-----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, GVWtF1aQZzXxp0lpasuE9FZzSbqnNtpp7YErhvwSdz83714p9daSh06dfAlZZRBF JSnDkCT50K6DeZLldoAxiQ== 0000883811-96-000009.txt : 19961120 0000883811-96-000009.hdr.sgml : 19961120 ACCESSION NUMBER: 0000883811-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL CREDIT INDUSTRIES INC CENTRAL INDEX KEY: 0000883811 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 954054791 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19861 FILM NUMBER: 96666960 BUSINESS ADDRESS: STREET 1: 23550 HAWTHORNE BLVD STREET 2: STE 110 CITY: TORRANCE STATE: CA ZIP: 90505 BUSINESS PHONE: 7145560122 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File number: 0-19861 IMPERIAL CREDIT INDUSTRIES, INC. CALIFORNIA 95-4054791 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 23550 Hawthorne Boulevard, Building 1, Suite 110, Torrance, California 90505 (310) 791-8022 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest possible date: Class Shares Outstanding at November 12, 1996 Common Stock, no par value 37,905,109 IMPERIAL CREDIT INDUSTRIES, INC. FORM 10-Q TABLE OF CONTENTS Part 1 - Financial Information Page Item 1. Financial Statements: Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 1 Consolidated Statements of Income - Three months and nine months Ended September 30, 1996 and 1995 2 Consolidated Statements of Cash Flows Nine months Ended September 30, 1996 and 1995 3 Consolidated Statement of Changes in Shareholders' Equity 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Part II - Other Information Items 1-5. Not Applicable Item 6. Exhibit - Statement Regarding Computation of Earnings Per Share 26 Signatures 27
ITEM 1. FINANCIAL STATEMENTS IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, 1996 December 31, 1995 ------------------ ----------------- ASSETS Cash...................................................................... $ 57,938 $ 39,166 Interest bearing deposits................................................. 314,192 267,776 Investment in Federal Home Loan Bank stock................................ 16,900 22,750 Securities available for sale, at market.................................. 7,937 5,963 Loans held for sale (Fair value of $816,996 and $1,345,509 at September 30, 1996 and December 31 1995, respectively).............. 812,257 1,341,810 Loans held for investment, net............................................ 803,205 668,771 Capitalized excess servicing fees receivable.............................. 30,282 34,396 Retained interest in loan and lease securitizations....................... 33,196 13,036 Interest-only and residual certificates, at market 58,854 10,840 Purchased and originated servicing rights................................. 14,038 18,428 Accrued interest on loans................................................. 8,880 10,164 Premises and equipment, net............................................... 12,388 11,369 Other real estate owned, net.............................................. 11,303 7,179 Goodwill.................................................................. 20,988 20,346 Other assets.............................................................. 43,779 38,641 ----------------- ----------------- Total assets........................................................... $ 2,246,137 $ 2,510,635 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits.................................................................. $ 1,052,352 $1,092,989 Borrowings from Imperial Bank............................................. -- 5,000 Borrowings from Federal Home Loan Bank.................................... 338,000 190,000 Other borrowings.......................................................... 400,045 875,815 Bonds..................................................................... -- 111,995 Senior Notes.............................................................. 88,169 80,472 Minority interest in consolidated subsidiaries............................ 43,678 1,452 Other liabilities......................................................... 102,544 58,810 ------------------ ---------------- Total liabilities......................................................... $ 2,024,788 $ 2,416,533 Shareholders' equity: Preferred stock, 8,000 shares authorized; none issued or outstanding......................................................... $ -- $ -- Common stock, no par value. Authorized 80,000 shares; 37,903 and 14,579 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively................................. 142,943 51,981 Retained earnings......................................................... 74,082 38,910 Unrealized gain on securities available for sale, net..................... 4,324 3,211 ------------------ ---------------- Total shareholders' equity............................................. 221,349 94,102 ------------------ ---------------- Total liabilities and shareholders' equity............................. $ 2,246,137 $ 2,510,635 ================= ================= Escrow, agency premium funds, held in trust for various investors (segregated in special bank accounts - included in deposits)...................................... $ 2,044 $ 35,963 ================= ================= See accompanying notes to consolidated financial statements
IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands except per share amounts) Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ------- ------ ------- -------- Revenue: Gain on sale of loans......................... $ 28,640 $ 14,929 $69,517 29,953 ------- ------ ------- -------- Interest on loans............................ 51,002 32,437 139,284 81,262 Interest on investments...................... 442 1,651 2,831 2,635 Interest on other finance activities......... 3,748 -- 6,957 -- ------- ------ ------- ------- Total interest income..................... 55,192 34,088 149,072 83,897 Interest expense............................. 33,029 26,141 100,767 65,115 ------ ------ ------- ------- Net interest income....................... 22,163 7,947 48,305 18,782 Provision for loan losses................... 2,617 1,350 6,142 3,950 ------- ------ ------- -------- 19,546 6,597 42,163 14,832 ------ ----- ------ ------- Loan servicing income........................ 702 3,272 2,264 9,813 Gain on sale of servicing rights............. -- -- 7,808 2,921 Gain on sale of SPFC stock................... -- -- 62,007 -- Other income................................. 2,285 268 7,770 537 ----- ----- ----- ------ Total other income........................ 2,987 3,540 79,849 13,271 ----- ----- ------ ------ Total revenue............................ 51,173 25,066 191,529 58,056 ------- ------ ------- -------- Expenses: Personnel expense............................ 13,075 10,321 36,477 24,041 Amortization of PMSR's and OMSR's............ 196 1,257 1,028 2,637 Occupancy expense............................ 1,038 973 3,308 2,895 Data processing expense...................... 394 333 1,324 1,121 Net expenses of other real estate owned...... 867 897 4,853 1,611 Professional services........................ 1,919 825 5,600 1,682 FDIC insurance premiums (refund)............. 154 (9) 199 1,114 Telephone and other communications........... 563 493 2,108 1,807 Restructuring provision - exit from mortgage banking operations................ -- -- 3,800 -- General and administrative expense........... 6,718 2,550 14,047 7,203 ------- ------ ------- -------- Total expenses........................... 24,924 17,640 72,744 44,111 Income before income taxes................... 26,249 7,426 118,785 13,945 Income taxes................................. 13,553 3,115 51,322 5,844 Minority interest in income of consolidated subsidiaries............................... 3,263 -- 6,373 -- ------- ------ ------- ------- Net income................................... 9,433 4,311 61,090 8,101 ======= ====== ======= ======= Net income per share: Primary......................................... 0.23 0.12 1.60 0.24 ==== ==== ==== ==== Fully Diluted:................................. $ 0.23 0.12 1.60 0.23 ==== ==== ==== ==== See accompanying notes to consolidated financial statements
IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine months ended Nine months ended September 30, September 30, 1996 1995 ---------- ---------- Cash flows from operating activities: Net income.......................................... $ 61,090 $ 8,101 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses........................... 6,142 3,950 Depreciation and amortization....................... 4,373 4,106 Restructuring provision............................ 3,800 -- Interest on other finance activities................ (6,957) -- Gain on sale of servicing rights.................... (7,808) (2,921) Gain on sale of loans............................... (69,517) (29,953) Gain on sale of SPFC stock......................... (62,007) -- Stock option compensation expense................... -- 653 Provision for losses on other real estate owned..... 2,459 1,105 Net change in loans held for sale................... 599,070 (49,113) Net change in accrued interest on loans............. 1,284 (301) Net change in other assets.......................... (59,513) (47,672) Net change in other liabilities..................... 83,275 12,195 ---------- ---------- Net cash provided by (used in) operating activities: 555,691 (99,850) ---------- ---------- Cash flows from investing activities: Net change in interest bearing deposits............. (89,936) (1,000) Purchase of servicing rights........................ (10,389) (6,205) Proceeds from sale of servicing rights.............. 31,032 11,798 Proceeds from sale of other real estate owned....... 5,534 1,594 Purchase of securities available for sale........... (219,702) (220,547) Sale of securities available for sale............... 267,098 12,630 Net change in loans held for investment............. (140,320) (68,618) Purchases of premises and equipment................. (3,853) (842) ---------- ---------- Net cash used in investing activities: (160,536) (271,190) ---------- ---------- Cash flows from financing activities: Net change in deposits.............................. (40,637) (27,255) Advances from Federal Home Loan Bank................ 738,000 502,000 Repayments of advances from Federal Home Loan Bank.. (590,000) (527,000) Net change in other borrowings...................... (480,771) 403,836 Sale of bonds....................................... (111,995) -- Proceeds from issuance of ICII common stock......... 59,228 -- Proceeds from sale of SPFC common stock............. 36,362 -- Proceeds from resale of Senior Notes................ 7,615 -- Proceeds from exercise of stock options............. 5,815 385 ---------- ---------- Net cash (used in) provided by financing activities: (376,383) 351,966 ---------- ---------- Net change in cash..................................... 18,772 (19,074) Cash at beginning of year.............................. 39,166 24,904 ---------- ---------- Cash at end of period.................................. $ 57,938 $ 5,830 ========== ========== Supplemental disclosure of cash flow information: Income taxes paid during the period................. $ 16,253 $ 7,429 Interest paid during the period..................... $ 104,427 $ 65,555 See accompanying notes to consolidated financial statements
IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Unrealized gain on Number of securities Total shares Common Retained available Shareholders' outstanding stock earnings for sale, net Equity ----------- --------- ---------- ---------- ---------- Balance, December 31, 1995 ............ $ 14,579 $ 51,981 $ 38,910 $ 3,211 $ 94,102 Exercise of stock options ............. 474 1,408 -- -- 1,408 Issuance of common stock............... 2,440 59,229 -- -- 59,229 Stock dividend ........................ 1,458 25,918 (25,918) -- -- Stock split ........................... 18,952 -- -- -- -- Tax benefit from exercise stock options........................ -- 4,407 -- -- 4,407 Net change in unrealized gain on securities available for sale...... -- -- -- 1,113 1,113 Net income for period (unaudited) -- -- 61,090 -- 61,090 ----------- --------- ---------- ---------- ---------- Balance September 30, 1996 (unaudited) $ 37,903 $142,943 $ 74,082 $ 4,324 $221,349 See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements (Unaudited) 1. Organization The consolidated financial statements include Imperial Credit Industries, Inc. ("ICII"), its wholly-owned subsidiaries and majority-owned subsidiaries (collectively the "Company"). The wholly-owned subsidiaries include Southern Pacific Thrift & Loan Association ("SPTL"), Imperial Business Credit, Inc. ("IBC") and Imperial Credit Advisors, Inc. ("ICAI"). The majority-owned consolidated subsidiaries include Southern Pacific Funding Corporation ("SPFC"), Franchise Mortgage Acceptance Company, LLC ("FMAC"), and ICI Funding Corporation ("ICIFC"). The minority interests of these majority owned subsidiaries are included as "Minority interest in consolidated subsidiaries" on the Company's consolidated balance sheet. As of September 30, 1996, the Company owned 58.4% of SPFC, with 41.6% owned by other public investors. However, since that time, the Company has sold an additional 7.2% of the outstanding shares of SPFC, reducing its ownership in SPFC to 51.2%. The Company owns 66 2/3% of FMAC, with 33 1/3% of FMAC owned by the President of FMAC. The Company owns 100% of the voting common stock of ICIFC which entitles it to a 1% economic interest. Imperial Credit Mortgage Holdings, Inc. ("ICMH"), an unconsolidated affiliated company, owns all of the ICIFC non-voting preferred stock which entitles it to a 99% economic interest. All material intercompany balances and transactions have been eliminated. Imperial Credit Industries, Inc. (the "Company"), incorporated in 1986 in the State of California, is 24.8% owned by Imperial Bank 2. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and with the instructions to form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Prior year's consolidated financial statements have been reclassified to conform to the 1996 presentation 3. Net Income Per Share Information Net income per common share is computed based on the weighted average number of shares outstanding during the periods presented plus common stock equivalents deemed to be dilutive. Common stock equivalents deemed to be dilutive were calculated based on the average price per share during the periods presented for primary net income per share and based on the ending stock price per share, if greater than the average stock price per share, for fully diluted net income per share for the periods presented. The number of shares used in the computations give retroactive effect to stock dividends and stock splits for all periods presented, including the Company's most recent 2-for-1 stock split on October 23, 1996. The weighted average number of shares including common stock equivalents for the three months ended September 30, 1996 and 1995 was 40,570,264 and 35,058,544 for fully diluted income per share, respectively. The weighted average number of shares including common stock equivalents for the nine months ended September 30, 1996 and 1995 was 38,293,874 and 35,004,055 for fully diluted net income per share, respectively. The weighted average number of shares including common stock equivalents for the three months ended September 30, 1996 and 1995 was 40,382,302 and 34,697,623 for primary income per share, respectively. The weighted average number of shares including common stock equivalents for the nine months ended September 30, 1996 and 1995 was 38,074,558 and 34,137,402 for primary income per share, respectively. 4. Loans Held for Sale Loans held for sale consisted of the following at September 30, 1996 and December 31, 1995: (Dollars in thousands) At September 30, 1996 At December 31, 1995 --------------- ------------- Loans secured by real estate: Single family 1-4........ $ 539,143 $ 1,083,038 Multi-family............. 93,666 171,199 ----------- ---------- 632,809 1,254,237 Leases........................ 3,785 17,787 Commercial loans.............. 175,663 69,786 ---------- --------- $ 812,257 $ 1,341,810 ========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company is a diversified financial services company offering financial products, principally through its subsidiaries, in the following five sectors: franchise lending, commercial mortgage banking, business lending, consumer lending, and non-conforming residential mortgage banking. The Company's strategy is to concentrate its lending activities in select high margin commercial and consumer markets in which loan and lease products originated or purchased by the Company can be readily sold through securitization or whole loan sales in the secondary market. The Company emphasizes (i) opportunistic expansion into niche segments of the financial services industry, (ii) conservative underwriting and credit guidelines, (iii) loan and lease originations on a wholesale basis to maintain low overhead, (iv) securitization or sale in the secondary market of substantially all of the Company's loans and leases other than those held by its subsidiary, Southern Pacific Thrift & Loan Association ("SPTL"), for investment and (v) business and financial flexibility to allow withdrawal from or entry into business segments as warranted by market conditions. Since 1995, the Company has attempted to diversify its loan and lease products by focusing on the creation and acquisition of additional finance businesses in order to reduce dependency on residential mortgage lending. When acquiring new businesses or targeting expansion opportunities, the Company seeks to retain existing management or recruit experienced management to help make continued growth possible and to reduce the risks associated with market entry. The financial products offered by the Company consist of loans and leases in the following five sectors: franchise lending - franchise loans; commercial mortgage lending - income property loans; business finance lending - equipment leasing, asset-based financing and loan participations; consumer loans - sub-prime auto loans, home improvement loans and other consumer credit non-conforming residential mortgage lending - non conforming single family mortgage loans. The majority of the Company's loans and leases, other than those held by SPTL for investment, are sold in the secondary market through securitizations. Securitizations provide the Company with greater flexibility and operating leverage by allowing the Company to generate fee and interest income through originations and investments in loans with a significantly smaller capital commitment than that required by traditional portfolio lenders. In addition, the Company believes that the use of securitizations results in a lower overall cost of funds. SPTL also accepts Federal Deposit Insurance Corporation ("FDIC") insured deposits which are used to finance SPTL's lending activities through several active divisions. Franchise Lending General Franchise Mortgage Acceptance Company, LLC ("FMAC"), a 66 2/3% owned subsidiary, makes long-term, fixed and variable rate loans to established franchisees of major restaurant franchise concepts, which are then securitized into investment grade structures and sold to institutional investors. The Company believes that recent changes in the banking environment have adversely affected the ability of small business operators to find credit, regardless of their track record and ratings. Franchise operations comprise a major portion of overall small business activity in the United States. The standardization imposed by franchisors makes this market sector amenable to securitization. FMAC targets "top tier" franchises whose franchisors exercise significant operating and marketing control. It lends only to established, successful operators of franchise restaurants with proven track records. FMAC makes loans directly to franchisees based on the enterprise value as well as the cash flow of individual restaurants and, where applicable, the value of any associated real estate. FMAC generally lends against existing cash flow. It generally does not rely on projected sales growth to add incremental cash flow to help service debt. Borrowers must demonstrate positive cash flow on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis. During the nine months ended September 30, 1996, loans to individual credits ranged from approximately $241,000 to $7.0 million. For the nine months ended September 30, 1996, FMAC originated or acquired $304.8 million of franchise loans. FMAC securitized $167.4 million of franchise loans during the nine months ended September 30, 1996. At September 30, 1996 FMAC had total assets of $71.8 million. FMAC's total revenues and net income for the nine months ended September 30, 1996 were $14.1 million and $6.4 million, respectively. Commercial Mortgage Lending The Company engages in commercial lending, which consists of income property lending. Income Property Lending SPTL's Income Property Loan Division ("IPLD") was formed in February 1994 to expand the Company's apartment and commercial property lending business. IPLD seeks to make 70% of its loans secured by apartment buildings and 30% of its loans secured by other commercial properties. Most of IPLD's business is generated through in house loan representatives who market the loans directly to mortgage brokers and borrowers. Virtually all of IPLD's loans are secured by properties in California. The focus of IPLD's lending activity is the small loan market for apartments and commercial loans. IPLD's maximum loan amount is approximately $2.5 million. The Company believes that IPLD employs conservative underwriting criteria, which include a maximum loan to value ratio of 70% and minimum debt coverage ratio of 1.2 to 1 on all loans. Loans secured by income properties entail additional risk as compared to single family residential lending. The payment experience on such loans is generally dependent on the successful operation of the related commercial or multifamily property and thus is subject to a greater extent to adverse conditions in local real estate markets or in the economy generally. For the nine months ended September 30, 1996 and 1995, IPLD funded approximately $182.2 million and $93.9 million in loans, respectively. During the quarter ended September 30, 1996, SPTL completed a securitization of approximately $277.0 million of multi family and commercial mortgage loans. This securitization consisted primarily of loans originated and purchased by the Income Property Lending Division of SPTL. Business Finance Lending The Company, through CBC, IBC, and the Loan Participation and Investment Group, also engages in business finance lending, which consists of asset-based lending, commercial equipment leasing and loan participations. Asset Based Lending General The Company, through its SPTL division, Coast Business Credit Corporation ("CBC"), conducts an asset based lending business. CBC is a senior secured asset-based lender which lends primarily to qualified companies throughout the nation. CBC's principal business is asset-based lending to small to medium-sized businesses with annual revenues ranging from approximately $10 million to $100 million. Generally, such businesses are constrained from obtaining financing from more traditional credit sources such as commercial banks due to inadequate equity capitalization, limited operating history, lack of profitability or financing needs below commercial bank minimum size requirements. CBC has focused its lending activities on high technology businesses engaged in the computer industry. At September 30, 1996, CBC's loan portfolio represented lending relationships with approximately 104 customers, with an average total loan per customer of $2.7 million. During 1996, CBC executed an expansion plan which has increased the customer base of CBC outside the State of California. This includes production centers operating in the states of Massachusetts, Minnesota, and Georgia. At September 30, 1996 and December 31, 1995, CBC had outstanding loans totaling $278.9 million and $154.2 million, respectively. CBC had open unused commitments of $236.4 million at September 30, 1996. Equipment Leasing General Imperial Business Credit, Inc. ("IBC") was formed by ICII in May, 1995 to carry on the Company's equipment leasing business. IBC carries out its business equipment leasing operations from both its headquarters in Rancho Bernardo, California, and its operations center in Denver, Colorado. IBC is in the business of leasing equipment, including copying, data processing, communication, printing and manufacturing equipment, exclusively to business users. Initial lease terms typically range from 24 months to 60 months. IBC will commit to purchase this equipment only when it has a signed lease with a lessee who satisfies its credit and funding requirements. Substantially all the leases written by IBC are full payout ("direct financing") leases that allow IBC to sell or release the equipment upon termination of the lease. IBC occasionally purchases small portfolios of existing equipment leases from brokers with whom it has established relationships. These portfolios are evaluated on an individual basis according to IBC's established credit policy. The Company believes that these acquisitions allow IBC to grow with greater efficiency than usual at a level of decreased risk due to the portfolio aging that has occurred in the books of the originating broker. In October 1996, the Company acquired from AVCO Financial Services, Inc. ("AFS"), an $85 million lease portfolio and the operations of the Business Equipment Lease Division of AVCO Leasing Services, Inc. ("ALSI"). ALSI, originates and services leases for general office and business equipment. The acquired assets will be consolidated with IBC. The purchase price was approximately $95 million. IBC's lease originations totaled $60.9 million for the nine months ended September 30, 1996. IBC securitized $67.7 million of leases during the nine months ended September 30, 1996. At September 30, 1996 IBC had total assets of $14.4 million. IBC's total revenues and net income for the nine months ended September 30, 1996 were $5.0 million and $1.3 million, respectively. Loan Participation and Investment Group The Company's Loan Participation and Investment Group ("LPIG") is a division of SPTL that purchases for investment nationally syndicated commercial loan participations originated by commercial banks and insurance companies, primarily in the secondary market. The principal types of loans acquired by LPIG are senior secured bank loans consisting of: (i) revolving lines of credit which allow the borrower to borrow and repay proceeds as needed for working capital purposes; (ii) long-term loans with a specific amortization schedule which requires the borrower to repay the borrowed loans over time, usually on a quarterly basis; or (iii) letters of credit which are normally funded as a sublimit under the revolving line of credit commitment. The loans are generally secured by a first priority lien on all of the borrower's personal property including accounts receivable, inventory and furniture, fixtures and equipment, as well as liens on owned real estate. At September 30, 1996, loan participations held by LPIG ranged in size from approximately $900,000 to approximately $10 million, as compared to approximately $2 million to $10 million at December 31, 1995, respectively. During the nine months ended September 30, 1996, LPIG has purchased and funded approximately $174.7 million of senior secured loan participation commitments. Loans outstanding under LPIG's participation commitments at September 30, 1996 totaled $129.6 million. Consumer Lending Through SPTL, the Company also makes consumer finance loans consisting of sub-prime auto finance loans, home improvement loans and other consumer credit: Sub-Prime Auto Lending SPTL's Sub-Prime Auto Lending Division ("ALD") was formed in October 1994 to fund new and used automobile purchase contracts. ALD's borrowers are generally credit impaired and therefore are unable to access alternative sources of financing from banks and captive auto finance companies. ALD seeks to offset the increased risk of default in its portfolio with higher yields and aggressive servicing and collection activities. ALD generated $24.8 and $19 million and in sub-prime auto loans during the nine months and year ended September 30, 1996 and December 31, 1995, respectively. The Company currently generates sub-prime auto loans through three Northern California retail offices and is expanding its activities to Central California and areas outside California. Home Improvement Loans and Other Consumer Credit SPTL's Consumer Credit Division ("CCD") was formed in early 1994 to offer loans primarily to finance home improvements, manufactured housing and other consumer goods. CCD's business is developed through a network of retailers and contractors throughout California. All loans are centrally processed, approved and funded at CCD's headquarters in Irvine, California. Home improvement loans offered by CCD range from $5,000 to $350,000 and include major remodeling projects that are sometimes coupled with refinancing. CCD's typical loan is secured by a junior lien. In addition, CCD purchases unsecured installment sales contracts to finance certain home improvements such as air conditioning, roofing and kitchen and bathroom remodeling. During the nine months ended September 30, 1996 and year ended December 31, 1995, CCD originated $16.5 million and $14.6 million in loans, respectively. Non-Conforming Residential Mortgage Lending The Company engages in non-conforming residential mortgage lending through its majority owned subsidiary, SPFC, and through the Bulk Acquisitions Division of SPTL. SPFC Through SPFC, a 51.2% owned subsidiary, the Company is an originator, purchaser and seller of high yielding, single family non conforming mortgage loans. Substantially all of SPFC's loans are secured by first or second mortgages on owner occupied single family residences. The majority of the originated and purchased loans are made to borrowers who do not qualify for or are unwilling to obtain financing from conventional mortgage sources. SPFC typically packages a portfolio of originated and purchased loans and sells such through securitization. SPFC's mortgage loan production increased to $490.2 million for the nine months ended September 30, 1996 from $85.8 million for the nine months ended September 30, 1995. SPFC securitized $421.8 million of sub prime residential mortgage loans for the nine months ended September 30, 1996. At September 30, 1996 SPFC had total assets of $235.1 million. SPFC's total revenues and net income for the nine months ended September 30, 1996 were $14.1 million and $17.8 million, respectively. Strategic Divestitures During the fourth quarter of 1995, the Company contributed its mortgage conduit operations and SPTL's warehouse lending operations to Imperial Credit Mortgage Holdings, Inc., a newly-formed Maryland corporation ("ICMH"), that subsequently engaged in an initial public offering of its common stock. ICMH operates three businesses, two of which were owned by ICII. ICMH elected to be taxed as a real estate investment trust. At the effective date of ICMH's public offering ("Offering"), ICII contributed to ICI Funding Corporation ("ICIFC") certain of the operating assets and certain customer lists of ICII's mortgage conduit operations including all of ICII's mortgage conduit operations' commitments to purchase mortgage loans subject to rate locks from correspondents, in exchange for 100% of the voting common stock and 100% of the outstanding non-voting preferred stock of ICIFC. Simultaneously, on the effective date of the Offering, in exchange for 500,000 shares of the common stock of ICMH, ICII (1) contributed to ICMH all of the outstanding non-voting preferred stock of ICIFC, which represents 99% of the economic interest in ICIFC, and (2) caused SPTL to contribute to ICMH certain of the operating assets and certain customer lists of SPTL's warehouse lending division, and (3) executed an agreement not to compete and a right of first refusal agreement in each case for a period of two years from the effective date of the Offering. All of the outstanding shares of common stock of ICIFC were retained by ICII. Lastly, ICMH contributed all of the aforementioned operating assets contributed by SPTL's warehouse lending operation to Imperial Warehouse Lending Group ("IWLG") in exchange for shares representing 100% of the common stock of IWLG. At and for the nine months ended September 30, 1996, ICIFC had total assets of $185.5 million, total revenues of $7.7 million, and net income of $726,000. The assets and operations of ICIFC are consolidated with ICII. ICMH's 99% economic interest in the earnings of ICIFC are eliminated from the Company's consolidated income statement through "Minority Interest in Income of Consolidated Subsidiaries." As a result, the assets and liabilities of the Company reflected on its consolidated balance sheet at September 30, 1996 included approximately $185.5 million in assets, and $175.7 million in liabilities related to ICIFC. The Company will retain only 1% of the net earnings or loss derived from such assets and liabilities along with the other operations of ICIFC. The Company currently intends to reduce its ownership in ICIFC to below 50% by December 31, 1996, resulting in the deconsolidation of the assets and liabilities of ICIFC from the Company's consolidated balance sheet. Such reduction in ownership may occur as a result of the sale or transfer of ICII owned shares of ICIFC stock, or by other possible means. In the first nine months of 1996, the Company sold all of its mortgage origination offices related to its former conforming residential mortgage lending business. The Company's wholesale offices in Colorado, Florida, Oregon and Washington were converted to SPFC offices. The Company recognized that maintaining a mortgage loan servicing infrastructure was not economically viable in the absence of a conforming residential mortgage loan origination business. Thus, during the first nine months of 1996, the Company sold substantially all of its conforming residential mortgage loan servicing rights. Additionally, the Company has subcontracted all remaining servicing generated by its non-conforming residential mortgage banking business since September 1995 to Advanta Mortgage Corp. USA ("Advanta"). The Company has sold or subcontracted most of its servicing related to its former mortgage banking operations to other third party servicers. The Company intends to continue servicing all loans and leases originated by its equipment leasing and Franchise Lending businesses, as well as all loans originated by SPTL. Manufactured Housing Community Lending ("MHCB") - During the quarter ended September 30, 1996, the MHCB division of ICII was merged into SPTL, and the origination operations of MHCB were discontinued. MHCB will operate as a division of SPTL only to satisfy its remaining commitments. The Company believes that MHCB will cease all of its operations permanently during the fourth quarter of 1996. Business Strategies Since September 30, 1996, the Company has completed the sale of an additional one million shares, or 7.3% of SPFC, reducing its ownership to 51.2% of SPFC. The registration statement filed with the Securities and Exchange Commission grants the underwriters of the sale the option to issue up to an additional 150,000 shares of SPFC stock for sale. If so exercised, the Company's ownership in SPFC would decline to 50.1%. The Company currently intends to reduce its ownership in SPFC to below 50% by December 31, 1996, resulting in the deconsolidation of the assets and liabilities of SPFC from the Company's consolidated balance sheet. Such reduction in ownership may occur as a result of the issuance of additional shares of SPFC stock under SPFC's stock option plan, by the sale or transfer of additional ICII owned shares of SPFC stock, or by other possible means. In October 1996, as a part of the Company's strategy of expanding into new business opportunities, the Company invested approximately $9 million, primarily in the form of a subordinated loan to Dabney/Resnick, Inc. ("DRI"). In conjunction with the loan, the Company received warrants which are convertible into a 49% ownership interest in Dabney/Resnick/Imperial, LLC ("DRIL"). DRI, headquartered in Beverly Hills, California, with offices in Chicago, Illinois, Dallas, Texas, and Sun Valley, Idaho, offers full service investment banking, brokerage and asset management services. In October 1996, the Company acquired from AVCO Financial Services, Inc. ("AFS"), an $85 million lease portfolio and the operations of the Business Equipment Lease Division of AVCO Leasing Services, Inc. ("ALSI"). ALSI, originates and services leases for general office and business equipment. The acquired assets will be consolidated with IBC. The purchase price was approximately $95 million. Securitization Transactions During the nine months ended September 30, 1996, the Company had completed five loan and lease securitizations totaling $933.9 million. Sub prime residential mortgage loans securitized totaled $421.8 million, multifamily and commercial mortgage loans totaled $277.0 million, franchise mortgage loans totaled $167.4 million, and leases totaled $67.7 million. Of the principal amount securitized during 1995, $505.0 million was securitized in the first nine months. The Company has retained interests in loan and lease securitizations, representing the excess of the total amount of loans sold in the securitization over the amounts represented by interests in the security sold to investors. The retained interests in the loan and lease securitizations were $33.2 million and $13.0 million at September 30, 1996 and December 31, 1995, respectively. The Company is subject to certain recourse provisions in connection with these securitizations. At September 30, 1996 and December 31, 1995, the Company had discounted recourse allowances of $15.8 million and $8.7 million, respectively, related to these recourse provisions which are netted against capitalized servicing fees receivable and interest-only and residual certificates. As a fundamental part of its business and financing strategy, the Company sells the majority of its loans through loan securitization transactions. A significant portion of the Company's revenue is recognized as gain on sale of loans, which represents the present value of the difference between the interest rate charged by the Company to a borrower and the interest rate received by the investors who purchased securities collateralized by the loans sold into the securitization vehicle. The Company has created capitalized excess servicing fees receivable and interest-only and residual certificates as a result of the sale of loans and to a lesser extent leases into various trust securitization vehicles. These various trust vehicles, primarily consisting of real estate mortgage investment conduits, are majority owned by an independent third party who has made a substantial capital investment and has substantial risks and rewards of ownership of the assets of the trust; therefore, these trust vehicles are not consolidated with the Company. Capitalized excess servicing fees receivable and interest-only and residual certificates on the sale of loans and leases are determined by computing the present value of the excess of the weighted average coupon on the loans and leases sold (ranging from 9.0% to 13.3%) over the sum of: (1) the coupon in the pass through certificates (ranging from 5.6% to 7.4%), (2) a base servicing fee paid to the loan or lease servicer (ranging from 0.40% to 0.50%), (3) expected losses to be incurred on the portfolio of loans or leases sold (ranging from 0.25% to 0.50% over the life of the loan), and considering (4) prepayment assumptions. Prepayment assumptions are based on recent evaluations of the actual prepayments of the Company's servicing portfolio or on market prepayment rates on new portfolios and consideration of the current interest rate environment and its potential impact on prepayment rates. The cash flows expected to be received by the Company, not considering the expected losses, are discounted at an interest rate that the Company believes an unaffiliated third party purchaser would require as a rate of return on such a financial instrument. Expected losses are discounted using a rate equivalent to the risk free rate for securities with a duration similar to that estimated for the underlying loans and leases sold. The combined result is an effective overall discount rate of approximately 15%. The excess servicing cash flows are available to the Company to the extent that there is no impairment of the credit enhancements established at the time the loans and leases are sold. Such credit enhancements are classified as retained interest in loan and lease securitizations on the consolidated balance sheets and represent the amount of overcollateralization of the certificates. To the extent that actual future performance results are different from the excess cash flows the Company estimated, the Company's capitalized excess servicing fees receivable will be adjusted quarterly with corresponding adjustments made to income in that period. A significant portion of the Company's reported income and all of the related capitalized servicing fees receivable and interest-only and residual certificates included in the Company's consolidated financial statements represent the recognition of the present value of the excess servicing spread, which is based on certain estimates made by management at the time loans are sold. The rate of prepayment of loans and expected losses may be affected by a variety of economic and other factors, including the prevailing interest rate and the availability of alternative financing. The effect of those factors on loan prepayment rates may vary depending on the particular type of loan. Estimates of prepayment rate and losses are made based on management's expectations of future prepayment rates and losses, which are based, in part, on the historical rate of prepayment and previous loss experience of the Company's loans, and other considerations. There can be no assurance of the accuracy of management's initial prepayment or loss estimates. If actual prepayments and losses with respect to sold loans, occur more quickly than was projected at the time such loans were sold, the carrying value of the capitalized servicing fees receivable may have to be written down through a charge to earnings in the period of adjustment. If actual prepayments and losses, with respect to sold loans occur more slowly than estimated, the carrying value of capitalized servicing fees receivable on the Company's consolidated balance sheet would not increase, although total income would exceed previously estimated amounts. Interest-only and residual certificates in loan securitizations retained by the Company's subsidiary Southern Pacific Funding Corporation, are held as trading securities and are adjusted to their respective market values quarterly with corresponding charges and credits made to income in the adjustment period. Servicing Rights When the Company purchases servicing rights from others, or loans which include the associated servicing rights, the price paid for the servicing rights, net of amortization based on assumed prepayment rates, is included on the consolidated balance sheet as "Purchased and Originated Servicing Rights." During the nine months ended September 30, 1996, the Company sold substantially all of its conforming residential mortgage servicing with related capitalized Purchased and Originated Servicing Rights. As a result of this sale, of the $14.0 million of Purchased and Originated Servicing Rights outstanding at September 30, 1996, $5.8 million are held at SPTL and $700,000 are held at ICAI, with the remaining $7.5 million held at ICIFC in connection with its ongoing mortgage banking operations. (See "Notes to Consolidated Financial Statements - -Note 1. -Organization.") Funding Until 1995, apart from equity and debt offerings in the capital markets, the Company's primary sources of financing were warehouse lines of credit at ICII and deposits with SPTL. Typically, ICII would borrow funds under its warehouse lines in connection with its wholesale loan originations and purchases, while SPTL used its deposits and borrowings from the Federal Home Loan Bank of San Francisco ("FHLB") to finance its lending activities. In connection with its diversification strategy, the Company believes that lower cost financing is available through credit lines, repurchase facilities, whole loan sales and securitization programs established by SPFC, IBC and FMAC. Therefore, ICII expects that it will no longer maintain its warehouse lines of credit beyond December 31, 1996. With respect to all of its other lending activities, the Company continues to rely on FDIC insured deposits generated by SPTL, but it also utilizes third party warehouse lines of credit and securitizations. At September 30, 1996, SPTL had total deposits of approximately $1.1 billion (excluding deposits of ICII maintained with SPTL). ICII and its subsidiaries have various revolving warehouse lines of credit available at September 30, 1996, as follows:
Weighted average interest rate Commitment Outstanding Index -------- -------- ---------- ------------ (Dollars in thousands) PaineWebber (ICII)................ 6.18% $ 200,000 $ 13,774 Libor+65bp - 100bp Banco Santander (FMAC)............ 7.78% 50,000 26,141 Libor+225bp Stanley Mortgage Capital (SPFC)... -- 150,000 -- FedFunds+65bp - 85bp Greenwich (FMAC).................. 7.23% 33,086 33,086 Libor+175bp Lehman Brothers (SPFC)............ 6.28% 200,000 141,078 Libor+30bp Imperial Warehouse Lending Group (ICIFC).......... 8.25% 600,000 171,504 Bank of America Prime Warehouse Lending Corporation of America (ICII).. 7.94% 20,000 14,462 Libor+250bp ----------- --------- $1,253,086 $400,045
Results of Operations Quarter Ended September 30, 1996 Compared to Quarter Ended September 30,1995 Revenues for the quarter ended September 30, 1996 increased 104% to $51.2 million as compared to $25.1 million for the same period of the previous year. Expenses for the quarter ended September 30, 1996 increased 41% to $24.9 million as compared to $17.6 million for the same period of the previous year. Net income for the quarter ended September 30, 1996 increased to $9.4 million as compared to $4.3 million for the same period of the previous year. Fully diluted net income per share for the quarter ended September 30, 1996 was $0.23, as compared to $0.12 for the same period of the previous year. Net income increased primarily due to the increased revenues from gain on sale of loans and net interest income, partially offset by increases in total expenses. Net income per share increased at a lower rate than net income due an increase in outstanding shares used for net income per share calculations as a result of the Company's common stock offering, and as a result of the increased dilutive effect of outstanding shares under the Company's stock option plans. (See Liquidity and Capital Resources, below.) The Company had 40.6 million shares of fully diluted common stock and common stock equivalents outstanding during the quarter ended September 30, 1996 as compared to 35.1 million shares of common stock and common stock equivalents outstanding during the same period of the previous year. The number of shares used in the computations of net income per share give retroactive effect to stock dividends and stock splits for all periods presented, including the Company's most recent 2-for-1 stock split on October 23, 1996. Net income and net income per share from core operations (defined as net income less the net gain from the sale of SPFC stock, and less the net gain or loss on sales of servicing rights) and excluding the net expense of the restructuring provision for the quarter ended September 30, 1996 increased 120% and 90% to $9.5 million and $0.23 per share from $4.3 million and $0.12 per share in the same period of the previous year, respectively. Gain on sale of loans increased 92% to $28.6 million for the quarter ended September 30, 1996 as compared to $14.9 million for the same period of the previous year. Gain on sale of loans consists primarily of gains recorded upon the sale of loans, net of associated expenses, and to a lesser extent, fees received on the origination of loans, and fees received for commitments to fund loans. The increase was primarily the result of substantially increased volume and profitability on the sale of various servicing retained variable and fixed rate loan products through securitizations. Gain on sale of loans includes $17.0 million in gains recorded as a result of the securitization of $189.5 million of the Company's sub prime residential mortgage loans at SPFC, $11.2 million in gains resulting from the sale of $277.0 million of commercial and multi-family loans at SPTL, less a $900,000 loss recorded as a result of the sale of loans held by the Company's former mortgage banking operations in connection with the planned exit from this business. Upon completion of an analysis of the carrying values of the Company's excess servicing assets during the third quarter, the Company wrote down the balance of excess servicing assets by $2.5 million. Also included in gain on sale of loans was $1.3 million in gains from the sale of loans at the Company's consolidated subsidiary, ICIFC. (See "Notes to Consolidated Financial Statements -Note 1. - Organization.") As a part of the SPTL securitization of $277.0 million of multi-family and commercial mortgage loans, the Company retained subordinate bonds of approximately $22 million and delivered the bonds into a total rate of return swap with JP Morgan. The provisions of the swap entitle the Company to receive the total return on the subordinate bonds delivered in exchange for a floating payment of Libor plus a spread of 1.95%. The swap is an off balance sheet instrument. Net interest income, which consists of interest and fees net of interest charges, and net interest margin at Southern Pacific Thrift & Loan Association for the quarter ended September 30,1996 increased 179% and 87% to $22.2 million and 4.15% compared to $7.9 million and 2.22% for the same period of the previous year, respectively. The increase in net interest income and net interest margin was due primarily to two factors. The increase in net interest income can be directly attributed to the acquisitions completed throughout the last half of 1995, and the resultant change in the composition of loans held for sale and investment from primarily conforming single family residential mortgage loans to a more diversified mix of higher yielding loan products from the Company's four primary businesses. The product mix of the Company's interest earning assets now includes a much larger percentage of higher-yielding loan and lease products as compared to the previous year. Interest income also increased as a result of the Company's loan and lease securitizations, which contributed interest income of $3.7 million from the accretion of discounts on the Company's capitalized excess servicing fees receivable. In anticipation of potential writedowns of the Company's excess servicing fees, the Company began to slow the rate of accretion of the discounts related to excess servicing assets in the second quarter of 1996. Upon completion an analysis of the carrying values of the Company's excess servicing assets during the third quarter, the Company accreted into interest income those discounts which had been deferred, and simultaneously wrote down the balance of excess servicing fees receivable. The net result of these events was to increase interest income by approximately $2.5 million, with an offsetting writedown of excess servicing assets through gain on sale of loans. The increase in interest income due to the factors described above was partially offset by an increase in the average costs of borrowings from all sources, including warehouse lines of credit, borrowings from the FHLB, and customer deposits. Loan servicing income for the quarter ended September 30, 1996 decreased 79% to $702,000 as compared to $3.3 million for the same period in the previous year. The decrease in loan servicing income was primarily due to a decreased average balance of residential mortgage loans serviced for others, primarily as a result of the Company's sale or transfer of substantially all of its conforming residential mortgage loan servicing rights in connection with the Company's exit from the conforming mortgage banking business. Additionally, loan servicing income was negatively affected by increased direct servicing costs related to the loan foreclosure and property liquidation process of the remaining conforming residential mortgage loan portfolio. As a result of the Company's strategic divestitures, the Company does not expect loan servicing income to be a strong contributor to total revenues in the near future. This reduced contribution to revenues is anticipated to be offset by increases in other finance activity revenues, as well as from a reduction in servicing related expenses. In addition to the above referenced servicing portfolio, the Company also services a variety of other loan products at its other business operations that make positive contributions to total revenue. At September 30, 1996, FMAC serviced franchise loans for others totaling $527.2 million, and SPTL serv iced multifamily or commercial loans for others of $328.6 million. SPFC acts as master servicer for $497.8 million of sub prime residential loans serviced for others. As a result of the sub servicing fee arrangement with SPFC's sub servicer; however, significant servicing revenues are not realized from this operation. ICIFC also acts as master servicer for $1.2 billion of non conforming residential mortgage loans. (See "Notes to Consolidated Financial Statements -Note 1. Organization."). Other income for the quarter ended September 30, 1996 increased to $2.3 million as compared to $268,000 for the same period of the previous year. This increase was primarily due to $986,000 of fee income generated from the Company's advisory contract of with ICMH and dividend payments of $193,000 received by the Company on its investment in ICMH. Additionally, impacting other income was the resolution and recovery of $1.4 million of certain outstanding reconciling items at SPTL. Personnel expenses increased 27% to $13.1 million for the quarter ended September 30, 1996 as compared to $10.3 million for the same period of the previous year. This increase was primarily the result of personnel expenses related to the Company's acquisition and expansion activities throughout the second half of 1995, partially offset by reductions in personnel expense at the Company's former mortgage banking operations. Amortization of PMSR's and OMSR's decreased 84% to $196,000 for the quarter ended September 30, 1996 as compared to $1.3 million for the same period of the previous year. The decrease was the result of a decreased outstanding balance of PMSR's and OMSR's as a result of the Company's sale of conforming residential mortgage loan servicing rights generated by its former mortgage banking operations. As a result of this sale, of the $14.0 million of PMSR's and OMSR's outstanding at September 30, 1996, $5.8 million are held at SPTL, $700,000 are held at ICAI, with the remaining $7.5 million held at ICIFC in connection with it's continuing mortgage banking operations. (See "Notes to Consolidated Financial Statements-Note 1. -Organization.") Occupancy expense remained relatively unchanged at $1.0 million for the quarter ended September 30, 1996 as compared to $973,000 for the same period of the previous year. Occupancy expense remained relatively unchanged despite the Company's shift in business focus and related expansion activities due to the reduction of occupancy costs from the Company's former mortgage banking operations. The Company expanded its lease obligations in the current year as a result of the Company's acquisition of Coast Business Credit, First Concord Leasing, and Franchise Mortgage Acceptance Company LLC in the second half of 1995. Net expenses of OREO decreased 3% to $867,000 for the quarter ended September 30, 1996 as compared to $897,000 for the same period of the previous year. The decrease in net expense of OREO was primarily the result of a reduction on the average loss on the sale of properties foreclosed on by the Company's former mortgage banking operations. All other general and administrative expenses, including data processing, professional services, and telephone and other communications expense increased 132% to $9.7 million for the quarter ended September 30, 1996 as compared to $4.2 million for the same period of the previous year. The increase in general and administrative expenses was due primarily to the Company's acquisition of CBC, FCAC, and FMAC, as well as to the start up of ICAI late in 1995. Asset Quality As a result of the continuing change in the composition of the Company's investment loan portfolio, earnings were reduced by an increase in the provision for loan losses. The provision for loan losses increased 94% to $2.6 million for the quarter ended September 30, 1996, as compared to $1.4 million for the same period of the previous year. The increase in the provision was primarily the result of an increase in nonaccrual loans, an increase in the amount of net charge-offs, and the continuing change in the composition of the investment loan portfolio to higher-yielding loan products. Total nonaccrual loans increased 50% to $46.6 million at September 30, 1996, as compared to $31.0 million at December 31, 1995. Total nonaccrual loans as a percentage of loans held for investment were 5.56% and 4.50% at September 30, 1996 and December 31, 1995, respectively. Net charge-offs for the quarter and nine months ended September 30, 1996 were $2.2 million and $5.4 million, as compared to $772,000 and $2.1 million for the same period of the previous year. Net charge-offs for the quarter and nine months ended September 30, 1996 by product type were as follows: Multifamily loans $50,000 and $1.0 million, Consumer loans $165,000 and $599,000, Conforming Residential Mortgage loans $822,000 and $2.0 million, Commercial loans $183,000 and $432,000, Leases $942,000 and $1.5 million, respectively. Loans held for investment consisted of the following at September 30, 1996 and December 31, 1995: (Dollars in thousands)
September 30, 1996 December 31, 1995 ------------ ------------- Loans secured by real estate: Single Family 1-4................... $ 59,204 $ 228,721 Multi Family........................ 234,608 7,028 Commercial.......................... 25,698 133,189 -------------- -------------- 319,510 368,938 Leases.............................. 120 7,297 Installment loans................... 28,094 1,900 Commercial.......................... 481,819 311,122 ------------- ------------- 829,543 689,257 Unearned income..................... (6,138) (5,217) Deferred loan fees.................. (5,739) (1,540) ------------ ------------- 817,666 682,500 Allowance for loan losses........... (14,461) (13,729) ------------ ------------- $ 803,205 $ 668,771
The Company's loans held for investment are primarily comprised of first and second lien mortgages secured by residential and income producing real property in California, leases secured by equipment, asset based loans to middle market companies mainly in California, and loans to experienced franchisees of nationally recognized restaurant concepts. As a result, the loan portfolio has a high concentration in the same geographic region. Although the Company has a diversified portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economy of California. Activity in the allowance for loan losses was as follows: (Dollars in thousands)
Nine months ended Year ended September 30, 1996 December 31, 1995 ----------------- ---------------- Balance, beginning of year...................... $ 13,729 $ 7,054 Provision for losses charged to expense......... 6,142 5,450 Business acquisitions and bulk loan purchases... -- 4,320 Loans charged off............................... (5,523) (3,106) Recoveries on loans previously charged off...... 113 11 ------------ ---------- Net charge offs................................. (5,410) (3,095) Balance, end of period.......................... $ 14,461 $ 13,729 =========== ========= As of September 30, 1996 and December 31, 1995 non-accrual loans totaled $46.6 million and $31.0 million, respectively.
The following table sets forth the amount of NPA's attributable to the Company's former mortgage banking operations and to all of its other lending activities.
At September 30, At December 31, 1996 1995 Former Former All Other Mortgage All Other Mortgage Lending Banking Lending Banking Activities Operations Activities Operations ----------- ---------- ---------- ------------ (Dollar amounts in thousands) Nonaccrual loans: One to four family............. 27,005 11,842 2,652 20,990 Commercial property............ 2,684 -- 1,824 -- Multifamily property........... 5,054 -- 5,522 -- ----------- ---------- ---------- ------------ Total nonaccrual loans.............. 34,743 11,842 9,998 20,990 Other real estate owned: One to four family............. 5,383 3,797 1,937 4,173 Commercial property............ 1,076 -- 211 -- Multifamily property.......... 1,047 -- 858 -- ----------- ---------- ---------- ------------ Total other real estate owned....... 7,506 3,797 3,006 4,173 Loans with modified terms: One to four family............. 1,314 -- 870 -- Commercial property............ -- -- -- -- Multifamily property........... -- -- -- -- ----------- ---------- ---------- ------------ Total loans with modified terms..... 1,314 -- 870 -- Total non performing assets......... $ 43,563 $ 15,639 $ 13,874 $ 25,163 ----------- ---------- ---------- ------------ Total loans and OREO................ $1,584,403 $ 68,700 $1,168,783 $869,463 Total NPA's as a percentage of loans and OREO................... 2.75% 22.76% 1.19% 2.89%
The provision for loan losses was $2.6 million and $6.1 million for the quarter and nine months ended September 30, 1996, increases of 94% and 55% from $1.4 million and $4.0 million and for the same periods of the previous year, respectively. The increase in the provision in both periods was primarily the result of the increase in nonaccrual loans and the increase in the amount of net charge-offs. The ratio of the allowance for loan losses to total loans held for investment was 1.74%, a decrease from the 1.99% at December 31, 1995. The ratio of the allowance for loan losses to nonaccrual loans decreased to 31.0% at September 30, 1996 from 44.3% at December 31, 1995. Although nonaccrual loans have increased since December 31, 1995, with a corresponding decrease in allowance coverage, the Company evaluates expected losses on these nonaccrual loans on a loan-by-loan basis and has determined that the allowance is adequate to cover both expected losses on nonaccrual loans and inherent losses in the remainder of the Company's loans held for investment portfolio. The Company believes that the allowance for loan losses is adequate. The percentage of the allowance for loan losses to nonaccrual loans will not remain constant due to the nature of the Company's portfolio of loans. The collateral for each nonperforming mortgage loan is analyzed by the Company to determine potential loss exposure, and in conjunction with other factors, this loss exposure contributes to the overall assessment of the adequacy of the allowance for loan losses. On an ongoing basis, management monitors the loan portfolio and evaluates the adequacy of the allowance for loan losses. In determining the adequacy of the allowance for loan losses, management considers such factors as historical loan loss experience, underlying collateral values, evaluations made by bank regulatory authorities, assessment of economic conditions and other appropriate data to identify the risks in the loan portfolio. Loans deemed by management to be uncollectible are charged to the allowance for loan losses. Recoveries on loans previously charged off are credited to the allowance. Provisions for loan losses are charged to expense and credited to the allowance in amounts deemed appropriate by management based upon its evaluation of the known and inherent risks in the loan portfolio. Future additions to the allowance for loan losses may be necessary. Nine months Ended September 30, 1996 Compared to Nine months Ended September 30, 1995 Revenues for the nine months ended September 30, 1996 increased 230% to $191.5 million as compared to $58.1 million for the same period of the previous year. Expenses for the nine months ended September 30, 1996 increased 65% to $72.7 million as compared to $44.1 million for the same period of the previous year. Net income for the nine months ended September 30, 1996 increased 654% to $61.1 million as compared to $8.1 million for the same period of the previous year. Net income increased primarily due to increased revenues from gain on sale of loans, net interest income, and gain on sale of SPFC stock, partially offset by increased total expenses. Fully diluted net income per share for the nine months ended September 30, 1996 increased 596% to $1.60, as compared to $0.23 for the same period of the previous year. The Company had 38.3 million shares of fully diluted common stock and common stock equivalents outstanding during the nine months ended September 30, 1996 as compared to 35.0 million shares outstanding during the same period of the previous year. The number of shares used in the computations of net income per share give retroactive effect to stock dividends and stock splits for all periods presented, including the Company's most recent 2-for-1 stock split on October 23, 1996. Net income and net income per share from "core" operations for the nine months ended September 30, 1996 increased 368% and 333% to $30.0 million or $0.78 per share from $6.4 million or $0.18 per share in the same period of the previous year, respectively. Gain on sale of loans increased 132% to $69.5 million for the nine months ended September 30, 1996 as compared to $30.0 million for the same period of the previous year. Gain on sale of loans consists primarily of gains recorded upon the sale of loans, net of associated expenses, and to a lesser extent, fees received on the origination of loans, and fees received for commitments to fund loans. The increase was primarily the result of substantially increased volume and profitability on the sale of various servicing retained variable and fixed rate loan products. Gain on sale of loans includes; $37.8 million in gains recorded as a result of the securitization of $421.8 million of the Company's sub prime residential mortgage loans at SPFC, $3.6 million in gains resulting from the sale of the Company's retained interest in the securitization of $105.2 million of franchise mortgage loans at FMAC which was accounted for as a financing at December 31, 1995, $4.6 million in gains recorded as a result of the securitization of $167.4 million of franchise loans in the second quarter of 1996, $11.2 million in gains recorded resulting from the sale of $277.0 million of multi-family and commercial mortgage loans at SPTL, and $1.5 million in gains recorded as a result of the sale of loans held by the Company's former mortgage banking operations. Upon completion of an analysis of the carrying values of the Company's excess servicing assets during the third quarter, the Company wrote down the balance of excess servicing assets by $2.5 million. Also included in gain on sale of loans were $5.9 million in gains from the sale of loans at the Company's consolidated subsidiary, ICIFC. (See "Notes to Consolidated Financial Statements - Note 1. Organization.") Net interest income, which consists of interest and fees net of interest charges, and net interest margin at SPTL for the nine months ended September 30,1996 increased 157% and 87% to $48.3 million and 4.03% compared to $18.8 million and 2.16% for the same period in the previous year. The increase in net interest income and net interest margin was due primarily to two factors. The increase in net interest income can be directly attributed to the acquisitions completed throughout the last half of 1995, and the resultant change in the composition of loans held for sale and investment from primarily conforming single family residential mortgage loans to a more diversified mix of loan products from the Company's four primary businesses. The product mix of the Company's interest earning assets now includes a much larger percentage of higher-yielding loan and lease products as compared to the previous year. Interest income also increased as a result of the Company's loan and lease securitizations, which contributed interest income of $7.0 million from the accretion of discounts on the Company's capitalized excess servicing fees receivable. In anticipation of potential writedowns of the Company's excess servicing fees, the Company began to slow the rate of accretion of the discounts related to excess servicing assets in the second quarter of 1996. Upon completion of an analysis of the carrying values of the Company's excess servicing assets during the third quarter, the Company accreted into interest income those discounts which had been deferred, and simultaneously wrote down the balance of its excess servicing assets. The net result of these events was to increase interest income by approximately $2.5 million, with an offsetting writedown of excess servicing assets through gain on sale of loans. The increase in interest income due to the factors described above was partially offset by an increase in the average costs of borrowing from all sources, including warehouse lines of credit, borrowings from the FHLB, and customer deposits. Loan servicing income for the nine months ended September 30, 1996 decreased 77% to $2.3 million as compared to $9.8 million for the same period in the previous year. The decrease in loan servicing income was primarily due to a decreased average balance of conforming residential mortgage loans serviced for others, primarily as a result of the Company's sale or transfer of substantially all of its conforming residential mortgage servicing rights in connection with the Company's exit from the mortgage banking business. Additionally, loan servicing income continues to be negatively affected by increased direct servicing costs related to the loan foreclosure and property liquidation process. During the nine months ended September 30, 1996 and 1995, the Company sold mortgage loan servicing rights relating to $3.2 billion and $350.6 million principal amount of loans, resulting in pre-tax gains of $7.7 million and $2.9 million, respectively. Gain on the sale of servicing rights consists of the cash proceeds received on the "bulk" sale of servicing rights, net of the related capitalized purchased or originated servicing rights. The decline in profitability on the sale of the conforming residential mortgage servicing rights was due a lower average purchase price and due to the increased amounts of capitalized servicing rights on the portfolio sold in the nine months ended September 30, 1996 as compared to the same period of the previous year as a result of the Company's adoption of SFAS 122 in the first quarter of 1995. The decision to sell servicing rights was based upon the Company's exit plan from its former mortgage banking operations. During the nine months ended September 30, 1996, the Company sold approximately 42% of its common stock in SPFC through an initial public offering of 5.0 million shares of SPFC common stock. The Company sold 2.3 million shares, with SPFC selling 3.5 million primary shares. As a result of the sale, the Company recorded a pre tax gain of $62.0 million. Since the Company continues to own a majority ownership interest in SPFC, the Company will continue to consolidate SPFC's operations with its other majority owned or wholly owned subsidiaries. However, as a result of the Company's requirement to record income tax expense on its ownership interest in SPFC's after tax income, the Company will only retain approximately 34% of SPFC's net income or loss, so long as the Company maintains a 58% ownership interest in SPFC. Other income for the nine months ended September 30, 1996 increased to $7.8 million as compared to $537,000 for the same period of the previous year. This increase was primarily due to fee income generated from the Company's advisory contract with ICMH and dividend payments received by the Company on its investment in ICMH. Additionally, impacting other income was the resolution and recovery of $2.5 million of certain outstanding reconciling items at SPTL. Personnel expenses increased 52% to $36.5 million for the nine months ended September 30, 1996 as compared to $24.0 million for the same period of the previous year. This increase was primarily the result of personnel expenses related to the Company's acquisition and expansion activities throughout the second half of 1995, partially offset by reductions in personnel expense at the Company's former mortgage banking operations. Amortization of PMSR's and OMSR's decreased 61% to $1.0 million for the nine months ended September 30, 1996 as compared to $2.6 million for the same period of the previous year. The decrease was the result of a decreased outstanding balance of PMSR's and OMSR's as a result of the Company's sale of servicing rights on conforming residential mortgage loans generated by the former mortgage banking operations. Occupancy expense increased 14% to $3.3 million for the nine months ended September 30, 1996 as compared to $2.9 million for the same period of the previous year. The increase primarily reflects an increase in lease expenses as a result of the Company's acquisition of Coast Business Credit, First Concord Leasing, and Franchise Mortgage Acceptance Company in the second half of 1995. Net expenses of OREO increased 201% to $4.9 million for the nine months ended September 30, 1996 as compared to $1.6 million for the same period of the previous year. The increase in net expense of OREO was primarily the result of the dramatic increase in the volume of properties foreclosed on by the Company's former mortgage banking operations. FDIC insurance premiums decreased 82% to $200,000 for the nine months ended September 30, 1996 as compared to $1.1 million for the same period of the previous year. FDIC insurance premiums decreased primarily as a result of a decrease in the rate of the insurance premium charged to SPTL for FDIC deposit insurance. Restructuring charges were $3.8 million for the nine months ended September 30, 1996 as compared to no charge for the same period of the previous year. The charge represents those costs incurred in connection with the Company's exit from the conforming mortgage banking business in accordance with the provisions of Emerging Issues Task Force ("EITF") Abstract No. 94-3, "Accounting for Restructuring Charges." During the first quarter of 1996, the Company committed itself to, and began the execution of, an exit plan that specifically identified the necessary actions to be taken to complete the exit from the origination, sale and servicing of conforming residential mortgage loans. During the nine months ended September 30, 1996, the Company incurred charges against the allowance of approximately $2.3 million. The Company believes that significant changes to the exit plan are not likely, and that the exit plan should be completed by December, 1996. The Company has included in the restructuring charge those costs resulting from the exit plan that are not associated with, nor would have benefit for the continuing operations of the Company. All other general and administrative expenses, including data processing, professional services, and telephone and other communications expense increased 97% to $23.3 million for the nine months ended September 30, 1996 as compared to $11.8 million for the same period of the previous year. The increase in general and administrative expenses was due primarily to the Company's acquisition of CBCC, FCAC, and FMAC, as well as to the start up of ICAI in 1995. As a result of the change in the composition of the Company's investment loan portfolio, earnings were reduced by an increase in the provision for loan losses. The provision for loan losses increased 55% to $6.1 million for the nine months ended September 30, 1996, as compared to $4.0 million for the same period of the previous year. Inflation The Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Inflation affects the Company primarily through its effect on interest rates, since interest rates normally increase during periods of high inflation and decrease during periods of low inflation. During periods of increasing interest rates, demand for loans and a borrower's ability to qualify for mortgage financing in a purchase transaction may be adversely affected. During periods of decreasing interest rates borrowers are more likely to refinance their existing loans which may negatively impact the Company's investments in capitalized excess servicing assets. Regulatory Matters: On September 30, 1996 the Omnibus spending bill was signed into law. This bill includes a comprehensive legislative package on BIF-SAIF. The package includes the following provisions which impact the Company 1) a FICO premium assessment on BIF-insured deposits as one-fifth the premium rate (approximately 1.3 basis points) imposed on SAIF-insured deposits for the three year period beginning in 1997. In the year 2000, the bill required BIF-insured institutions to share in the payment of the FICO obligations on a pro-rata basis with all thrift institutions, with annual assessments expected to equal approximately 2.4 basis points until the year 2017, and to be completely phased out by 2019; 2) a merger of the BIF and SAIF on January 1, 1999, if no thrift institutions exist on that date; 3) the FDIC is prohibited from setting insurance premiums above the amount which would result in the deposit insurance fund exceeding its designated reserve ratio - currently 1.25% and 4) the FDIC was given the authority to refund assessments paid to it in excess of amounts due. On September 30, 1996 SPTL entered into an agreement [Memorandum of Understanding] with the FDIC. This agreement requires that SPTL shall (i) have and retain qualified management, (ii) within 120 days, adopt and implement comprehensive risk management policies, programs and systems, (iii) within 30 days, take all reasonable and good faith steps to ensure future compliance with all applicable laws and regulations, (iv) within 60 days, develop a credit review program, (v) within 60 days, update the lending, investments and audit policies, and (vi) provide quarterly progress reports to the FDIC. This agreement will remain in effect until terminated by the FDIC. Management believes that it is in compliance with the terms and conditions of the agreement. Liquidity and Capital Resources The Company's principal liquidity requirements result from the need for the Company to fund mortgage loans originated or acquired for purposes of sale or investment. In addition, the Company, as a loan servicer, requires funding to make advances of delinquent principal and interest payments and escrow balances, and as basic working capital. SPTL has historically provided the funding for its lending activities through its deposits and FHLB borrowings. During the quarter and nine months ended September 30, 1996, the Company had sufficient liquidity to meet its operating needs. In April 1996, the Company completed a secondary stock offering of 4,879,808 shares of its Common Stock. The shares issued were sold for $13.00 per share. The Company received net proceeds from the offering of $59.2 million. Also, during the nine months ended September 30, 1996, the Company completed its initial public offering of SPFC common stock. After the offering ICII owned 58.4% of the issued and outstanding shares of SPFC's common stock, excluding shares issuable upon exercise of options granted or to be granted pursuant to SPFC's stock option plans. The Company received net proceeds from the offering of SPFC stock of $36.4 million. SPTL obtained the liquidity necessary to fund the Company's former mortgage banking operations and its own lending activities through deposits and, if necessary through borrowings from the FHLB. At September 30, 1996 and December 31, 1995, SPTL had available lines of credit from the FHLB equal to 35% of its assets, or $559.4 million and $501.4 million, respectively. The highest FHLB advance outstanding during the quarter ending September 30, 1996 was $338.0 million, with an average outstanding balance of $229.0 million. The outstanding balance of FHLB advances was $338.0 million at September 30, 1996. Since December 31, 1991, SPTL has increased its deposits as necessary so that deposits, together with cash, liquid assets and FHLB borrowings have been sufficient to provide the funding for its loans held for sale and investment. SPTL has been able to acquire new deposits through its local marketing strategies as well as domestic money markets. Additionally, SPTL maintains liquidity in the form of cash and interest bearing deposits with financial institutions. The Company tracks on a daily basis all new loan applications by office and, based on historical closing statistics, estimates expected fundings. Cash management systems at SPTL allow SPTL to anticipate both funding and sales and adjust deposit levels and short-term investments against the demands of the Company's lending activities. The Company has an ongoing need for capital to finance its lending activities. This need is expected to increase as the volume of the Company's loan and lease originations and acquisitions increases. The Company's primary cash requirements include the funding of (i) loan and lease originations and acquisitions pending their pooling and sale, (ii) points and expenses paid in connection with the acquisition of wholesale loans, (iii) fees and expenses incurred in connection with its securitization programs, (iv) overcollateralization or reserve account requirements in connection with loans and leases pooled and sold, (v) ongoing administrative and other operating expenses, (vi) interest and principal payments under ICII's $90 million principal amount of Senior Notes due 2004 (the "Notes") and (vii) the costs of the Company's warehouse credit and repurchase facilities with certain financial institutions. The Company has financed its activities through repurchase facilities, warehouse lines of credit from financial institutions, including SPTL, public offerings of capital stock of ICII and SPFC, the issuance of the Notes, the issuance of convertible securities, and securitizations. The Company believes that such sources will be sufficient to fund the Company's liquidity requirements for the foreseeable future. Any future financing may involve the issuance of additional Common Stock or other securities, including securities convertible into or exercisable for Common Stock. The Company currently pools and sells through securitization a substantial portion of the loans or leases which it originates or purchases, other than loans held by SPTL for investment. Accordingly, adverse changes in the securitization market could impair the Company's ability to originate, purchase and sell loans or leases on a favorable or timely basis. Any such impairment could have a material adverse effect upon the Company's business and results of operations. In addition, the securitization market for many types of assets is relatively undeveloped and may be more susceptible to market fluctuations or other adverse changes than more developed capital markets. Finally, any delay in the sale of a loan or lease pool could cause the Company's earnings to fluctuate from quarter to quarter. In a securitization, the Company recognizes a gain on sale of the loans or leases securitized upon the closing of the securitization, but does not receive the cash representing such gain until it receives the excess servicing fees, which are payable over the actual life of the loans or leases securitized. As a result, such transactions may not generate cash flows to the Company for an extended period. In addition, in order to gain access to the secondary market for loans and leases, the Company has relied on monoline insurance companies to provide guarantees on outstanding senior interests in the trusts to which such loans and leases are sold to enable it to obtain an "AAA/Aaa" rating for such interests. Any unwillingness of the monoline insurance companies to guarantee the senior interests in the Company's loan or lease pools could have a material adverse effect on the Company's financial position and results of operations. The Company is dependent upon its ability to access warehouse credit and repurchase facilities, in addition to its ability to continue to pool and sell loans and leases in the secondary market, in order to fund new originations and purchases. The Company has warehouse lines of credit and repurchase facilities under which it had available an aggregate of approximately $424.5 million in financing at September 30, 1996 (excluding financing available to the Company's wholly owned subsidiary, ICI Funding Corporation ("ICIFC")). (See "Notes to Consolidated Financial Statements Note 1. Organization") Certain of these credit and repurchase facilities will expire in 1996. The Company expects to be able to maintain existing warehouse lines of credit and repurchase facilities (or to obtain replacement or additional financing) as current arrangements expire or become fully utilized; however, there can be no assurance that such financing will be obtainable on favorable terms. To the extent that the Company is unable to arrange new warehouse lines of credit and repurchase facilities, the Company may have to curtail its loan origination and purchasing activities, which could have a material adverse effect on the Company's operations and financial position. In December 1995, the Company, through a Special Purpose Entity ("SPE") issued pass through certificates (the Bonds) secured by $105.2 million of franchise mortgage loans to various investors. The debentures consist of three separate classes, Class A, Class B and Class C, with principal balances at December 31, 1995 of approximately $92.6 million, $4.2 million and $4.2 million, respectively. The Class C bonds are subordinate to Class B and both Class B and C are subordinate to Class A. The bonds have a weighted average loan rate of 11.0%, a pass through rate of 8.59%, and an anticipated life of 13 years. The premium associated with the Bonds of $11 million was being amortized as an adjustment to interest expense over the anticipated life of the Bonds. Due to the Company's retained interest in the SPE and the disproportionate payments on the pass through certificates, the Company accounted for this transaction as a financing at December 31, 1995. In the first quarter of 1996, the Company sold its retained interest in the SPE, resulting in the deconsolidation of the SPE and a gain of $3.6 million. In October 1995, Imperial Bank extended ICII a $10 million revolving line of credit bearing interest at the prime rate (8.50% at December 31, 1995). During the quarter ended June 30, 1996, the line of credit was increased to $15 million. In April of 1996, the Company repaid its advances under this line with a portion of the proceeds from its secondary stock offering. The Company believes that SPTL, together with liquidity available at ICII and its subsidiaries, will adequately fund the Company's lending activities. Under applicable regulations, dividends and loans from SPTL to ICII and its other subsidiaries are subject to various limitations. The liquidity needs of ICII arise in operating its former mortgage banking operations, not only to meet ICII operating expenses but also for its contractual obligation as a mortgage servicer. As a mortgage servicer, ICII is required to make advances to investors when a borrower is delinquent in meeting its payment obligation. Although these advances are recaptured through a foreclosure proceeding, the uncertainty as to when an advance will be necessary requires ICII to maintain liquidity. Since December 31, 1992, ICII's liquidity needs have included $51 million to make capital contributions to SPTL. The combination of cash from operations, including servicing sales, the Company's $15 million line of credit and the net proceeds received by the Company from its Senior Note offering allowed the Company to meet its required liquidity needs for 1994 and 1995. These available sources, in addition to the proceeds received from the Company's stock offering in April, 1996 and the completion of the Company's offering of SPFC stock in June, 1996, are expected to meet the Company's needs for capital for at least the next 12 months. Current Accounting Issues In June, 1996 the Financial Accounting Standards Board issued Statement of Accounting Standards No 125, Accounting for Transfers and servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. Those standards are based on consistent application of a financial components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at a fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based in their relative fair values at the date of the transfer. SFAS 125 included specific provisions to deal with servicing assets or liabilities. These provisions retain the impairment and amortization approaches that are contained in Statement No. 122 but eliminates the distinction between normal and excess servicing. SFAS 125 will be effective for transactions occurring after December 31, 1996. It is not anticipated that the financial impact of this statement will have a material effect on Imperial Credit Industries, Inc.
PART II OTHER INFORMATION ITEM 6 EXHIBIT IMPERIAL CREDIT INDUSTRIES, INC. STATEMENT REGARDING COMPUTATION OF EARNING PER SHARE UNAUDITED (In thousands, except per share amounts) Quarter ended Nine months ended September 30, 1996 September 30, 1996 Primary earnings per share: Net income $ 9,433 $ 61,090 =============== =============== Avg. number of shares outstanding 37,895 35,385 Net effect of dilutive stock options- Based on treasury stock method using average market price 2,487 2,690 -------------- --------------- Total average shares 40,382 38,075 Primary earnings per share $ 0.23 $ 1.60 =============== =============== Fully diluted earnings per share: Net income $ 9,433 $ 61,090 =============== =============== Avg. number of shares outstanding 37,895 35,385 Net effect of dilutive stock options- Based on treasury stock method using greater of ending or average 2,675 2,908 market price -------------- --------------- Total average shares 40,570 38,293 Fully diluted earnings per share: $ 0.23 $ 1.60 =============== ===============
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMPERIAL CREDIT INDUSTRIES, INC. Date: November 14, 1996 By: /s/Kevin Villani Kevin Villani Executive Vice President and CFO EX-27 2
9 1,000 9-MOS 12-MOS DEC-31-1995 DEC-31-1995 JAN-01-1996 JAN-01-1995 SEP-30-1996 DEC-31-1995 57,938 39,166 314,192 267,776 0 0 0 0 0 0 24,837 28,713 0 0 1,629,923 2,024,310 14,461 13,729 2,246,137 2,510,635 1,052,352 1,092,989 738,045 1,070,815 146,302 60,262 88,169 192,467 0 0 0 0 142,943 51,981 0 0 221,349 94,102 139,284 120,244 2,831 6,630 6,957 2,608 149,072 129,482 0 0 100,067 95,728 48,305 33,754 6,142 5,450 0 0 72,744 61,180 118,785 24,130 61,090 14,193 0 0 0 0 61,090 14,193 1.60 .41 1.60 .40 0 0 46,585 30,988 0 0 0 0 0 0 13,729 16,824 (5,523) (3,106) 113 11 14,461 13,729 14,461 13,729 0 0 0 0 -----END PRIVACY-ENHANCED MESSAGE-----