with $30.6 million, or 0.89 percent of total loans, at December 31, 1998, and $12.3 million, or 0.40 percent of total loans, at March 31, 1998. The increase in nonaccrual loans at March 31, 1999, compared with December 31, 1998, includes a $10.0 commercial real estate loan. The remaining increase from March 31, 1998, is primarily due to loans in the entertainment and healthcare industries. Loans totaling $23.0 million were placed on nonaccrual status during the three months ended March 31, 1999. The increase in nonaccrual loans for the current quarter was partially offset by gross charge-offs totaling $3.9 million, receipt of payments totaling $3.0 million, loans brought current totaling $3.5 million and loans transferred to OREO totaling $283,800. Restructured loans, loans that have had their original terms modified, totaled $7.3 million, $9.8 million and $23.1 million at March 31, 1999, December 31, 1998, and March 31, 1998, respectively. The decrease in restructured loans since December 31, 1998, is due to payments received. Real estate and other assets owned includes 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 writedowns on OREO. OREO, net of valuation allowances, totaled $2.0 million, $2.3 million and $3.0 million at March 31, 1999, December 31, 1998, and March 31, 1998, respectively. For the three months ended March 31, 1999, one property with a book value of $132,000 was added to OREO, two properties with total book value of $315,000 were sold and payments totaling $103,900 were applied to OREO. A net gain of $1,100 was recognized on the sale. The following table provides information on nonaccrual loans, restructured loans and real estate and other assets owned for the periods indicated: 8
- -------------------------------------------------------------------------------------------------------------- March 31, Dec. 31, Sept. 30, June 30, March 31, (Dollars in thousands) 1999 1998 1998 1998 1998 - -------------------------------------------------------------------------------------------------------------- Nonaccrual loans: Commercial $31,348 $29,853 $33,720 $25,039 $ 9,802 Real estate 11,604 692 788 831 2,353 Consumer - 70 - 49 99 - -------------------------------------------------------------------------------------------------------------- Total nonaccrual loans $42,952 $30,615 $34,508 $25,919 $12,254 - -------------------------------------------------------------------------------------------------------------- Restructured loans $ 7,287 $ 9,770 $27,591 $23,652 $23,129 - -------------------------------------------------------------------------------------------------------------- Real estate and other assets owned: Real estate and other assets owned, gross $ 2,023 $ 2,309 $ 2,700 $ 4,343 $ 4,073 Less valuation allowance - - - (1,089) (1,089) - -------------------------------------------------------------------------------------------------------------- Real estate and other assets owned, net $ 2,023 $ 2,309 $ 2,700 $ 3,254 $ 2,984 - -------------------------------------------------------------------------------------------------------------- Total $52,262 $42,694 $64,799 $52,825 $38,367 - --------------------------------------------------------------------------------------------------------------
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 following criteria: all payments must be current and the loan underwriting must support the debt service requirements. Factors that contribute to a performing loan being classified as impaired include: a below market interest rate, delinquent taxes and debts to other lenders that cannot be serviced out of existing cash flow. The following table contains information for loans deemed impaired:
- ----------------------------------------------------------------------------------------------------------------- Net Carrying Specific Net (Dollars in thousands) Value Allowance Balance - ----------------------------------------------------------------------------------------------------------------- March 31, 1999 Loans with specific allowances $68,456 $(13,387) $55,069 Loans without specific allowances 3,930 - 3,930 - ----------------------------------------------------------------------------------------------------------------- Total $72,386 $(13,387) $58,999 - ----------------------------------------------------------------------------------------------------------------- December 31, 1998 Loans with specific allowances $56,746 $(12,775) $43,971 Loans without specific allowances 4,847 - 4,847 - ----------------------------------------------------------------------------------------------------------------- Total $61,593 $(12,775) $48,818 - -----------------------------------------------------------------------------------------------------------------
Impaired loans were classified as follows:
- --------------------------------------------------------------------------------------------------------------- March 31, December 31, (Dollars in thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------- Current $27,874 $27,414 Past due 1,560 3,564 Nonaccrual 42,952 30,615 - --------------------------------------------------------------------------------------------------------------- Total $72,386 $61,593 - ---------------------------------------------------------------------------------------------------------------
Loans classified as impaired totaled $72.4 million at March 31, 1999, compared with $61.6 million at December 31, 1998. During the first three months of 1999, $23.0 million of loans were newly classified as impaired. The additions to impaired loans were partially offset by the receipt of payments on impaired loans totaling $4.5 million, charge-offs totaling $3.9 million, loans removed from impaired status totaling $3.5 million and loans transferred to OREO of $283,800. The Company's average recorded investment in impaired loans for the three months ended March 31, 1999, was $59.1 million. Interest income totaling approximately $815,000 was collected on impaired loans during the three months ended March 31, 1999. 9 Allowance and Provision for Loan Losses: The allowance for loan losses is maintained at a level considered appropriate by management and is based on an ongoing assessment of the risks inherent in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses which is charged against current period operating results, and is decreased by the amount of net charge-offs during the period. The Company's determination of the level of the allowance for loan losses, and correspondingly, the provision for loan losses is based upon various judgments and assumptions, including general economic conditions in California and out-of- state markets served, loan growth, loan portfolio composition and concentrations, prior loan loss experience, collateral value, identification of problem and potential problem loans and other relevant data to identify the risks in the loan portfolio. While management believes that the allowance for loan losses is adequate at March 31, 1999, future additions to the allowance will be subject to continuing evaluation of inherent risk in the loan portfolio. At March 31, 1999, the allowance for loan losses equaled $63.7 million, or 1.81 percent of total loans, compared with $62.6 million, or 1.82 percent of total loans, at December 31, 1998, and $55.6 million, or 1.83 percent of total loans, at March 31, 1998. The following table summarizes changes in the allowance for loan losses:
- ------------------------------------------------------------------------------------------------------------------------- Three months ended March 31, (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Balance, beginning of year $ 62,649 $ 51,143 - ------------------------------------------------------------------------------------------------------------------------- Loans charged off: Commercial (4,160) (1,545) Real estate (21) (169) Consumer - (24) - ------------------------------------------------------------------------------------------------------------------------- Total charge-offs $ (4,181) $ (1,738) - ------------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial 405 390 Real estate 63 - Consumer 2 1 - ------------------------------------------------------------------------------------------------------------------------- Total recoveries $ 470 $ 391 ========================================================================================================================= Net loans charged off (3,711) (1,347) Provision for loan losses 4,794 5,839 - ------------------------------------------------------------------------------------------------------------------------- Balance, end of period $ 63,732 $ 55,635 ========================================================================================================================= Loans outstanding, end of period $3,514,708 $3,044,555 ========================================================================================================================= Average loans outstanding $3,817,300 $2,977,204 ========================================================================================================================= Ratio of net charge-offs to average loans (1) 0.39% 0.18% Ratio of allowance for loan losses to loans outstanding at March 31 1.81% 1.83% Ratio of allowance for loan losses to nonaccrual loans 148% 454% Ratio of provision for loan losses to net charge-offs 129% 433% - ------------------------------------------------------------------------------------------------------------------------- (1) Annualized
10 The provision for loan losses for the three months ended March 31, 1999 and 1998, totaled $4.8 million and $5.8 million, respectively. Net charge-offs were $3.7 million, or 0.39 percent of average loans on an annualized basis, for the first quarter of 1999 compared with $1.3 million, or 0.18 percent of average loans on an annualized basis, for the year-earlier quarter. Net charge-offs for the first quarter of 1999 include $1.4 million on a commercial loan to a company in the healthcare industry that was placed on nonaccrual status in June 1998. Excluding this loan, net charge-offs were $2.3 million, or 0.25 percent of average loans on an annualized basis. Securities: Securities available for sale decreased to $670.6 million at March 31, 1999, from $694.8 million at December 31, 1998. A $51.5 million increase in U.S. Treasury and federal agency securities at March 31, 1999, was offset by a $74.2 million reduction in mutual funds. Federal funds sold and securities purchased under resale agreements decreased to $757.5 million at March 31, 1999, from $1.4 billion at December 31, 1998. The Company generally invests short-term liquidity in mutual funds and Federal funds sold and securities purchased under resale agreements. The fluctuation in these balances is largely a function of changes in the level of demand deposits. Demand deposits increased to $3.5 billion at March 31, 1999, from $3.3 billion at December 31, 1998. The amount of short-term investments decreased at March 31, 1999, compared with year end despite growth in demand deposits because a portion of the excess liquidity was held as cash with the Federal Reserve. The balance of cash and due from increased to $1.2 billion at March 31, 1999, from $355.3 million at December 31, 1998. A summary of securities held to maturity as of March 31, 1999, and December 31, 1998, is provided below:
============================================================================================================================= Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------- March 31, 1999 Industrial development bonds $3,860 $ - $ - $3,860 - ---------------------------------------------------------------------------------------------------------------------------- Total $3,860 $ - $ - $3,860 ============================================================================================================================ December 31, 1998 Industrial development bonds $3,898 $ - $ - $3,898 - ---------------------------------------------------------------------------------------------------------------------------- Total $3,898 $ - $ - $3,898 ============================================================================================================================
A summary of the amortized cost and estimated fair value of securities available for sale as of March 31, 1999, and December 31, 1998, is provided below:
============================================================================================================================= Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------- March 31, 1999 U.S. Treasury and federal agencies $613,933 $ 872 $ - $614,805 Mutual funds 38,407 - - 38,407 Other securities 22,986 - (5,585) 17,401 - ----------------------------------------------------------------------------------------------------------------------------- Total $675,326 $ 872 $(5,585) $670,613 - ----------------------------------------------------------------------------------------------------------------------------- December 31, 1998 U.S. Treasury and federal agencies $560,332 $3,024 $ (1) $563,355 Mutual funds 112,579 - - 112,579 Other securities 22,792 - (3,912) 18,880 - ----------------------------------------------------------------------------------------------------------------------------- Total $695,703 $3,024 $(3,913) $694,814 - -----------------------------------------------------------------------------------------------------------------------------
There were no gains or losses realized on the sale of securities available for sale during the three months ended March 31, 1999. Gross gains and losses realized on the sale of securities available for sale during the three months ended March 31, 1998, were $8,300 and $4,300, respectively. 11 Deferred Tax Asset The Company reported a net deferred tax asset of $17.4 million at March 31, 1999, compared with $21.8 million at December 31, 1998. The deferred tax asset is reported net of deferred tax liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes that it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Other Assets The balance of other assets increased to $101.9 million at March 31, 1999, from $91.1 million at December 31, 1998. The increase in other assets at March 31, 1999, compared with year-end 1998 reflects the following: a $7.0 million increase in prepaid insurance due to the purchase of additional life insurance to fund the Company's deferred compensation plan, a $3.2 million increase in foreign exchange settlement accounts and a $2.9 million increase in miscellaneous assets primarily due to the increase in the cash surrender value of life insurance funding the deferred compensation plan. These increases were offset in part by a $1.7 million decrease in accounts receivable. The remaining change in other assets occurred in a number of smaller categories. Other Borrowings: Short-term borrowings decreased to $50.9 million at March 31, 1999, from $60.6 million at December 31, 1998. Decreases of $8.3 million in commercial paper and $4.8 million in borrowed funds backed by Treasury, Tax and Loan deposits ("T,T&L") were offset in part by a $3.4 million increase in Federal funds purchased and reverse repurchase balances. ASSET/LIABILITY MANAGEMENT Liquidity: Liquidity management involves the Company's ability to meet the cash flow requirements of its lending and deposit businesses. For the Company, as with most commercial banking institutions, this involves an ongoing process of managing the cash inflows and outflows associated with a commercial deposit base. The Company's ability to acquire new deposits at pricing levels consistent with management's targets is largely based upon its financial condition and capital base. The Company's liquid assets consist of cash, Federal funds sold, securities purchased under resale agreements and investment securities, excluding those pledged as collateral. The majority of the Company's securities portfolio is held as available for sale. Available for sale securities can be sold in response to liquidity needs or used as collateral under reverse repurchase agreements. It is the Company's policy to maintain a minimum liquidity ratio (liquid assets to deposits) of 20 percent and to limit gross loans to no more than 80 percent of deposits. At March 31, 1999, the Company's liquidity ratio was 38 percent and the loan to deposit ratio was 60 percent. The overall liquidity position of the Company has been enhanced by a sizable base of demand deposits resulting from the Company's longstanding relationships with the real estate services industry which have provided a relatively stable and low cost funding base. Total demand deposits averaged $2.4 billion for the quarter ended March 31, 1999, compared with $2.1 billion for the year-earlier quarter. For the three months ended March 31, 1999, approximately 37 percent of average total deposits were from the real estate services industry compared with 35 percent of average total deposits for the year-earlier period. The Company's average demand deposits and average shareholders' equity funded approximately 53 percent and 55 percent, of average total assets for the three months ended March 31, 1999 and 1998, respectively. These funding sources are augmented by payments of principal and interest on loans, the routine liquidation of securities from the trading and available for sale portfolios, Federal funds sold and securities purchased under resale agreements. 12 For the three months ended March 31, 1999, the Company experienced a net cash inflow from its investing activities of approximately $642.9 million. The net inflow related to investing activities is largely due to a $688.5 million decrease in Federal funds sold and securities purchased under resale agreements offset in part by a $66.2 million increase in loans. Net cash provided by financing activities totaled approximately $247.4 million for the three months ended March 31, 1999. Net cash provided by financing activities for the current quarter includes a $257.0 million increase in deposits offset in part by a $6.0 million purchase of stock for the Company's ESOP plan and a net $3.7 million reduction in borrowed funds. 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 overall profitability. Cumulative interest sensitivity gap represents the difference between interest- earning assets and interest-bearing liabilities maturing or repricing, whichever is earlier, at a given point in time. At March 31, 1999, the Company maintained a positive one-year gap of approximately $2.4 billion; meaning its interest rate sensitive assets exceeded its interest rate sensitive liabilities. This positive cumulative gap position indicates that the Company is asset sensitive and positioned for increased net interest income during a period of rising interest rates but also exposed to an adverse impact on net interest income in a falling rate environment. At March 31, 1998, the Company maintained a positive one-year gap of approximately $2.4 billion. 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 (London Interbank Offered Rate). The rates paid for the Company's interest-bearing liabilities, however, do correlate with LIBOR. This mismatch creates a spread relationship risk between the Company's prime based assets and LIBOR correlated liabilities. 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 and caps with strike prices that generally adjust quarterly and are priced approximately 100-250 basis points below or above (depending on the instrument) current market rates at the time the floors and caps were purchased. At March 31, 1999, the Company owned exchange-traded floors totaling $6.5 billion that expire as follows: $1.75 billion in the second quarter of 1999, $1.75 billion in the third quarter of 1999, $2.0 billion in the fourth quarter of 1999 and $1.0 billion in the first quarter of 2000. The floors provide the Company protection in the event that the three-month LIBOR rate drops below their respective strike prices. The floors have an average strike price of approximately 4.1 percent. The unrealized gain on the floors approximated $214,000 at March 31, 1999. The unamortized premium relating to the floors was $1.3 million at March 31, 1999. In October 1998, following a decline in the LIBOR rate, the Company sold exchange-traded floors with a notional amount totaling $4.5 billion in order to reset the strike price on the floors from 4.75 percent to approximately 4.00 percent. The gain on the sale of the floors is being amortized over the term of the original floors and will be fully amortized by the end of the third quarter of 1999. The balance of this deferred gain was $1.2 million at March 31, 1999. In March 1998, the Company purchased an over-the-counter interest rate cap with a notional value of $1.0 billion. The cap provides protection in the event that the three-month LIBOR increases above the 8.33 percent strike price of the cap 13 and expires during the first quarter of 2001. The unrealized gain on this cap approximated $243,800 at March 31, 1999. The unamortized premium paid for the cap approximated $308,200 at March 31, 1999. In April 1997, the Company issued $75.0 million of 9.98 percent Capital Securities (the "Capital Securities") and entered into three fixed for floating interest rate swaps with a total notional value of $75.0 million in order to convert the Capital Securities to a floating rate. The swaps require the Company to pay three-month LIBOR and receive a fixed rate of 7.18 percent on $25.0 million, 7.186 percent on $25.0 million and 7.187 percent on the remaining $25.0 million. The maturity and fixed payment due dates on the swaps coincide with the call date and payment dates of the Capital Securities. The unrealized gain on the swaps approximated $6.9 million at March 31, 1999. In June 1998, the Company entered into two fixed for floating interest rate swaps with a total notional value of $5.0 million. The swaps require the Company to pay three-month LIBOR and receive a fixed rate of 5.95 percent. The swaps mature in June 1999. Concurrently, the Company entered into interest rate swaps with its subsidiary, Crown American Bank. The notional amount, maturity and payment due dates on the swaps coincide with the original swaps, however, the payment terms require the Company to pay a fixed rate of 5.95 percent and receive three-month LIBOR. The purpose of the swaps is to convert to a floating rate a similar amount of one-year fixed rate time certificates of deposit acquired on behalf of Crown American Bank as part of a time deposit acquisition program. The unrealized gain on the swaps approximated $6,900 at March 31, 1999. From time to time, the Company purchases over-the-counter option contracts or enters into interest rate swap contracts that are matched against specific lending transactions. The term and notional amount of the contracts are consistent with the underlying customer transaction. The contracts generally require the Company to pay a fixed rate and receive a floating rate. At March 31, 1999, the Company had matched purchased options totaling $17.6 million and matched swap contracts totaling $9.3 million. There were unrealized losses on the options and swaps of approximately $19,400 and $102,100, respectively, at March 31, 1999. CAPITAL SECURITIES On April 23, 1997, Imperial Capital Trust I (the "Trust"), a statutory business trust and wholly owned subsidiary of the Company, issued in a private placement transaction $75.0 million of 9.98 percent Capital Securities which represent undivided preferred beneficial interests in the assets of the Trust. The Company is the owner of all the beneficial interests represented by the common securities of the Trust (the "Common Securities"), together with the Capital Securities. The Trust exists for the sole purpose of issuing the Capital Securities and investing the proceeds thereof in 9.98 percent Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated Debentures") issued by the Company and engaging in certain other limited activities. The Junior Subordinated Debentures held by the Trust will mature on December 31, 2026. The Indenture for the Capital Securities includes provisions that restrict the payment of dividends under certain conditions and changes in ownership of the Trust. The Indenture also includes provisions relating to the payment of expenses associated with the issuance of the Capital Securities. The Company was in compliance with the provisions of the Indenture at March 31, 1999. The Company used $67.2 million of the net proceeds from the sale of the Junior Subordinated Debentures to make additional investments in Imperial Bank. The remainder of the proceeds was used to implement the Company's stock repurchase plan. The Capital Securities qualify as Tier I capital under the capital guidelines of the Federal Reserve. The net principal balance of the Capital Securities was $73.4 million at March 31, 1999. CAPITAL At March 31, 1999, shareholders' equity totaled $388.1 million compared with $381.8 million at December 31, 1998. For the first three months of 1999, shareholders' equity was reduced by $6.0 million due to the purchase of common stock for the Company's ESOP plan. Shareholders' equity increased by $166,000 during the quarter due to exercises of employee stock options. The tax benefit associated with options exercised, which is recorded as a component of shareholders' equity, approximated $135,000 for the first three months of 1999. 14 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 adopted by the federal banking regulators in January 1990. 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. 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, 1999, were 9.73 percent and 11.02 percent, respectively, compared with 10.56 percent and 11.89 percent, respectively, at March 31, 1998. Capital Ratios for Imperial Bancorp and Imperial Bank(1)
- --------------------------------------------------------------------------------------------------------------------------- March 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------ 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 $516,326 11.02% $374,771 8.00% $468,464 10.00% Bank 480,348 10.40% 369,336 8.00% 461,670 10.00% Tier I Capital (to risk-weighted assets): Company $455,599 9.73% $187,385 4.00% $281,078 6.00% Bank 422,567 9.15% 184,668 4.00% 277,002 6.00% Leverage (to average assets): Company $455,599 8.45% $161,828 3.00% $269,713 5.00% Bank 422,567 7.94% 159,590 3.00% 265,984 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 ("the Bank") were $4,684.6 million and $4,616.7 million, respectively, at March 31, 1999. Average assets for the Company and the Bank were $5,394.3 million and $5,319.7 million, respectively, at March 31, 1999. 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 percent at March 31, 1999, compared with 9.85 percent at March 31, 1998, well in excess of minimum regulatory requirements. YEAR 2000 To fulfill the Company's business responsibility and ensure compliance with regulatory requirements, the Company has established a Year 2000 Readiness Program ("Y2K") with the objective of having the Company Year 2000 compliant by mid-1999. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computers that have date-sensitive software may recognize a date using "00" as the year 1900 rather than year 2000. The Company's Y2K Readiness Program is managed by an enterprise-wide Program Office ("Office") under the guidance of the Company's Management Committee. The Office is staffed with representatives from each of the Company's primary business units. Within some business units, the Office representative is supported by a business unit Year 2000 project team. 15 The Company has adopted the approach set forth by the Federal Financial Institutions Examination Council ("FFIEC"). This approach is based on five crucial phases: awareness, assessment, remediation, validation, and implementation. The Company's approach considers the FFIEC guidelines a minimum set of prudent business practices needed to become Y2K ready. Awareness: As of the end of March 1999, the Company has completed extensive internal and external communication related to the Y2K issue. The communication has been in the form of customer statement enclosures, Web site disclosures, monthly and quarterly reports to the Company's Management Committee, internal mailings, and periodic meetings. Assessment: The Company has conducted a comprehensive review of its information technology ("IT") and non-IT computer systems. All systems have been evaluated and classified as critical, important or ordinary. Systems requiring upgrades or replacement have been identified. The Company utilizes the services of third-party service providers and software vendors for substantially all of its data processing functions. As such, the Company has focused on monitoring the Y2K compliance progress of its primary vendors and providers. The Company has identified its significant customers, i.e., fund providers, fund takers, and counterparties. The initial evaluation and assignment of risk for the Company's fund takers, fund providers, and counterparties has been completed. Follow-up was performed for some customers and completed March 31, 1999. The Company is making progress on the overall Y2K contingency effort. Contingency plans are being designed to mitigate the risks associated with (1) the failure to successfully complete renovation, validation, or implementation of its Y2K readiness plan (Remediation Contingency Plan), and (2) the failure of systems at critical dates (Business Resumption Contingency Planning) ("BRCP"). The Company has completed the Remediation Contingency Plans and anticipates completing the Business Resumption Contingency Plans by June 30, 1999. This milestone date adheres to the FFIEC statement requiring the four phases of the BRCP effort be substantially complete. 100% of the BRCPs have been submitted to the Office for review. Remediation/Validation/Implementation: The Company does not employ a programming staff, nor does it customize application code that affects the books of record or customer accounting. The Company's vendors and service providers are committed to delivering Y2K ready capabilities. At March 31, 1999, system testing is approximately 85% complete for critical systems, 89% complete for important systems, and 60% complete for ordinary systems. Testing is scheduled for completion by June 1999. Systems requiring remediation are placed into production after testing has been completed and authorization from the business unit has been obtained. Non-IT systems, such as security systems, vault alarms and elevators, have been identified and the Company is in the process of evaluating readiness. Most of the Company's facilities are leased; therefore, the Company's efforts to determine the status of Y2K readiness and contingency plans is focused on the vendors and property managers. The anticipated date of completion for this evaluation and resolution is June 1999. Costs: Through March 31, 1999, the Company had incurred $2.0 million of the total $2.5 million of operating expenses budgeted for the Y2K project. It is currently anticipated that total expense for the Project will be within $100,000 of the estimated budget. Y2K capital expenditures total $1.2 million through March 31, 1999. At present, the Company expects to complete the project with capital expenditures at or slightly under the estimated budget of $1.9 million. The Office presently believes that with updates and upgrades to existing software and minimal conversions to new software, the Company's computer systems will be Y2K compliant. However, the potential impact of the Y2K issue on the financial services industry could be significant due to the interdependent nature of banking transactions. Despite its efforts towards achieving Y2K readiness, the Company could be adversely impacted if the entities with which it transacts business do not address this issue successfully. 16 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. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. 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 operations and financial position. 17
CONSOLIDATED BALANCE SHEET - ------------------------------------------------------------------------------------------------------------------------------ Imperial Bancorp and Subsidiaries March 31, December 31, (Dollars in thousands, except share data) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $1,206,206 $ 355,317 Trading instruments 77,025 52,971 Securities available for sale 670,613 694,814 Securities held to maturity (market value of $3,860 and $3,898 for 1999 and 1998, respectively) 3,860 3,898 Federal funds sold and securities purchased under resale agreements 757,500 1,446,000 Loans held for sale (market value of $15,427 and $19,416 for 1999 and 1998, respectively) 14,708 18,287 Loans: Loans, net of unearned income and deferred loan fees 3,514,708 3,447,538 Less allowance for loan losses (63,732) (62,649) - ------------------------------------------------------------------------------------------------------------------------------ Total net loans $3,450,976 $3,384,889 - ------------------------------------------------------------------------------------------------------------------------------ Premises and equipment, net 32,292 30,938 Accrued interest receivable 27,096 25,505 Real estate and other assets owned, net 2,023 2,309 Deferred tax asset 17,442 21,809 Investment in Imperial Credit Industries, Inc. 59,036 56,796 Other assets 101,945 91,070 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $6,420,722 $6,184,603 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand $3,500,891 $3,298,070 Savings 22,503 25,135 Money market 1,072,470 1,086,959 Time - under $100,000 155,973 171,224 Time - $100,000 and over 1,074,765 988,259 - ------------------------------------------------------------------------------------------------------------------------------ Total deposits $5,826,602 $5,569,647 - ------------------------------------------------------------------------------------------------------------------------------ Accrued interest payable 6,855 5,428 Income taxes payable 756 1,504 Short-term borrowings 50,914 60,601 Long-term borrowings: Floating rate notes and fixed rate debentures 2,105 2,105 Other borrowed funds 6,256 290 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 73,386 73,372 Other liabilities 65,722 89,834 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities $6,032,596 $5,802,781 - ------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Common Stock - no par, 50,000,000 shares authorized; 41,899,886 shares at March 31, 1999, and 41,863,935 shares at December 31, 1998, issued and outstanding 271,462 224,433 Accumulated other comprehensive loss, net of tax (2,732) (515) Retained earnings 119,396 157,904 - ------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity $ 388,126 $ 381,822 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $6,420,722 $6,184,603 - ------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------------
18
CONSOLIDATED STATEMENT OF INCOME - ------------------------------------------------------------------------------------------------------------------------------------ Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands, except per share data) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Interest income: Loans $74,587 $70,230 Trading instruments 889 350 Securities available for sale 7,394 9,343 Securities held to maturity 72 70 Federal funds sold and securities purchased under resale agreements 4,055 4,121 Loans held for sale 435 144 - -------------------------------------------------------------------------------------------------------------------------------- Total interest income $87,432 $84,258 - -------------------------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 21,768 20,357 Short-term borrowings 1,259 1,375 Long-term borrowings 1,578 1,702 - -------------------------------------------------------------------------------------------------------------------------------- Total interest expense $24,605 $23,434 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income 62,827 60,824 Provision for loan losses 4,794 5,839 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses $58,033 $54,985 - -------------------------------------------------------------------------------------------------------------------------------- Noninterest income: Service charges on deposit accounts 1,843 1,432 Trust fees 2,215 2,091 Gain on origination and sale of loans 1,221 1,084 Equity in net income of Imperial Credit Industries, Inc. 2,240 2,884 Other service charges and fees 4,448 2,727 Merchant and credit card fees 2,236 1,475 International income and fees 2,800 2,940 Gain on securities available for sale - 4 Gain on trading instruments 19 208 Gain on exercise and sale of equity warrants 3,952 423 Other income 1,014 2,648 - -------------------------------------------------------------------------------------------------------------------------------- Total noninterest income $21,988 $17,916 - -------------------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salary and employee benefits 30,715 28,711 Net occupancy expense 2,695 2,323 Furniture and equipment 2,904 2,218 Data processing 2,526 2,200 Customer services 6,351 5,906 Professional and legal fees 2,843 2,299 Business development 1,385 1,126 Other expense 7,036 5,300 - -------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense $56,455 $50,083 - -------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 23,566 22,818 Income tax provision 9,343 9,443 - -------------------------------------------------------------------------------------------------------------------------------- Net income $14,223 $13,375 - -------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $0.34 $0.31 Diluted earnings per share $0.33 $0.30 - -------------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - --------------------------------------------------------------------------------------------------------------------------------
Earnings per share for first quarter 1998 has been adjusted to reflect an 8 percent stock dividend paid on March 5, 1999. 19
CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 14,223 $ 13,375 Adjustments for noncash charges (credits): Depreciation and amortization (1,648) (6,169) Provision for loan losses 4,794 5,839 Equity in net income of Imperial Credit Industries, Inc. (2,240) (2,884) Gain on exercise and sale of stock warrants (3,952) (423) (Gain) loss on sale of real estate and other assets owned (1) 2 Gain on sale of premises and equipment (3) - Provsion (benefit) for deferred taxes 6,110 (936) Gain on securities available for sale - (4) Net change in trading instruments (24,054) 18,755 Net change in loans held for sale 3,579 31 Net change in accrued interest receivable (1,591) (1,442) Net change in accrued interest payable 1,427 2,600 Net change in income taxes receivable (748) 6,086 Net change in other liabilities (24,112) 3,383 Net change in other assets (11,166) (8,504) - ------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities $ (39,382) $ 29,709 - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from securities held to maturity 38 19 Proceeds from sale of securities available for sale - 795,548 Proceeds from maturities of securities available for sale 1,143,480 261,623 Purchase of securities available for sale (1,123,627) (1,065,390) Proceeds from exercise and sale of equity warrants 3,952 325 Net change in Federal funds sold and securities purchased under resale agreements 688,500 (361,000) Net change in loans (66,194) (247,359) Capital expenditures (3,713) (2,348) Proceeds from sale of real estate and other assets owned 413 300 Proceeds from sale of premises and equipment 25 - - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities $ 642,874 $ (618,282) - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net change in demand deposits, savings, and money market accounts 185,700 721,785 Net change in time deposits 71,255 170,031 Net change in short-term borrowings (9,687) 69,078 Net change in long-term borrowings 5,966 - Repurchase of common stock for ESOP (5,985) - Proceeds from exercise of employee stock options 166 1,491 Other (18) (9) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 247,397 $ 962,376 - ------------------------------------------------------------------------------------------------------------------------------- Net change in cash and due from banks $ 850,889 $ 373,803 - ------------------------------------------------------------------------------------------------------------------------------- Cash and due from banks, beginning of year $ 355,317 $ 316,600 - ------------------------------------------------------------------------------------------------------------------------------- Cash and due from banks, end of period $ 1,206,206 $ 690,403 - ------------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------------------------------------------------------
20
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - ------------------------------------------------------------------------------------------------------------------------------------ Imperial Bancorp and Subsidiaries Three months ended March 31, (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $14,223 $13,375 Other comprehensive income, net of tax: Unrealized (loss) gain on securities available for sale, net of tax effect of ($1,608) and $497 (2,217) 685 - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $12,006 $14,060 - ------------------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IMPERIAL BANCORP AND SUBSIDIARIES NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations, and changes in cash flows in conformity with generally accepted accounting principles. However, these interim financial statements reflect all normal recurring adjustments, which are, in the opinion of the management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments were of a normal recurring nature. The Consolidated Balance Sheet, Consolidated Statement of Income and Consolidated Statement of Cash Flows are presented in the same format as that used in the Company's most recently filed Report on Form 10-K. A Consolidated Statement of Comprehensive Income has been added to the Company's interim financial statements. The consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries. NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC. At March 31, 1999, the Company owned 8.9 million shares, or approximately 24% of the common stock of ICII. The Company does not exercise significant control over the operations of ICII, therefore, the results of operations are accounted for in the Company's financial statements as an equity investment. The equity investment in ICII is carried at cost adjusted for equity in undistributed income and is evaluated for impairment on a regular basis. Transactions between ICII and the Company occur during the normal course of business. All transactions are carried out at substantially the same terms as those prevailing at the time for comparable transactions with others. NOTE (3) STATEMENT OF CASH FLOWS The following information supplements the statement of cash flows:
March 31, (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Interest paid $23,178 $20,834 Taxes paid 3,153 72 Significant noncash transactions: Loans transferred to OREO 132 - Net change in accumulated other comprehensive income, net of tax 2,217 685 - ----------------------------------------------------------------------------------------------------------------------------------
21 NOTE (4) EARNINGS PER SHARE The Company reports earnings per share ("EPS") in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Basic EPS excludes dilution and is computed by dividing income available to common shareholders 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. 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 table:
- -------------------------------------------------------------------------------------------------------------------- For the three months ended March 31, 1999 1998 ---------------------------------- ------------------------------ Per Per Share Share (Dollars in thousands, except per share data) Income Shares Amount Income Shares Amount - -------------------------------------------------------------------------------------------------------------------- Basic EPS Income available to shareholders: Net income $14,223 41,885,555 $0.34 $13,375 42,506,857 $0.31 Effect of dilutive securities Incremental shares from outstanding common stock options 1,522,555 2,118,531 ------------- ------------- Diluted EPS Income available to shareholders: Net income $14,223 43,408,110 $0.33 $13,375 44,625,388 $0.30 - --------------------------------------------------------------------------------------------------------------------
The weighted average number of shares used for calculating EPS for the periods reported reflect an 8 percent stock dividend paid on March 5, 1999. NOTE (5) OPERATING SEGMENT RESULTS The Company has identified seven principal operating segments for purposes of management reporting. Information related to the Company's remaining businesses and centralized functions has been aggregated and is included in either "Other Segments" or "Unallocated" as appropriate. The Company's management reporting is structured to support management's strategic focus on mid-sized companies, high-growth and niche markets, and new enterprises that exhibit solid growth potential. The following table presents the operating results and other key financial measures for the individual operating segments for the three months ended March 31, 1999 and 1998. Operating segment results are based on the Company's internal management reporting process, which reflects assignments and allocations of capital, certain operating and administrative costs and the loan loss provision. Any future changes in the Company's management structure or reporting methodologies may result in changes in the measurement of operating segment results. In that case, results for prior periods would be restated for comparability. 22
- ----------------------------------------------------------------------------------------------- For the three months ended Entertainment and March 31, 1999 Commercial Special Real Independent Film Syndicated (Dollars in thousands) Banking Markets Estate Production Finance - ----------------------------------------------------------------------------------------------- Net interest income $ 21,591 $ 9,579 $ 7,051 $ 6,861 $ 3,962 Provision for loan losses 1,752 1,779 - 83 - Noninterest income 3,136 4,929 227 424 486 Noninterest expense 15,163 7,135 1,676 3,006 751 - ------------------------------------------------------------------------------------------------ Income before taxes 7,812 5,594 5,602 4,196 3,697 Taxes 3,284 2,352 2,355 1,765 1,555 - ------------------------------------------------------------------------------------------------ Net income $ 4,528 $ 3,242 $ 3,247 $ 2,431 $ 2,142 - ------------------------------------------------------------------------------------------------ Average net loans $1,333,943 $ 541,957 $ 440,873 $ 442,398 $458,257 Average assets 1,343,050 545,707 447,625 445,018 461,648 Average deposits 1,235,413 604,666 15,061 84,426 - - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ For the three months ended March 31, 1999 Financial Other (Dollars in thousands) Services ICII Segments Unallocated Consolidated - ----------------------------------------------------------------------------------------------- Net interest income $ 14,035 $ - $ 2,925 $ (3,177) $ 62,827 Provision for loan losses 33 - 163 984 4,794 Noninterest income 480 2,240 9,723 343 21,988 Noninterest expense 11,860 - 11,865 4,999 56,455 - ------------------------------------------------------------------------------------------------ Income before taxes 2,622 2,240 620 (8,817) 23,566 Taxes 1,102 942 261 (4,273) 9,343 - ------------------------------------------------------------------------------------------------ Net income $ 1,520 $ 1,298 $ 359 $ (4,544) $ 14,223 - ------------------------------------------------------------------------------------------------ Average net loans $ 509,981 $ - $ 102,934 $ (76,671) $3,753,672 Average assets 517,379 56,796 1,141,674 427,710 5,386,607 Average deposits 2,064,697 - 690,806 36,163 4,731,232 - ------------------------------------------------------------------------------------------------ - ----------------------------------------------------------------------------------------------- For the three months ended Entertainment and March 31, 1999 Commercial Special Real Independent Film Syndicated (Dollars in thousands) Banking Markets Estate Production Finance - ----------------------------------------------------------------------------------------------- Net interest income $ 21,718 $ 8,981 $ 6,886 $ 7,312 $ 3,216 Provision for loan losses (25) 1,063 169 (292) - Noninterest income 3,075 728 222 585 426 Noninterest expense 14,394 5,179 1,691 2,751 451 - ------------------------------------------------------------------------------------------------ Income before taxes 10,424 3,467 5,248 5,438 3,191 Taxes 4,383 1,457 2,207 2,286 1,342 - ------------------------------------------------------------------------------------------------ Net income $ 6,041 $ 2,010 $ 3,041 $ 3,152 $ 1,849 - ------------------------------------------------------------------------------------------------ Average net loans $1,150,523 $ 440,681 $ 439,406 $ 351,061 $358,703 Average assets 1,183,399 443,747 448,347 353,950 360,744 Average deposits 1,127,598 452,804 10,740 82,311 - - ------------------------------------------------------------------------------------------------
23
- ----------------------------------------------------------------------------------------------- For the three months ended March 31, 1999 Financial Other (Dollars in thousands) Services ICII Segments Unallocated Consolidated - ----------------------------------------------------------------------------------------------- Net interest income $ 13,714 $ - $ 2,127 $ (3,130) $ 60,824 Provision for loan losses 341 - 36 4,547 5,839 Noninterest income 77 2,884 7,146 2,773 17,916 Noninterest expense 10,204 - 9,891 5,522 50,083 - ------------------------------------------------------------------------------------------------- Income before taxes 3,246 2,884 (654) (10,426) 22,818 Taxes 1,365 1,213 (275) (4,535) 9,443 - ------------------------------------------------------------------------------------------------- Net income $ 1,881 $ 1,671 $ (379) $ (5,891) $ 13,375 - ------------------------------------------------------------------------------------------------- Average net loans $ 179,292 $ - $ 64,369 $ (58,932) $2,925,103 Average assets 179,634 74,541 1,004,504 359,609 4,408,475 Average deposits 1,474,391 - 633,838 23,298 3,804,980 - -------------------------------------------------------------------------------------------------
Detail of amounts included in unallocated is provided below:
- ------------------------------------------------------------------------------------------------------------ For the three months ended March 31, (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------ Net interest income: Internal funding $(1,838) $(1,705) Deferred loan fees (1,482) (1,192) Other 143 (233) - ------------------------------------------------------------------------------------------------------------ $(3,177) $(3,130) - ------------------------------------------------------------------------------------------------------------ Loan loss provision: Unallocated reserve $ 1,026 $ 4,620 Mortgage loans (41) - Other (1) (73) - ------------------------------------------------------------------------------------------------------------ $ 984 $ 4,547 - ------------------------------------------------------------------------------------------------------------ Noninterest income: Item processing revenue $ 1,061 $ 947 Other (718) 1,826 - ------------------------------------------------------------------------------------------------------------ $ 343 $ 2,773 - ------------------------------------------------------------------------------------------------------------ Noninterest expense: Unallocated admin and operations $ 5,418 $ 5,193 Deferred loan costs (1,507) (151) Other 1,088 480 - ------------------------------------------------------------------------------------------------------------ $ 4,999 $ 5,522 - ------------------------------------------------------------------------------------------------------------
Balance Sheet: Unallocated average assets include the Company's cash and due from accounts with correspondent banks and the Federal Reserve, the unallocated portion of the loan loss reserve and the balance of deferred fees. Unallocated deposit balances include official checks and Treasury, Tax and Loan accounts. - ------------------------------------------------------------------------------- 24 TABLE 1 - FINANCIAL RATIOS
- ------------------------------------------------------------------------------------------------- Three months ended March 31, 1999 1998 - ------------------------------------------------------------------------------------------------- Net income as a percentage of:(1) Average shareholders' equity 14.89% 15.10% Average total assets 1.07% 1.23% Average earning assets 1.19% 1.37% Normalized income as a percentage of (1)(2) Average shareholders' equity 13.53% 13.21% Average total assets 0.98% 1.10% Average earning assets 1.08% 1.20% Average shareholder's equity as a percentage of: Average assets 7.19% 8.15% Average loans 10.15% 12.07% Average deposits 8.19% 9.44% Shareholders' equity at period end as a percentage of: Total assets at period end 6.04% 6.47% Total loans at period end 11.04% 12.14% Total deposits at period end 6.66% 7.29% - -------------------------------------------------------------------------------------------------
(1) Annualized (2) Adjusted net income for 1999 and 1998 excludes equity in the net income of ICII. EXHIBITS PART I None PART II OTHER INFORMATION ITEM 1. Legal Proceedings Due to the nature of the businesses, the Company and its subsidiaries are subject to numerous legal actions, threatened or filed, arising in the normal course of business. Certain of the actions currently pending seek punitive damages, in addition to other relief. The Company is of the opinion that the eventual outcome of all currently pending legal proceedings will not be materially adverse to the Company, nor has the resolution of any proceeding since the Company's last filing with the Commission materially adversely affected the registrant or any subsidiary thereof. ITEM 2. Changes in Securities No events have transpired which would make response to this item appropriate. 25 ITEM 3. Defaults upon Senior Securities No events have transpired which would make response to this item appropriate. ITEM 4. Submission of Matters to a Vote of Securities Holders No events have transpired which would make response to this item appropriate. ITEM 5. Other Information No events have transpired which would make response to this item appropriate. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Index Exhibit Number Description -------------- ----------- 27 Financial Data Schedule All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted. (b) The Company filed a Form 8-K on March 30, 1999, to record fourth quarter 1998 earnings as a matter of public record. 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 14, 1999 By: /s/ Christine M. McCarthy ------------------------- Christine M. McCarthy Executive Vice President and Chief Financial Officer 26 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,206,206 0 757,500 77,025 670,613 3,860 3,860 3,514,708 (63,732) 6,420,722 5,826,602 50,914 73,333 81,747 0 0 271,462 116,664 6,420,722 74,587 8,355 4,490 87,432 21,768 24,605 62,827 4,794 0 56,455 23,566 14,223 0 0 14,233 0.34 0.33 5.25 42,952 0 7,287 0 62,649 4,181 470 63,732 0 0 0
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