-----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, FTnQhyJZCwuo+ZqiI4XsJGbHCxNveaf4ek23uxqpCN4RRMWiBmncEwsWqog6nkVI zlBAC4nMW2IWZu5IwandmQ== 0000944209-99-001787.txt : 19991117 0000944209-99-001787.hdr.sgml : 19991117 ACCESSION NUMBER: 0000944209-99-001787 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: SEC FILE NUMBER: 000-19861 FILM NUMBER: 99755697 BUSINESS ADDRESS: STREET 1: 23550 HAWTHORNE BLVD STREET 2: STE 110 CITY: TORRANCE STATE: CA ZIP: 90505 BUSINESS PHONE: 3103731704 MAIL ADDRESS: STREET 1: 23550 HAWTHORNE BLVD STREET 2: BUILDING ONE SUITE 110 CITY: TORRANCE STATE: CA ZIP: 90505 10-Q 1 FORM 10-Q FOR PERIOD ENDED 09/30/1999 ================================================================================ 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, 1999 Commission File number: 0-19861 IMPERIAL CREDIT INDUSTRIES, INC. CALIFORNIA 95-4054791 ---------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 23550 Hawthorne Boulevard, Building 1, Suite 110 Torrance, California 90505 (310) 791-8020 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 October 31, 1999 ----- -------------------------------------- Common Stock, no par value 33,142,832 ================================================================================ IMPERIAL CREDIT INDUSTRIES, INC. FORM 10-Q TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION -------------------------------
Item 1. Financial Statements Page -------------------- ---- Consolidated Balance Sheets - September 30, 1999 and December 31, 1998............... 2 Consolidated Statements of Operations - Quarter and nine months ended September 30, 1999 and 1998................................................. 3 Consolidated Statements of Cash Flows - Nine months ended September 30, 1999 and 1998 4 Consolidated Statement of Changes in Shareholders' Equity -- Nine months ended September 30, 1999.............................................. 5 Notes to Consolidated Financial Statements........................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 18 ------------------------------------------------------------------------------------- Item 3. Qualitative and Quantitative Disclosures about Market Risk.............................. 35 ----------------------------------------------------------
PART II -- OTHER INFORMATION ---------------------------- Item 1. Legal Proceedings.................................................................... 35-36 Item 2. Changes in Securities................................................................ 36 Item 3. Defaults Upon Senior Securities...................................................... 36 Item 4. Submission of Matters to a Vote of Security Holders.................................. 36 Item 5. Other Information.................................................................... 36 Item 6. Exhibit -- Statement Regarding Computation of Earnings Per Share..................... 37 Signatures........................................................................... 38
Forward Looking Statements Certain statements contained herein are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1955, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as "may", "will", "intend", "should", "expect", "anticipate", "estimate", or "continue" or the negatives thereof or other comparable terminology. The Company's actual results could differ materially from those anticipated in such forward-looking statements due to a variety of factors. These factors include but are not limited to, the demand for our products; competitive factors in the businesses in which we compete; adverse changes in the securities markets; inflation and changes in the interest rate environment that reduce margins or the fair value of financial instruments; changes in national, regional or local business conditions or economic environments; government fiscal and monetary policies; legislative or regulatory changes that affect our business; factors inherent to the valuation and pricing of commercial loans; other factors generally understood to affect the value of commercial loans; and the other risks detailed in the Company's 8-K dated May 17, 1999 as filed with the Securities and Exchange Commission (the "SEC"); periodic reports on Forms 10-Q, 8-K and 10-K and any amendments with respect thereto filed with the SEC; and other filings made by the Company with the SEC. We wish to caution readers not to place undue reliance on any such forward- looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect our company's financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. We do not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. 1 ITEM 1. FINANCIAL STATEMENTS -------------------- IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited)
September 30, December 31, ------------- ------------ 1999 1998 ---- ---- ASSETS Cash........................................................................... $ 123,737 $ 297,772 Interest bearing deposits...................................................... 5,808 1,415 Investment in Federal Home Loan Bank stock..................................... 6,864 4,657 Securities held for trading, at market......................................... 71,622 162,356 Securities available for sale, at market....................................... 71,717 68,410 Loans and leases held for sale................................................. 313,061 319,061 Loans held for investment, net................................................. 1,301,136 1,320,095 Servicing rights............................................................... 607 4,329 Retained interest in loan and lease securitizations............................ 21,915 27,011 Accrued interest receivable.................................................... 8,680 10,114 Premises and equipment, net.................................................... 10,631 11,664 Other real estate owned and other repossessed assets, net...................... 6,151 14,024 Goodwill....................................................................... 35,192 37,498 Equity interest in Franchise Mortgage Acceptance Company....................... 56,182 56,334 Other assets................................................................... 35,311 35,631 Net assets of discontinued operations.......................................... 41,886 46,812 ---------- ---------- Total assets................................................................ $2,110,500 $2,417,183 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits....................................................................... $1,571,732 $1,711,328 Borrowings from Federal Home Loan Bank......................................... -- 20,000 Other borrowings............................................................... 1,220 102,270 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company ("ROPES")........... 61,750 70,000 Senior Notes................................................................... 197,763 219,858 Accrued interest payable....................................................... 17,163 25,421 Accrued income taxes payable................................................... 10,665 3,840 Minority interest in consolidated subsidiaries................................. 1,532 3,217 Other liabilities.............................................................. 22,024 27,728 ---------- ---------- Total liabilities........................................................... 1,883,849 2,183,662 ---------- ---------- Series B 11.5% mandatorily redeemable cumulative preferred stock, no par value ($25 liquidation preference per share). Authorized 1,200,000 shares; 1,200,000 and none issued and outstanding at September 30, 1999 and December 31, 1998, respectively............................................... 30,000 -- Shareholders' equity: Preferred stock, 6,800,000 shares authorized; none issued or outstanding....... -- -- Common stock, no par value. Authorized 80,000,000 shares; 33,142,832 and 36,785,898 shares issued and outstanding at September 30, 1999 and December 31, 1998, respectively............................................. 96,928 129,609 Retained earnings.............................................................. 90,369 101,265 Shares held in deferred executive compensation plan............................ 7,164 3,833 Accumulated other comprehensive income (loss)- unrealized gain (loss) on securities available for sale, net.................. 2,190 (1,186) ---------- ---------- Total shareholders' equity.................................................. 196,651 233,521 ---------- ---------- Total liabilities and shareholders' equity.................................. $2,110,500 $2,417,183 ========== ==========
See accompanying notes to consolidated financial statements 2 IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE DATA) (unaudited)
Quarter Ended Nine Months Ended ------------- ----------------- September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Interest on loans and leases...................................... $43,416 $ 51,811 $133,121 $ 149,227 Interest on investments........................................... 5,445 8,856 18,507 19,294 Interest on other finance activities.............................. 617 1,183 3,163 4,844 ------- --------- -------- --------- Total interest income.......................................... 49,478 61,850 154,791 173,365 Interest on deposits.............................................. 21,278 24,055 63,886 62,253 Interest on other borrowings...................................... 824 1,100 2,771 4,494 Interest on long term debt........................................ 8,294 7,618 23,433 22,726 ------- --------- -------- --------- Total interest expense......................................... 30,396 32,773 90,090 89,473 ------- --------- -------- --------- Net interest income............................................ 19,082 29,077 64,701 83,892 Provision for loan and lease losses............................... 3,675 9,500 28,130 16,800 ------- --------- -------- --------- Net interest income after provision for loan and lease losses..... 15,407 19,577 36,571 67,092 ------- --------- -------- --------- Gain on sale of loans and leases.................................. 1,159 3,807 4,919 12,652 Asset management fees............................................. 2,479 2,207 8,489 4,987 Investment banking and brokerage fees............................. 7,956 2,175 19,867 13,142 Loan servicing income............................................. 1,489 3,326 4,928 9,112 Gain (loss) on sale of securities................................. 1,833 (571) 3,098 (564) Equity in net income of Southern Pacific Funding Corporation...... -- -- -- 12,739 Equity in net income (loss) of Franchise Mortgage Acceptance Company.......................................................... -- 507 (53) 7,093 Mark to market on securities and loans held for sale.............. (422) (42,063) (25,677) (40,528) Loss on impairment of securities.................................. -- (120,138) -- (120,138) Other income...................................................... 4,803 7,407 10,100 9,940 ------- --------- -------- --------- Total other income............................................. 19,297 (143,343) 25,671 (91,565) ------- --------- -------- --------- Total net revenue................................................. 34,704 (123,766) 62,242 (24,473) ------- --------- -------- --------- Expenses: Personnel expense................................................. 11,822 15,494 36,497 38,629 Commission expense................................................ 2,397 2,291 7,986 6,969 Amortization of servicing rights.................................. 78 437 4,116 1,138 Occupancy expense................................................. 1,347 1,604 4,046 4,308 Net expense (income) of other real estate owned................... 240 (671) 1,138 (742) Professional services............................................. 2,141 3,344 8,068 7,971 Telephone and other communications................................ 890 1,479 2,821 2,637 Amortization of goodwill.......................................... 753 585 2,306 1,901 Provision for loss on repurchase of former mortgage banking loans............................................................ -- 4,750 -- 4,750 General and administrative expense................................ 5,565 10,019 18,948 21,466 ------- --------- -------- --------- Total expenses................................................. 25,233 39,332 85,926 89,027 ------- --------- -------- --------- Income (loss) from continuing operations before income taxes, minority interest and extraordinary item........................ 9,471 (163,098) (23,684) (113,500) Income taxes...................................................... 3,530 (64,516) (10,453) (46,155) Minority interest in income (loss) of consolidated subsidiaries... 646 (1,808) 613 (1,574) ------- --------- -------- --------- Income (loss) from continuing operations.......................... 5,295 (96,774) (13,844) (65,771) Operating loss from discontinued operations of AMN, net of income taxes..................................................... (722) (1,390) (722) (3,232) Loss on Disposal of AMN, including provision of $3.7 million for operating losses during phase-out period (less applicable income taxes of $7.5 million)................................... -- (11,276) -- (11,276) ------- --------- -------- --------- Income (loss) before extraordinary item........................... 4,573 (109,440) (14,566) (80,279) Extraordinary item--Gain on early extinguishment of debt, net of income taxes.............................................. 3,670 -- 3,670 -- ------- --------- -------- --------- Net income (loss).............................................. $ 8,243 $(109,440) $(10,896) $ (80,279) ======= ========= ======== ========= Comprehensive income: Other comprehensive income (loss), net.......................... 352 2,851 3,376 (1,899) ------- --------- -------- --------- Comprehensive income (loss)..................................... $ 8,595 $(106,589) $ (7,520) $ (82,178) ======= ========= ======== ========= Basic income per share: Income (loss) from continuing operations.......................... $ 0.16 $ (2.50) $ (0.40) $ (1.70) Operating loss from discontinued operations, net of income taxes............................................................ (0.02) (0.04) (0.02) (0.08) Loss on disposal of AMN, net of income taxes...................... -- (0.29) -- (0.29) Extraordinary item--Gain on early extinguishment of debt, net of income taxes.............................................. 0.11 -- 0.11 -- ------- --------- -------- --------- Net income (loss) per common share................................ $ 0.25 $ (2.83) $ (0.31) $ (2.07) ======= ========= ======== ========= Diluted income per share: Income (loss) from continuing operations.......................... $ 0.16 $ (2.50) $ (0.40) $ (1.70) Operating loss from discontinued operations, net of income taxes..................................................... (0.02) (0.04) (0.02) (0.08) Loss on disposal of AMN, net of income taxes...................... -- (0.29) -- (0.29) Extraordinary item--Gain on early extinguishment of debt, net of income taxes................................... 0.10 -- 0.11 -- ------- --------- -------- --------- Net income (loss) per common share................................ $ 0.24 $ (2.83) $ (0.31) $ (2.07) ======= ========= ======== =========
See accompanying notes to consolidated financial statements 3 IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months Ended September 30, ------------------------------- 1999 1998 ---- ---- (In thousands) Cash flows from operating activities: (Loss) from continuing operations................................................... $ (13,844) $ (65,771) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Cash used in discontinued operations.............................................. (6,075) (4,861) Provision for loan and lease losses............................................... 28,130 16,800 Mark to market on securities and loans held for sale.............................. 25,677 40,528 Provision for loss on repurchase of former mortgage banking operations............ -- 4,750 Loss on impairment of securities.................................................. -- 120,138 Depreciation...................................................................... 3,300 2,600 Amortization of goodwill.......................................................... 2,306 1,901 Amortization of servicing rights.................................................. 4,116 1,138 Accretion of discount............................................................. (3,163) (4,844) Gain on sale of loans and leases.................................................. (4,919) (12,652) Gain (loss) on sale of securities................................................. (3,098) 564 Equity in net income of SPFC...................................................... -- (12,739) Equity in net loss (income) of FMC................................................ 53 (7,093) Loss on sale of OREO.............................................................. 631 501 Writedowns (recovery) on OREO..................................................... 236 (1,515) Originations of loans held for sale............................................... (336,200) (514,900) Sales and collections on loans held for sale...................................... 322,319 322,650 Purchase of trading securities.................................................... (5,000) (39,210) Sale of trading securities........................................................ 100,089 79,751 Net change in accrued interest receivable......................................... 1,434 (1,412) Net change in retained interest in loan and lease securitizations................. (4,306) (4,713) Other, net........................................................................ 8,242 (51,137) --------- --------- Net cash provided by (used in) operating activities................................. 119,928 (129,526) --------- --------- Cash flows from investing activities: Net (increase) decrease in interest bearing deposits.............................. (4,393) 89,551 Purchases of securities available for sale........................................ (13,222) (16,827) Sale of securities available for sale............................................. 4,875 8,309 Proceeds from sale of Impac Mortgage Holdings stock............................... 10,364 415 Proceeds from sale of ICCMIC stock................................................ 5,437 -- Purchase of stock in Federal Home Loan Bank....................................... (1,983) -- Redemption of stock in Federal Home Loan Bank..................................... -- 1,209 Increase in loans held for investment............................................. (14,968) (101,711) Proceeds from sale of other real estate owned..................................... 8,399 9,428 Purchases of premises and equipment............................................... (2,855) (5,769) --------- --------- Net cash used in investing activities............................................... (8,346) (15,395) --------- --------- Cash flows from financing activities: Net (decrease) increase in deposits............................................... (139,596) 555,375 Advances from Federal Home Loan Bank.............................................. 30,000 44,500 Repayments of advances from Federal Home Loan Bank................................ (50,000) (69,500) Net change in other borrowings.................................................... (101,050) (124,297) Proceeds from issuance of mandatorily redeemable cumulative preferred stock........................................................................... 30,000 -- Repurchase of common stock....................................................... (29,460) (23,499) Repurchase of Senior Notes....................................................... (17,308) -- Repurchase of company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company......................................................................... (6,628) -- Net change in minority interest................................................... (1,685) (88) Proceeds from exercise of stock options........................................... 110 989 --------- --------- Net cash (used in) provided by financing activities................................. (285,617) 383,480 --------- --------- Net change in cash.................................................................. (174,035) 238,559 Cash at beginning of period......................................................... 297,772 45,379 --------- --------- Cash at end of period............................................................... $ 123,737 $ 283,938 ========= =========
See accompanying notes to consolidated financial statements 4 IMPERIAL CREDIT INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS) (unaudited)
Shares held Unrealized in deferred gain (loss) on Number of executive securities Total shares Common Retained compensation available Shareholders' outstanding Stock earnings plan for sale, net equity ------------ ---------- ---------- ------------ ------------- ------------- Balance, December 31, 1998................ 36,786 $129,609 $101,265 $3,833 $(1,186) $233,521 Exercise of stock options................. 39 110 -- -- -- 110 Repurchase and retirement of stock........ (3,682) (29,460) -- -- -- (29,460) Purchase of stock held in deferred executive compensation plan.............. -- (3,331) -- 3,331 -- -- Decrease in unrealized loss on securities available for sale, net....... -- -- -- -- 3,376 3,376 Net loss for the nine months ended September 30, 1999....................... -- -- (10,896) -- -- (10,896) ------ -------- -------- ------ ------- -------- Balance, September 30, 1999............... 33,143 $ 96,928 $ 90,369 $7,164 $ 2,190 $196,651 ====== ======== ======== ====== ======= ========
See accompanying notes to consolidated financial statements 5 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization Imperial Credit Industries, Inc., was incorporated in 1991 in the State of California. The consolidated financial statements include Imperial Credit Industries, Inc. ("ICII"), and its wholly or majority owned consolidated subsidiaries (collectively, the "Company"). The wholly-owned subsidiaries include but are not limited to Southern Pacific Bank ("SPB"), Imperial Business Credit Inc. ("IBC"), Imperial Credit Commercial Asset Management Corporation ("ICCAMC"), Imperial Credit Lender Services, Inc. ("ICLS") formerly Statewide Documentation, Inc. and Imperial Credit Asset Management, Inc. ("ICAM"). Imperial Capital Group, LLC ("ICG") is a majority owned consolidated subsidiary which is approximately 60% owned by the Company and approximately 40% owned by ICG's management. Prior to November 1, 1999, the Company held a significant equity interest in a publicly traded company - Franchise Mortgage Acceptance Company ("FMC") (Nasdaq Symbol: FMAX) (See Note 12. - "Subsequent Events - FMAX Transaction"). All material inter-company balances and transactions with consolidated subsidiaries have been eliminated. 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, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 1998. In preparing the consolidated financial statements, we are 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 1999 presentation. 3. Net Income (Loss) Per Share Information The following table reconciles the number of shares used in the computations of basic and diluted income (loss) per share for the quarter and nine months ended September 30, 1999 and 1998:
For the For the nine month quarter ended September 30, period ended September 30, 1999 1998 1999 1998 ---- ---- ---- ---- Weighted-average common shares outstanding during the year used to compute basic income (loss) per share............. 33,142,832 38,604,536 34,974,789 38,699,267 Assumed common shares issued on exercise of stock options........................................................ 992,742 -- -- -- ---------- ---------- ---------- ---------- Number of common shares used to compute diluted income (loss) per share............................................... 34,135,574 38,604,536 34,974,789 38,699,267 ========== ========== ========== ==========
4. Comprehensive Income (Loss) Our comprehensive income (loss) is comprised of net income plus the change in the unrealized gain (loss) on securities available for sale, net for all periods reported. Comprehensive income (loss) for the quarter and nine months ended September 30, 1999 totaled $8.6 million and ($7.5) million, as compared to ($106.6) million and ($82.2) million for the same periods last year, respectively. Accumulated other comprehensive income, consisting of the net unrealized gain on securities available for sale at September 30, 1999 was $2.2 million as compared to an unrealized loss of $27,000 at September 30, 1998. 6 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Discontinued Operations During the quarter ended September 30, 1998, management decided to cease operations at Auto Marketing Network, Inc. ("AMN"). Accordingly, a disposal plan was formulated, whereby the daily operations of AMN were terminated over a two-month period. For the quarter ended September 30, 1999, AMN incurred additional operating losses of $722,000, net of income taxes, primarily related to legal expenses and mark-to-market adjustments on AMN securities. The net assets of AMN's discontinued operations were as follows: (In thousands)
At September 30, At December 31, ---------------- --------------- 1999 1998 ---- ---- Loans held for sale, net $ 5,951 $15,161 Securities held for sale 8,303 7,844 Retained interest in loan securitizations 12,149 11,280 Income taxes receivable 12,367 10,725 Other assets 3,116 1,802 ------- ------- Total AMN net assets $41,886 $46,812 ======= =======
At September 30, 1999, AMN had no outstanding warehouse lines of credit. At December 31, 1998 AMN's $9.2 million warehouse line of credit with Greenwich Capital Financial is classified as other borrowings in the consolidated financial statements. Total non-performing AMN loans were $1.6 million at September 30, 1999 as compared to $4.6 million at December 31, 1998. AMN ceased originating loans during the third quarter of 1998. AMN originated $2.7 million and $10.8 million in sub-prime auto loans during the quarter and nine months ended September 30, 1998. 6. Loan and Lease Commitments At September 30, 1999, our consolidated lending commitments were as follows: (In thousands)
Commitment Funded Unfunded Type of Lending Commitment Amount Amount Commitment - -------------------------- ---------- ----------- ---------- Loan and line commitments $2,607,987 $1,318,365 $1,289,622 Standby letters of credit 18,221 -- 18,221 Commercial letters of credit 257 -- 257 ---------- ---------- ---------- $2,626,465 $1,318,365 $1,308,100 ========== ========== ==========
7. Loans and Leases Held for Sale Loans held for sale consisted of the following at September 30, 1999 and December 31, 1998:
At September 30, At December 31, ---------------- ---------------- 1999 1998 ---- ---- (In thousands) Loans secured by real estate: One-to-four family................................................. $ 15,721 $ 71,189 Multi-family and commercial........................................ 271,460 143,763 -------- -------- 287,181 214,952 Automobile loans...................................................... -- 64,337 Installment loans..................................................... 15,989 29,384 Leases................................................................ 9,891 10,388 -------- -------- $313,061 $319,061 ======== ========
7 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8. Equity Interest in Franchise Mortgage Acceptance Company ("FMC") As of September 30, 1999, we owned 11,023,492 shares of FMC common stock. Effective July 1, 1999, we began accounting for this investment under the cost method of accounting. Previously, we accounted for our investment in FMC under the equity method of accounting. We changed our method of accounting for FMC since we determined that we did not have the ability to exercise significant influence over FMC, and the quarterly results of FMC were not made available, and are not expected to be made available to our company. In November 1999 we sold substantially all of our shares of FMC common stock and the Bay View common stock we received in the FMC/Bay View merger resulting in a gain of approximately $30.1 million. (See Footnote 12. - "Subsequent Events - FMAX Transaction.") 9. Repurchase of Long Term Debt During the quarter ended September 30, 1999, we repurchased $16.1 million, $6.1 million and $8.3 million of our Senior Notes due 2007, 2004 and our Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Debentures of the Company ("ROPES"), respectively, resulting in an extraordinary gain relating to the early extinguishment of debt of $3.7 million or $0.10 diluted net income per share for the quarter ended September 30, 1999 and $0.11 diluted net income per share for the nine months ended September 30, 1999. The repurchase of our long term debt through September 30, 1999 will result in annual interest savings before income taxes of $3.1 million, or $0.06 per diluted share after income taxes. (See Footnote 12.--"Subsequent events-Additional Repurchases of Senior Notes") 10. Deferred Executive Compensation Plan On July 1, 1998 we established a deferred executive compensation plan. During the quarter ended September 30, 1999, our management and directors made net investments of $369,000 with the plan's trustee who acquired 76,516 shares of common stock at an average price of $4.82 per share. From the plan's inception through September 30, 1999, our management and directors made net investments of $7.2 million with the plan's trustee who acquired 810,759 shares of common stock at an average price of $8.84 per share. All shares acquired by the plan's trustee are acquired for the benefit of the Company's participating management and directors. 8 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. Business Segments Business segment financial information is reported on the basis that is used internally by management in making decisions related to resource allocation and segment performance. Our reportable segments are operated and managed as strategic business units and are organized based on products and services. Business units operated at different locations are aggregated for reporting purposes when their products and services are similar. Our operations are divided into ten business segments as follows: 1. Loan Participation and Investment Group 6. Imperial Business Credit 2. Coast Business Credit 7. De-emphasized/Discontinued/Exited Businesses 3. Imperial Warehouse Finance (Formerly PrinCap 8. Equity Interests Mortgage Warehouse, Inc.) 4. Income Property Lending Division 9. Asset Management Activities 5. Imperial Capital Group, LLC 10. Other Core Operations
The following is a summary of our results of operations by business line for the quarter and nine months ended September 30, 1999 as compared to September 30, 1998.
At or for the quarter ended September 30, ----------------------------------------- (In thousands) -------------- External Net Net Revenue Net Income (Loss) ----------------------- From Other From Continuing Revenue Operating Units Operations Total Assets ----------------------- ----------------- ------------------------- ------------------------- Business Line 1999 1998 1999 1998 1999 1998 1999 1998 - ------------- --------- ----------- ------- ------- ---------- ------------ ----------- ----------- Coast Business Credit $13,072 $ 8,079 $ -- $ -- $ 4,338 $ 1,419 $ 707,640 $ 620,426 Imperial Warehouse Finance 2,270 2,720 -- -- 939 1,112 154,985 174,151 Income Property Lending 2,496 4,765 -- -- 313 1,157 284,900 122,650 Imperial Business Credit 1,545 (774) (343) 123 (936) (2,031) 44,293 43,335 Loan Participation and Investment Group (1,906) 2,121 -- -- (1,384) 917 272,696 187,129 Imperial Capital Group, LLC 7,873 3,247 -- -- 967 (1,808) 9,139 5,537 Asset Management Activities 2,473 1,505 (66) (99) 69 (197) 3,096 2,808 Other Core Operations 2,380 (48,634) (224) 114 (125) (34,486) 205,185 229,908 Equity Interests (142) (81,999) -- -- (130) (49,231) 59,554 62,305 De-emphasized/Discontinued /Exited Businesses 4,430 (13,796) 633 (138) 1,155 (13,197) 425,587 907,938 Eliminations 213 (1,000) -- -- 89 (429) (56,575) (30,875) ------- --------- ----- ----- ------- -------- ---------- ---------- Net income (loss) from continuing operations $34,704 $(123,766) $ -- $ -- $ 5,295 $(96,774) $2,110,500 $2,325,312 ======= ========= ===== ===== ======= ======== ========== ==========
9 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
At or for the nine months ended September 30, --------------------------------------------- Net Revenue Net Income (Loss) From Other From Continuing (In thousands) External Net Revenue Operating Units Operations Total Assets -------------- ---------------------- ----------------- --------------------- ------------------------- Business Line 1999 1998 1999 1998 1999 1998 1999 1998 - ------------- --------- ---------- ------- ------- --------- --------- ----------- ----------- Coast Business Credit $24,202 $ 29,496 $ -- $ -- $ 4,663 $ 8,673 $ 707,640 $ 620,426 Imperial Warehouse Finance 3,315 7,066 -- -- 832 2,911 154,985 174,151 Income Property Lending 9,067 13,469 -- -- 1,355 2,946 284,900 122,650 Imperial Business Credit 5,947 7,156 (913) (740) (1,781) (1,217) 44,293 43,335 Loan Participation and Investment Group 1,995 6,862 -- -- 514 3,072 272,696 187,129 Imperial Capital Group, LLC 19,468 13,089 -- -- 780 (1,353) 9,139 5,537 Asset Management Activities 8,073 4,577 (191) (133) 313 760 3,096 2,808 Other Core Operations (1,906) (50,791) 395 1,513 (5,390) (37,298) 205,185 229,908 Equity Interests 1,020 (62,477) -- -- 438 (36,744) 59,554 62,305 De-emphasized/Discontinued /Exited Businesses (8,939) 7,080 709 (640) (15,568) (7,521) 425,587 907,938 Eliminations -- -- -- -- -- -- (56,575) (30,875) ------- -------- ----- ------ -------- -------- ---------- ---------- External net revenue and net (loss) from continuing operations $62,242 $(24,473) $ -- $ -- $(13,844) $(65,771) $2,110,500 $2,325,312 ======= ======== ===== ====== ======== ======== ========== ==========
Our parent company had provided outstanding inter-company subordinated debt to SPB of $35.0 million and ICG of $5.6 million at September 30, 1999. All inter- company receivables and payables including corresponding interest income and expense are eliminated in consolidation. Additionally, our investments in subsidiaries and inter-company management fees are included in eliminations. The net income (loss) for each business line includes inter-company allocations for administrative expenses including human resources, legal, accounting and insurance. 12. Subsequent Events Imperial Credit Commercial Mortgage Investment Company ("ICCMIC") Transaction On October 18, 1999, ICCMIC reported that the 60-day market check period during which ICCMIC was permitted to conduct an unrestricted solicitation of potentially superior proposals pursuant to the previously announced merger agreement with our company had expired. The special committee of ICCMIC's board of directors, comprised of ICCMIC's four independent directors, with advice from Prudential Securities Incorporated, determined that none of the proposals received during the 60-day market check period was superior to the proposed merger transaction with our company. The merger agreement provides that ICCMIC retains the ability to consider superior proposals, if any, received on an unsolicited basis. Upon completion of the proposed merger, ICCMIC's stockholders (other than ICII) will receive $11.57 in cash per share. The final purchase price was determined based on the Company's offer of $11.50 per share, plus a price adjustment of $.07 per share in connection with the results of an appraisal of ICII's management contract. The proposed merger is expected to be completed by early 2000. ICCMIC is a commercial mortgage real estate investment trust that has 28,500,000 outstanding common shares and total assets of approximately $700 million at September 30, 1999. We own 2,570,000 shares of ICCMIC, or 9.0% of ICCMIC's outstanding common stock, and 100% of the company ("ICCAMC") that managed ICCMIC's operations and assets through October 22, 1999. Additionally, the management agreement with ICCAMC was terminated at the close of business on October 22, 1999, and ICCMIC has internalized its management. ICCMIC, with the consent of ICCAMC, hired all of ICCAMC's employees to run ICCMIC's operations on an internalized basis. Based on the results of ICCAMC's operations for the nine months ended September 30, 1999, we expect the internalization of the ICCMIC management contract to result in a decrease in annual revenues to our company of approximately $7.0 million, and approximate decreases in annual income before income taxes and annual net income of $3.5 million, and $2.1 million, respectively. 10 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FMAX Transaction On November 1, 1999, the merger between FMC and Bay View was completed. We received $27.7 million in cash and 4.4 million shares of Bay View common stock from the sale and exchange of our 38.3% interest in FMC. On November 5, 1999, we announced the sale of 4,342,451 shares of our Bay View common stock. As a result of these transactions, we received approximately $86.3 million in total cash proceeds. We expect to report a total pre-tax gain from both transactions of $30.1 million, resulting in an approximate net after tax gain of $0.55 per diluted share in the quarter ending December 31, 1999. Additional Repurchases of Senior Notes Subsequent to September 30, 1999, we repurchased an additional $12.6 million of Senior Notes. The repurchase resulted in an extraordinary gain, net of taxes of approximately $1.5 million or $0.05 per diluted share, which we expect to report in the quarter ending December 31, 1999. The repurchase of the Senior Notes will result in annual interest savings before income taxes of $1.3 million, or $0.02 per diluted share after income taxes. Repurchase of Preferred Stock In November 1999, we repurchased and retired $30.0 million of the Series B 11.5% Mandatorily Redeemable Cumulative Preferred Stock, no par value. The repurchase resulted in an extraordinary loss, net of income taxes of approximately $1.2 million or $0.04 per diluted share, which we expect to report in the quarter ending December 31, 1999. The repurchase of the Preferred Stock will result in annual interest savings before income taxes of $4.4 million, or $0.13 per diluted share after income taxes. Lewis Horwitz Organization Acquisition On October 1, 1999 we acquired the Lewis Horwitz Organization ("LHO") located in Los Angeles, California in an asset purchase transaction. LHO is an internationally recognized commercial finance company engaged in providing financing for independent motion picture and television productions. LHO typically lends to independent producers of film and television programs on a senior secured basis, basing its credit decisions on the creditworthiness and reputation of distributors and sales agents who have contracted to distribute the films or television productions. We believe this acquisition continues our strategy of investing in companies that create commercial finance opportunities and diversification of our lending activities. 11 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 13. Consolidating Financial Information The following represents condensed consolidating financial information at September 30, 1999 and December 31, 1998, and for the nine months ended September 30, 1999 and 1998, with respect to the financial position, results of operations and cash flows of our company and our wholly-owned and majority-owned subsidiaries. On January 17, 1997, we sold $200.0 million of 9.875% Senior Notes due 2007 and on June 9, 1997, we sold $70.0 million of 10.25% ROPES, of which $183.9 million and $61.8 million are outstanding as of September 30, 1999, respectively. As of September 30, 1999, the 9.875% Senior Notes and the ROPES are guaranteed by five of our wholly owned subsidiaries, IBC, ICAI, ICCAMC, Imperial Credit Worldwide ("ICW") and AMN (the "Guarantor Subsidiaries"). As of September 30, 1999, the non-guarantor subsidiaries are SPB, ICG and Imperial Credit Capital Trust I ("ICCTI"). Each of the guarantees is full and unconditional and joint and several. The summarized consolidated financial information is presented in lieu of separate financial statements and other related disclosures of the wholly-owned subsidiary guarantors as we have determined that such information is not material to investors. None of the subsidiary guarantors is restricted from making distributions to our parent company. CONSOLIDATING CONDENSED BALANCE SHEET SEPTEMBER 30, 1999
Non- Guarantor Guarantor ICII Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------- ------------ (In thousands) ASSETS ------ Cash.................................................... $ 23,805 $ -- $ 121,185 $ (21,253) $ 123,737 Interest bearing deposits............................... 6,396 -- (588) -- 5,808 Investment in Federal Home Loan Bank stock.............. -- -- 6,864 -- 6,864 Trading and available for sale securities............... 94,709 10,995 50,635 (13,000) 143,339 Loans and leases held for sale.......................... 1,604 9,891 301,566 -- 313,061 Loans and leases held for investment, net............... 43,097 9,266 1,291,473 (42,700) 1,301,136 Equity interest in FMC.................................. 56,182 -- -- -- 56,182 Servicing rights........................................ -- 607 -- -- 607 Retained interest in loan and lease securitizations..... -- 21,915 -- -- 21,915 Investment in subsidiaries.............................. 269,276 -- -- (269,276) -- Goodwill................................................ -- 15,891 19,301 -- 35,192 Net assets of discontinued operations................... 48,613 (6,727) -- -- 41,886 Other assets............................................ (12,879) 48,393 26,134 (875) 60,773 -------- -------- ---------- --------- ---------- Total assets.......................................... $530,803 $110,231 $1,816,570 $(347,104) $2,110,500 ======== ======== ========== ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Deposits................................................ $ -- $ 506 $1,592,479 $ (21,253) $1,571,732 Other borrowings........................................ 1,220 7,701 35,875 (43,576) 1,220 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company ("ROPES").................... 63,915 (2,165) -- -- 61,750 Senior Notes............................................ 197,763 -- -- -- 197,763 Minority interest in consolidated subsidiaries.......... (628) -- 88 2,072 1,532 Other liabilities....................................... 41,882 9,454 (1,484) -- 49,852 -------- -------- ---------- --------- ---------- Total liabilities..................................... 304,152 15,496 1,626,958 (62,757) 1,883,849 -------- -------- ---------- --------- ---------- Series B 11.5% mandatorily redeemable cumulative preferred stock........................................ 30,000 -- -- -- 30,000 Shareholders' equity: Preferred stock......................................... -- 15,000 -- (15,000) -- Common stock............................................ 96,928 118,204 114,214 (232,418) 96,928 Retained earnings....................................... 90,369 (45,633) 75,629 (29,996) 90,369 Shares held in executive deferred compensation plan..... 7,164 7,164 -- (7,164) 7,164 Accumulated other comprehensive income (loss)........... 2,190 -- (231) 231 2,190 -------- -------- ---------- --------- ---------- Total shareholders' equity............................ 196,651 94,735 189,612 (284,347) 196,651 -------- -------- ---------- --------- ---------- Total liabilities and shareholders' equity............ $530,803 $110,231 $1,816,570 $(347,104) $2,110,500 ======== ======== ========== ========= ==========
12 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 31, 1998
Non- Guarantor Guarantor ICII Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------- ------------- (In thousands) ASSETS ------ Cash.................................................... $ 3,224 $ 725 $ 296,259 $ (2,436) $ 297,772 Interest bearing deposits............................... 2,281 423 (1,289) -- 1,415 Investment in Federal Home Loan Bank stock.............. -- -- 4,657 -- 4,657 Trading and available for sale securities............... 118,622 8,421 113,723 (10,000) 230,766 Loans and leases held for sale.......................... 1,698 33,160 284,203 -- 319,061 Loans and leases held for investment, net............... 45,029 7,467 1,302,599 (35,000) 1,320,095 Equity interest in FMC.................................. 56,334 -- -- -- 56,334 Servicing rights........................................ -- 365 3,964 -- 4,329 Retained interest in loan and lease securitizations..... -- 27,011 -- -- 27,011 Investment in subsidiaries.............................. 276,863 -- -- (276,863) -- Goodwill................................................ -- 16,959 20,539 -- 37,498 Net assets of discontinued operations................... 43,624 3,188 -- -- 46,812 Other assets............................................ 32,248 12,200 28,910 (1,925) 71,433 -------- -------- ---------- --------- ---------- Total assets.......................................... $579,923 $109,919 $2,053,565 $(326,224) $2,417,183 ======== ======== ========== ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY -------------------- Deposits................................................ $ -- $ -- $1,713,765 $ (2,437) $1,711,328 Borrowings from FHLB.................................... -- -- 20,000 -- 20,000 Other borrowings........................................ 20,481 15,097 103,617 (36,925) 102,270 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company ("ROPES").................... 72,165 (2,165) -- -- 70,000 Senior Notes............................................ 219,858 -- -- -- 219,858 Minority interest in consolidated subsidiaries.......... (628) 2,109 133 1,603 3,217 Other liabilities....................................... 34,526 7,253 15,210 -- 56,989 -------- -------- ---------- --------- ---------- Total liabilities..................................... 346,402 22,294 1,852,725 (37,759) 2,183,662 -------- -------- ---------- --------- ---------- Shareholders' equity: Preferred stock......................................... -- 12,000 -- (12,000) -- Common stock............................................ 129,609 135,279 114,258 (249,537) 129,609 Retained earnings....................................... 101,265 (63,487) 86,582 (23,095) 101,265 Shares held in deferred executive compensation plan..... 3,833 3,833 -- (3,833) 3,833 Accumulated other comprehensive loss.................... (1,186) -- -- -- (1,186) -------- -------- ---------- --------- ---------- Total shareholders' equity............................ 233,521 87,625 200,840 (288,465) 233,521 -------- -------- ---------- --------- ---------- Total liabilities and shareholders' equity............ $579,923 $109,919 $2,053,565 $(326,224) $2,417,183 ======== ======== ========== ========= ==========
13 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATING CONDENSED INCOME STATEMENT NINE MONTHS ENDED SEPTEMBER 30, 1999
Non- Guarantor Guarantor ICII Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------- ------------- (In thousands) Revenue: Interest income......................................... $ 12,962 $ 8,003 $137,337 $(3,511) $154,791 Interest expense........................................ 23,767 1,292 68,542 (3,511) 90,090 -------- ------- -------- ------- -------- Net interest income..................................... (10,805) 6,711 68,795 -- 64,701 Provision for loan and lease losses..................... 210 90 27,830 -- 28,130 -------- ------- -------- ------- -------- Net interest (expense) income after provision for loan and lease losses................................ (11,015) 6,621 40,965 -- 36,571 -------- ------- -------- -------- Gain on sale of loans and leases........................ 20 3,117 1,782 -- 4,919 Asset management fees................................... -- 8,489 -- -- 8,489 Investment banking and brokerage fees................... -- -- 19,867 -- 19,867 Loan servicing (expense) income......................... (69) 2,947 2,050 -- 4,928 Gain on sale of securities.............................. 1,343 148 1,607 -- 3,098 Equity in net loss of FMC............................... (53) -- -- -- (53) Mark to market on securities and loans held for sale.... 6,373 (7,371) (24,679) -- (25,677) Dividends received from subsidiaries.................... 2,007 -- -- (2,007) -- Other income............................................ 1,473 2,428 6,199 -- 10,100 -------- ------- -------- ------- -------- Total other income.................................... 11,094 9,758 6,826 (2,007) 25,671 -------- ------- -------- ------- -------- Total net revenue.................................. 79 16,379 47,791 (2,007) 62,242 -------- ------- -------- ------- -------- Expenses: Personnel and commission expense........................ 1,324 10,877 32,282 -- 44,483 Amortization of servicing rights........................ -- 152 3,964 -- 4,116 Occupancy expense....................................... 491 660 2,895 -- 4,046 Net expense of other real estate owned.................. 6 654 478 -- 1,138 Professional services................................... 2,425 1,947 3,696 -- 8,068 Telephone and other communications...................... 91 461 2,269 -- 2,821 Amortization of goodwill................................ -- 1,068 1,238 -- 2,306 General and administrative expense...................... 1,791 2,616 14,541 -- 18,948 -------- ------- -------- -------- Total expenses........................................ 6,128 18,435 61,363 -- 85,926 -------- ------- -------- ------- -------- Loss before income taxes, minority interest, and equity in undistributed income of subsidiaries................ (6,049) (2,056) (13,572) (2,007) (23,684) Income taxes............................................ (3,274) (985) (6,194) -- (10,453) Minority interest in income (loss) of consolidated subsidiaries............................ 703 (49) (21) (20) 613 -------- ------- -------- ------- -------- Loss before discontinued operations..................... (3,478) (1,022) (7,357) (1,987) (13,844) Loss from discontinued operations....................... -- (722) -- -- (722) Extraordinary item-gain on early extinguishment of debt, net of income taxes.................................... 3,670 -- -- -- 3,670 Equity in undistributed (loss) income of consolidated subsidiaries........................................... (11,088) -- -- 11,088 -- -------- ------- -------- ------- -------- Net (loss) income..................................... $(10,896) $(1,744) $ (7,357) $ 9,101 $(10,896) ======== ======= ======== ======= ========
14 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATING CONDENSED INCOME STATEMENT NINE MONTHS ENDED SEPTEMBER 30, 1998
Non- Guarantor Guarantor ICII Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------- ------------- (In thousands) Revenue: Interest income......................................... $ 23,132 $ 8,531 $145,053 $(3,351) $ 173,365 Interest expense........................................ 22,751 547 69,526 (3,351) 89,473 --------- -------- -------- ------------ --------- Net interest income..................................... 381 7,984 75,527 -- 83,892 Provision for loan and lease losses..................... 4,500 1,300 11,000 -- 16,800 --------- -------- -------- ------------ --------- Net interest (expense) income after provision for loan and lease losses................................ (4,119) 6,684 64,527 -- 67,092 --------- -------- -------- ------------ --------- Gain on sale of loans and leases........................ 46 3,977 8,629 -- 12,652 Asset management fees................................... -- 4,987 -- -- 4,987 Investment banking fees................................. -- -- 13,142 -- 13,142 Loan servicing (expense) income......................... (489) 3,847 5,754 -- 9,112 Loss on sale of securities.............................. (198) (50) (316) -- (564) Equity in net income of SPFC............................ 12,739 -- -- -- 12,739 Equity in net income of FMC............................. 7,093 -- -- -- 7,093 Mark to market on securities and loans held for sale.... (7,087) (13,688) (19,753) -- (40,528) Loss on impairment of securities........................ (120,138) -- -- -- (120,138) Other income (expense).................................. 178 (181) 9,943 -- 9,940 --------- -------- -------- ------------ --------- Total other income.................................... (107,856) (1,108) 17,399 -- (91,565) --------- -------- -------- ------------ --------- Total net revenues................................. (111,975) 5,576 81,926 -- (24,473) --------- -------- -------- ------------ --------- Expenses: Personnel and commission expense........................ 3,847 6,952 34,799 -- 45,598 Amortization of servicing rights........................ -- -- 1,138 -- 1,138 Occupancy expense....................................... 956 714 2,638 -- 4,308 Net income of other real estate owned................... (524) (55) (163) -- (742) Professional services................................... 2,567 1,648 3,756 -- 7,971 Telephone and other communications...................... 261 334 2,042 -- 2,637 Amortization of goodwill................................ -- 713 1,188 -- 1,901 Provision for loan repurchases.......................... 4,750 -- -- 4,750 General and administrative expense...................... 2,335 2,669 16,462 -- 21,466 --------- -------- -------- ------------ --------- Total expenses........................................ 14,192 12,975 61,860 -- 89,027 --------- -------- -------- ------------ --------- (Loss) income before income taxes, minority interest, discontinued operations and extraordinary item......... (126,167) (7,399) 20,066 -- (113,500) Income taxes............................................ (56,203) (32) 10,080 -- (46,155) Minority interest in (loss) income of consolidated subsidiaries.............................. -- (78) 39 (1,535) (1,574) --------- -------- -------- ------------ --------- (Loss) income before discontinued operations............ (69,964) (7,289) 9,947 1,535 (65,771) Loss from discontinued operations, net of income taxes.. -- (3,232) -- -- (3,232) Loss on disposal of AMN, net of income taxes............ -- (11,276) -- -- (11,276) --------- -------- -------- ------------ --------- (Loss) income before equity in undistributed income of subsidiaries and extraordinary item.......... (69,964) (21,797) 9,947 1,535 (80,279) Equity in undistributed (loss) income of subsidiaries... (10,315) -- -- 10,315 -- --------- -------- -------- ------------ --------- Net (loss) income..................................... $ (80,279) $(21,797) $ 9,947 $11,850 $ (80,279) ========= ======== ======== ============ =========
15 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999
Non- ---- Guarantor Guarantor --------- --------- ICII Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Net cash provided by (used in) operating activities....... $ 57,243 $(7,515) $ 63,468 $ 6,732 $ 119,928 -------- ------- --------- -------- --------- Cash flows from investing activities: Net change in interest bearing deposits................. (4,115) 423 -- (701) (4,393) Sales of securities available for sale.................. 4,875 -- -- -- 4,875 Purchase of securities available for sale............... -- -- (13,222) -- (13,222) Proceeds from sale of IMH stock......................... 1,515 8,849 -- -- 10,364 Proceeds from sale of ICCMIC stock...................... 5,437 -- -- -- 5,437 Net change in loans held for investment................. (37) (3,411) (11,666) 146 (14,968) Net change in investment in subsidiaries................ (2,106) -- -- 2,106 -- Other, net.............................................. 847 3,455 (838) 97 3,561 -------- ------- --------- -------- --------- Net cash provided by (used in) investing activities....... 6,416 9,316 (25,726) 1,648 (8,346) -------- ------- --------- -------- --------- Cash flows from financing activities: Net decrease in deposits................................ -- -- (121,286) (18,310) (139,596) Advances from Federal Home Loan Bank.................... -- -- 30,000 -- 30,000 Repayments to the Federal Home Loan Bank................ -- -- (50,000) -- (50,000) Net change in other borrowings.......................... (19,261) (7,396) (67,742) (6,651) (101,050) Proceeds from issuance of mandatorily redeemable cumulative preferred stock............................. 30,000 -- -- -- 30,000 Repurchase and retirement of common stock............... (29,460) -- -- -- (29,460) Repurchase of Senior Notes.............................. (17,308) -- -- -- (17,308) Repurchase of company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company ("ROPES").................... (6,628) -- -- -- (6,628) Other, net.............................................. (421) 4,366 (3,789) (1,731) (1,575) -------- ------- --------- -------- --------- Net cash used in financing activities..................... (43,078) (3,030) (212,817) (26,692) (285,617) -------- ------- --------- -------- --------- Net change in cash...................................... 20,581 (1,229) (175,075) (18,312) (174,035) Cash at beginning of period............................. 3,224 725 296,259 (2,436) 297,772 -------- ------- --------- -------- --------- Cash at end of period................................... $ 23,805 $ (504) $ 121,184 $(20,748) $ 123,737 ======== ======= ========= ======== =========
16 IMPERIAL CREDIT INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998
Non- ---- Guarantor Guarantor --------- --------- ICII Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Net cash provided by (used in) operating activities..... $ 18,077 $(31,480) $(104,706) $(11,417) $(129,526) -------- -------- --------- -------- --------- Cash flows from investing activities: Net change in interest bearing deposits............... 18,396 489 71,200 (534) 89,551 Purchase of securities available for sale............. (16,827) -- -- -- (16,827) Proceeds from sale of OREO............................ 817 8,385 226 -- 9,428 Net change in loans held for investment............... 11,269 20,074 (105,127) (27,927) (101,711) Net change in investment in subsidiaries.............. (22,467) -- -- 22,467 -- Other, net............................................ (1,935) 8,162 (2,464) 401 4,164 -------- -------- --------- -------- --------- Net cash (used in) provided by investing activities..... (10,747) 37,110 (36,165) (5,593) (15,395) -------- -------- --------- -------- --------- Cash flows from financing activities: Net increase in deposits.............................. -- -- 521,671 33,704 555,375 Advances from Federal Home Loan Bank.................. -- -- 44,500 -- 44,500 Repayments to the Federal Home Loan Bank........................................... -- -- (69,500) -- (69,500) Net change in other borrowings........................ 1,220 (10,926) (115,653) 1,062 (124,297) Retirement of common stock............................ (23,499) -- -- -- (23,499) Other, net............................................ 989 (78) 26 (36) 901 -------- -------- --------- -------- --------- Net cash (used in) provided by financing activities..... (21,290) (11,004) 381,044 34,730 383,480 -------- -------- --------- -------- --------- Net change in cash.................................... (13,960) (5,374) 240,173 17,720 238,559 Cash at beginning of period........................... 13,229 6,668 43,318 (17,836) 45,379 -------- -------- --------- -------- --------- Cash at end of period................................. $ (731) $ 1,294 $ 283,491 $ (116) $ 283,938 ======== ======== ========= ======== =========
17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Imperial Credit Industries, Inc., is a diversified commercial banking company that was incorporated in 1991 in the State of California. Our headquarters are located in Torrance, California. Our business activities are conducted through four wholly owned subsidiaries: Southern Pacific Bank ("SPB"), Imperial Business Credit Inc. ("IBC"), Imperial Credit Lender Services, Inc. ("ICLS") formerly Statewide Documentation, Inc., and Imperial Credit Asset Management, Inc. ("ICAM"). Imperial Capital Group, LLC ("ICG") is a majority owned consolidated subsidiary which is approximately 60% owned by our company and approximately 40% owned by ICG's management. Prior to November 1, 1999, we held a significant equity interest in a publicly traded company - Franchise Mortgage Acceptance Company ("FMC") (Nasdaq Symbol: FMAX) (See "Recent Developments - "FMAX Transaction"). Our company also owns a 9% equity interest in a commercial REIT, Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC") (Nasdaq Symbol: ICMI). Through October 22, 1999, a wholly owned subsidiary of ours, Imperial Credit Commercial Asset Management Corp. ("ICCAMC"), managed the assets and operations of ICCMIC (See - "Recent Developments - ICCMIC Transaction"). Our parent company, and our subsidiaries and affiliates offer a wide variety of deposit and commercial loan products, asset management, investment banking and brokerage, and loan documentation and closing services. Our core businesses originate loans and leases funded primarily by FDIC insured deposits. Our business strategy currently emphasizes: . holding the majority of the loans and leases that we originate for investment, except for equipment leases originated by IBC for sale and certain fixed-rate commercial loans originated by SPB's Income Property Lending ("IPL") division, . investing in and managing businesses in high margin niche segments of the financial services industry , . maintaining conservative, disciplined underwriting and credit risk management, . originating loans and leases on a wholesale basis, where possible, managing and advising investment funds, . providing investment banking and broker/dealer services to middle market companies and private individuals, and . maintaining business and financial flexibility to take advantage of changing market conditions with respect to specific financial services businesses and general capital markets. We diversified our business lines to include investment products and asset management services in order to reduce our dependency on commercial lending. We now operate as a diversified commercial lending, financial services and investment banking and brokerage holding company providing financial services products in the following sectors: business lending, asset management services and investment banking and brokerage services. Overview of Consolidated Operations At September 30, 1999, our total assets were $2.1 billion as compared to $2.0 billion at June 30, 1999 and $2.4 billion at December 31, 1998. Our total net loans increased $107.9 million to $1.6 billion at September 30, 1999 from the previous quarter ended June 30, 1999. Our total net loans were $1.6 billion at December 31, 1998. Our loan and lease originations from IPL and IBC were $92.3 million and $31.2 million for the third quarter of 1999 as compared to $98.5 million and $23.0 million for the same period last year. Fundings of new commitments at Coast Business Credit ("CBC") were $77.4 million for the quarter ended September 30, 1999 as compared to $100.9 million for the same period last year. For the nine months ended September 30, 1999, IPL's and IBC's originations were $243.8 million and $91.3 million, respectively; while fundings of new commitments at CBC were $200.0 million. Originations at IPL, IBC and new commitments at CBC for the nine months ended September 30, 1998 were $270.1 million, $84.7 million and $329.5 million, respectively. Our non-performing assets and non-accrual loans and leases decreased to $65.0 million and $58.7 million at September 30, 1999 from $72.1 million and $65.1 million at June 30, 1999, respectively. The decrease in non-performing assets and non-accrual loans occurred primarily in the Loan Participation and Investment Group ("LPIG"), Imperial Warehouse Lending (formerly "PrinCap Mortgage Warehouse, Inc."), single family residential mortgage loan, and auto loan portfolios. Our non-performing assets and non-accrual loans and leases were $54.1 million and $39.5 million at December 31, 1998. The increase in non- accrual loans from December 31, 1998 primarily related to the CBC and LPIG portfolios. Our borrowings decreased by $60.4 million for the quarter ended September 30, 1999 as compared to the prior quarter end primarily due to the repurchase of $30.1 million of our Senior Notes and ROPES and SPB's payoff of $30.0 million of Federal Home Loan Bank advances. Our deposits at SPB increased $165.2 million or 11.8% during the quarter 18 ended September 30, 1999, which provided the liquidity for our loan portfolio growth at CBC and IPL. The repurchase of the Senior Notes and ROPES through September 30, 1999 will result in annual pre-tax interest savings of approximately $3.1 million, or after tax interest savings of $0.06 diluted net income per share. Consolidated Results of Operations We reported net income for the quarter ended September 30, 1999 of $8.2 million or $0.24 diluted net income per share as compared to a net loss of $109.4 million or $2.83 diluted net loss per share for the same period last year. The net loss for the nine months ended September 30, 1999 was $10.9 million or $0.31 diluted net loss per share as compared to $80.3 million or $2.07 diluted net loss per share for the same period last year. Net income or loss for the quarter and nine months ended September 30, 1999 included an extraordinary gain on the early extinguishment of debt of $3.7 million or $0.10 diluted net income per share for the quarter ended September 30, 1999 and $0.11 diluted net income per share for the nine months ended September 30, 1999 and operating losses relating to the discontinued operations of AMN of $722,000 or $0.02 diluted net loss per share, respectively. The net loss for the same periods last year included operating losses of $1.4 million or $0.04 diluted net loss per share and $3.2 million or $0.08 diluted net loss per share relating to the discontinued operations of AMN and a loss on the disposal of AMN of $11.3 million or $0.29 diluted net loss per share in the quarter and nine months ended September 30, 1998, respectively. Consolidated Net Revenue Our total net revenue increased to $34.7 million for the quarter ended September 30, 1999 as compared to ($123.8) million for the same period last year. Our total net revenue for the nine months ended September 30, 1999 was $62.2 million as compared to ($24.5) million for the same period last year. The increase in net revenues for both periods was primarily due to lower impairment and mark-to-market write-downs of loans and securities. Our net interest income decreased to $19.1 million for the quarter ended September 30, 1999 as compared to $29.1 million for the same period last year. Our total net interest income decreased to $64.7 million for the nine months ended September 30, 1999 as compared to $83.9 million for the same period last year. The decrease in net interest income for both periods was primarily due to a lower average balance of earning assets. The decrease in average earning assets primarily relates to the liquidation and sale of non-core loans which were $154.9 million at September 30, 1999 as compared to $478.2 million at September 30, 1998. Interest expense decreased to $30.4 million for the quarter ended September 30, 1999 as compared to $32.8 million for the same period last year primarily due to a lower average balance of deposits, partially offset by increased average balances of our company's Series B Mandatorily Redeemable Cumulative Preferred Stock. Interest expense increased to $90.1 million for the nine months ended September 30, 1999 as compared to $89.5 million for the same period last year primarily due to increased average balances of our company's Series B Mandatorily Redeemable Cumulative Preferred Stock, partially offset by lower average balances of deposits and other borrowings. Our gain on sale of loans and leases decreased to $1.2 million and $4.9 million for the quarter and nine months ended September 30, 1999 as compared to $3.8 million and $12.7 million for the same period last year primarily due to our strategy of retaining for portfolio a higher level of multifamily real estate loans originated by IPL. Asset management fees increased to $2.5 million and $8.5 million for the quarter and nine months ended September 30, 1999 as compared to $2.2 million and $5.0 million for the same periods last year, respectively. The increase in both periods was primarily due to increased average outstanding assets under management at ICCMIC and Pacifica Partners I. Investment banking and brokerage fees increased to $8.0 million and $19.9 million for the quarter and nine months ended September 30, 1999 as compared to $2.2 million and $13.1 million for the same periods last year, respectively. The increase was primarily a result of increased fee income from ICG from closing more corporate finance transactions on behalf of their corporate clients. ICG raised total proceeds for their clients through corporate finance transactions of $128.0 million during the nine months ended September 30, 1999 as compared to $233.0 million during the same period last year. Loan servicing income decreased to $1.5 million and $4.9 million for the quarter and nine months ended September 30, 1999 as compared to $3.3 million and $9.1 million for the same period last year primarily due to our exit from the non-core loan servicing related businesses. 19 For the quarter and nine months ended September 30, 1999, our net mark-to- market losses of loans and securities held for sale were ($422,000) and ($25.7) million as compared to ($42.1) million and ($40.5) million in the same periods last year, respectively. The mark-to-market adjustments in the quarter ended September 30, 1998 were primarily related to SPB's sub-prime auto loan portfolio. There were no sub-prime auto loan mark-to-market adjustments in the quarter ended September 30, 1999. Additionally, the net revenue for the quarter ended September 30, 1999 does not include an equity pick up from our equity interest in FMC as compared to net income of $507,000 for the quarter ended September 30, 1998. We accounted for our equity interest in FMC under the cost method in the quarter ended September 30, 1999. Previously, we accounted for our investment in FMC under the equity method (See - "Equity Interests - Equity Interest in FMC" for further explanation.). Our equity pick up from our equity interest in FMC for the nine months ended September 30, 1999 was a loss of $53,000 as compared to income of $7.1 million for the same period last year. Consolidated Total Expenses Our total expenses decreased by $14.1 million to $25.2 million for the quarter ended September 30, 1999 as compared to $39.3 million for the same period last year. Our total expenses for the nine months ended September 30, 1999 were $85.9 million as compared to $89.0 million for the same period last year. Our personnel expense decreased to $11.8 million and $36.5 million for the quarter and nine months ended September 30, 1999 as compared to $15.5 million and $38.6 million for the same periods last year, respectively. The decrease in both periods was primarily related to our exit from non-core businesses and the related 24.8% reduction of our full time equivalent ("FTE") employees to 608 at September 30, 1999 from 809 at September 30, 1998. Our amortization of servicing rights was $78,000 and $4.1 million for the quarter and nine months ended September 30, 1999 as compared to $437,000 and $1.1 million for the same periods last year, respectively. The decrease for the quarter ended September 30, 1999 as compared to the same period last year was primarily due to our decision to exit the non-core multifamily and commercial real estate loan servicing operations at SPB. The increase for the nine months ended September 30, 1999 as compared to the same period last year was primarily due to accelerated amortization of servicing rights on our non-core multifamily and commercial real estate loan servicing operations at SPB due to the release of the servicing rights to a third party in connection with our exit from this non-core business. Our professional, occupancy, telephone and other communications expenses decreased to $2.1 million, $1.3 million and $890,000 for the quarter ended September 30, 1999 as compared to $3.3 million, $1.6 million and $1.5 million for the same period last year. For the nine months ended September 30, 1999, our professional services, occupancy, telephone and other communications expenses were $8.1 million, $4.0 million and $2.8 million as compared to $8.0 million, $4.3 million and $2.6 million for the same period last year. The overall decrease for both periods were primarily due to the exit from non-core businesses and our related focus on increasing operating efficiencies at our core business operations. CORE BUSINESS LINES The following table reflects average loans and leases outstanding and the average yields earned on our core business units for the quarter and nine months ended September 30, 1999 and 1998:
For the quarter ended September 30, For the nine month period ended September 30, ---------------------------------------- ----------------------------------------------- (Dollars in thousands) (Dollars in thousands) --------------------------------------- ----------------------------------------------- Average Loans and Leases Average Loans and Leases Outstanding Average Yield Outstanding Average Yield ----------- ------------- ----------- ------------- Business 1999 1998 1999 1998 1999 1998 1999 1998 - ----------- ---- ---- ---- ---- ---- ---- ---- ---- Line - ---- CBC $689,771 $599,289 12.90% 13.49% $641,153 $546,469 13.33% 13.18% IWF 127,821 179,492 9.63 10.47 139,926 156,181 8.58 10.38 IPL 244,315 98,831 8.95 10.42 208,088 97,414 8.82 10.29 IBC 10,739 9,172 11.82 10.88 10,508 11,842 11.01 13.38 LPIG 256,787 203,871 6.94 8.08 242,052 231,648 7.51 8.28
Our largest subsidiary is SPB, a $1.8 billion industrial loan company, which operates four of our core businesses: CBC, an asset-based lender; IPL, a multifamily and commercial loan originator; LPIG, an investor in syndicated bank 20 loan participations, and a mortgage lending subsidiary, Imperial Warehouse Finance, Inc. ("IWF"), formerly known as PrinCap Mortgage Warehouse, Inc., which provides warehouse loans to third party residential mortgage loan originators. The FDIC insured deposits of SPB primarily fund each of these businesses. Coast Business Credit ("CBC") CBC's net revenues were $13.1 million for the quarter ended September 30, 1999 as compared to $8.1 million for the same period last year. CBC's net income for the quarter ended September 30, 1999 was $4.3 million as compared to net income of $1.4 million for the same period last year. Net revenues include a provision for loan losses of $3.2 million for the quarter ended September 30, 1999 as compared to $3.7 million for the same period last year. Net revenues and net income decreased to $24.2 million and $4.7 million for the nine months ended September 30, 1999 as compared to $29.5 million and $8.7 million for the same period last year. These decreases resulted from an increase in the provision for loan and lease losses to $21.5 million for the nine months ended September 30, 1999 as compared to $3.3 million for the same period last year. The increase in CBC's net revenues and net income for the quarter ended September 30, 1999 was primarily associated with the increase in CBC's average outstanding loan balance and corresponding net interest income. CBC increased its average loans outstanding for the quarter and nine months ended September 30, 1999 to $689.8 million and $641.2 million as compared to $599.3 million and $546.5 million for the same periods last year, respectively. As a result of the increase in CBC's average loans outstanding, CBC's net interest income increased $2.4 million to $13.4 million during the quarter ended September 30, 1999 from $11.0 million for the same period last year. Net interest income increased to $39.3 million during the nine months ended September 30, 1999 from $30.1 million for the same period last year. The yield on CBC's loans for the quarter ended September 30, 1999 decreased to 12.90% as compared to 13.49% for the same period last year primarily resulting from an increase in non-accrual loans and decreased loan prepayment fees. The decrease in CBC's loan yields for the quarter ended September 30, 1999 as compared to the same period last year was primarily due to a decrease of approximately 38 basis points in the average bank prime rate of interest between the two quarter ends, and an increase in CBC's non-accrual loans, partially offset by an increase in loan prepayment fees. CBC also earned other income primarily consisting of gain on sale of stock acquired through the exercise of warrants and loan administration and audit fees charged to its customers. CBC earned other income totaling $2.8 million and $6.4 million during the quarter and nine months ended September 30, 1999 as compared $751,000 and $2.6 million for the same periods last year, respectively. CBC's total expenses were $5.8 million and $16.0 million for the quarter and nine months ended September 30, 1999 as compared to $5.7 million and $14.7 million for the same periods last year, respectively. Total expenses increased for the quarter ended September 30, 1999 as compared to the same period last year primarily due to higher occupancy and telephone and other communications expenses associated with continued geographic expansion into several major metropolitan areas of the United States partially offset by lower administrative expenses resulting from our focus on increasing operating efficiencies. Additionally, personnel expense decreased for the quarter ended September 30, 1999 as compared to the same period last year due to decreased bonus expense resulting from decreased year-to-date profitability. CBC's FTE increased to 142 FTE at September 30, 1999 as compared to 107 FTE at September 30, 1998. Fundings of new commitments at CBC were $77.4 million for the quarter ended September 30, 1999 as compared to $100.9 million for the same period last year. For the nine months ended September 30, 1999, CBC's fundings of new commitments were $191.0 million as compared to $162.5 million for the same period last year. At September 30, 1999, CBC's non-accrual loans were $21.7 million as compared $17.5 million at June 30, 1999, and $1.1 million at December 31, 1998. At September 30, 1999, one CBC loan totaling $11.5 million was 90 days delinquent and accruing interest as compared to none for the same period last year. At September 30, 1999, this borrower was in bankruptcy proceedings. CBC has subsequently received a relief from stay from the bankruptcy court. The principal and interest payments on this loan are now current through September 30, 1999. CBC incurred net charge-offs of non-accrual loans of $2.1 million for the quarter ended September 30, 1999 as compared to $13.1 million for the prior quarter ended June 30, 1999 and none for the same period last year. For the nine months ended September 30, 1999, net charge-offs were $15.2 million as compared to none during the same period last year. Non-performing loans at CBC are collateralized by accounts receivable and inventory. The increase in CBC's non- accrual loans and charge-offs results from recent regulatory guidance that prevents CBC from considering the liquidation of certain intangible assets of its customers in determining a loan's accrual status or, if necessary, the required charge-off amount. The effect of this guidance resulted in 21 CBC reserving for, and charging off the gross amount of outstanding problem loans as opposed to CBC's previous practice of reserving for and, if necessary, ultimately charging off the net deficiency amount of problem loans. Imperial Warehouse Finance, Inc. ("IWF") IWF's net revenues were $2.3 million for the quarter ended September 30, 1999 as compared to $2.7 million for the same period last year. IWF's net income for the quarter ended September 30, 1999 was $939,000 as compared to $1.1 million for the same period last year. IWF's net revenues and net income were $3.3 million and $832,000 for the nine months ended September 30, 1999 as compared to net revenues and net income of $7.1 million and $2.9 million for the same period last year. Net revenues includes a recovery for loan losses of $433,000 for the quarter ended September 30, 1999 and a recovery for loan losses of $81,000 for the quarter ended September 30, 1998. The loan loss recovery for the quarter ended September 30, 1999 is primarily related to the decrease in the balance of non- accrual loans. Net revenues include a provision for loan losses of $1.6 million for the nine months ended September 30, 1999 and a provision for loan losses of $7,000 for the nine months ended September 30, 1998. Net interest income was $1.5 million for the quarter ended September 30, 1999 as compared to $2.0 million for the same period last year. The changes in IWF's net interest income are related to changes in the prime rate of interest since the third quarter of 1998, a decrease in the average outstanding average balance of loans outstanding and an increase in non-accrual loans. IWF's net interest income was $3.6 million for the nine months ended September 30, 1999 as compared to $5.2 million for the same period last year. IWF's average loans outstanding and average yields for the quarter ended September 30, 1999 decreased to $127.8 million and 9.63% as compared to $179.5 million and 10.47% for the same periods last year, respectively. For the nine months ended September 30, 1999, IWF's average loans outstanding and average yields decreased to $139.9 million and 8.58% as compared to $156.2 million and 10.38% for the same period last year. The decrease in IWF's loan yields to 9.63% and 8.58% for the quarter and nine months ended September 30, 1999 as compared to 10.47% and 10.38% for the same periods last year, respectively, were primarily due to a decrease of approximately 38 basis points in the average bank prime rate of interest since September 30, 1998 and an increase in IWF's non-accrual loans. IWF earned other income consisting primarily of loan fees charged to its customers of $379,000 and $1.3 million for the quarter and nine months ended September 30, 1999 as compared to $623,000 and $1.8 million for the same periods last year, respectively. IWF's total expenses decreased to $705,000 and $1.9 million for the quarter and nine months ended September 30, 1999 as compared to $866,000 and $2.1 million for the same periods last year, respectively. Total expenses decreased for the quarter and nine months ended September 30, 1999 as compared to the same periods last year primarily due to lower personnel, general and administrative, telephone and other communications expenses resulting from our focus on increasing operating efficiencies. IWF's FTE increased to 25 FTE at September 30, 1999 as compared to 15 FTE at September 30, 1998. The increase in IWF's FTE's is temporary, and resulted from the relocation of IWF's headquarters during the quarter ended September 30, 1999. At October 31, 1999, IWF had 11 FTE employees. At September 30, 1999, IWF's non-accrual loans decreased to $6.0 million as compared to $9.1 million at June 30, 1999 and $4.1 million at December 31, 1998. IWF incurred net charge-offs of non-accrual loans of $1.6 million during the nine months ended September 30, 1999 and $0 during the nine months ended September 30, 1998. IWF's non-performing loans are collateralized by mortgage loans on single family residences. Income Property Lending ("IPL") IPL's net revenues and net income decreased to $2.5 million and $313,000 for the quarter ended September 30, 1999 as compared to net revenues and net income of $4.8 million and $1.2 million for the same period last year. Net revenues and net income decreased to $9.1 million and $1.4 million for the nine months ended September 30, 1999 as compared to net revenues and net income of $13.5 million and $2.9 million for the same period last year. The decrease in revenues and net income for the quarter and nine months ended September 30, 1999 as compared to the same periods last year primarily resulted from lower gain on sale of loans partially offset by increased interest income earned on higher average outstanding balances of income property loans. 22 IPL originated $92.3 million of loans for the quarter ended September 30, 1999 as compared to $96.9 million of loans for the same period last year. During the quarter ended September 30, 1999, IPL sold $16.8 million of its loans generating a gain on sale of $7,000, or 0.04% of the principal balance of loans sold. IPL sold $73.7 million of its loans for the quarter ended September 30, 1998, generating a gain on sale of $2.6 million, or 3.5% of the principal balance of loans sold. IPL originated $243.8 million of loans for the nine months ended September 30, 1999 as compared to $268.5 million of loans for the same period last year. IPL sold $169.8 million and $263.7 million of its loans during the nine months ended September 30, 1999 and 1998, generating a gain on sale of $3.1 million or 1.8% and $8.3 million or 3.2% of the principal balance of loans sold, respectively. Gain on sale of loan revenues as a percentage IPL's loans sold decreased in the quarter and nine months ended September 30, 1999 as compared to the same periods last year due to decreased interest margins and a decrease in demand for small balance income property loans in the secondary market. The volume of loans sold in both periods decreased as a result of our strategy to retain for portfolio a higher level of multifamily real estate loans originated by IPL. IPL's net interest income for the quarter and nine months ended September 30, 1999, increased to $2.2 million and $6.9 million as compared to $1.8 million and $3.5 million for the same periods last year, respectively. The increase in both periods was primarily the result of an increased average balance of outstanding loans. IPL's average outstanding loan balance for the quarter and nine months ended September 30, 1999, increased to $244.3 million and $208.1 million as compared to $98.8 million and $97.4 million for the same periods last year, respectively. The increase in both periods was primarily the result of our strategy to retain for portfolio a higher level of multifamily real estate loans originated by IPL. The decrease in IPL's loan yields to 8.95% and 8.82% for the quarter and nine months ended September 30, 1999 as compared to 10.42% and 10.29% for the same periods last year, respectively, were primarily due to increased competition among income property loan originators. IPL earned total other revenues of $277,000 and $731,000 during the quarter and nine months ended September 30, 1999 as compared to $561,000 and $1.3 million for the same periods in the prior year, respectively. IPL's total expenses were $2.0 million and $6.7 million for the quarter and nine months ended September 30, 1999 as compared to $2.8 million and $8.5 million for the same period last year. Total expenses decreased for the quarter ended September 30, 1999 as compared to the same period last year primarily due to lower personnel, telephone and other communications, and lower general and administrative expenses relating to our focus on increasing operating efficiencies partially offset by higher professional fees. FTE decreased to 69 FTE at September 30, 1999 compared to 75 FTE at September 30, 1998. At September 30, 1999, IPL's non-accrual loans were $1.2 million or 0.4% of its outstanding loan portfolio, as compared to $1.3 million or 0.7% of its outstanding loan portfolio at June 30, 1999 and $866,000 or 0.6% of its outstanding loan portfolio at December 31, 1998. Imperial Business Credit ("IBC") IBC's total net revenues increased to $1.2 million for the quarter ended September 30, 1999 as compared ($651,000) for the same period last year, respectively. IBC's net loss decreased to $936,000 for the quarter ended September 30, 1999 as compared to $2.0 million for the same period last year, respectively. IBC's net revenues increased and net loss decreased for the quarter ended September 30, 1999 as compared to the quarter ended September 30, 1998 primarily due to higher gain on sale of leases, a lower provision for lease losses, and lower negative mark-to-market adjustments. IBC's total net revenues decreased to $5.0 million for the nine months ended September 30, 1999 as compared to $6.4 million for the same period last year, respectively. IBC's net loss increased to $1.8 million for the nine months ended September 30, 1999 as compared to $1.2 million for the same periods last year, respectively. IBC's net revenues decreased and net loss increased for the nine months ended September 30, 1999 as compared to the nine months ended September 30, 1998 primarily due to a $4.2 million write-down of IBC's retained interest in lease securitizations and securities held for sale which was partially offset by a lower provision for lease losses in 1999. IBC originated $31.2 million and $91.3 million of leases for the quarter and nine months ended September 30, 1999, as compared to $25.5 million and $87.2 million for the same periods last year, respectively. IBC securitized leases of $31.9 million and $92.4 million during the quarter and nine months ended September 30, 1999 generating gain on sale revenue of $1.0 million and $3.2 million, or 3.1% and 3.5% of the principal balance securitized, respectively. For the 23 quarter and nine months ended September 30, 1998, IBC securitized leases of $22.4 million and $89.1 million, generating gain on sale revenue of $700,000 and $3.4 million, or 3.1% and 3.8% of the principal balance securitized. Currently, all of IBC's leases are initially funded with a warehouse line of credit from SPB, and then permanently funded through a term securitization facility. IBC's net interest income decreased to $346,000 during the quarter ended September 30, 1999 as compared to $892,000 for the same period last year primarily due to an increase in borrowing costs partially offset by an increase in the average balance and yield on outstanding leases held for sale. IBC's net interest income decreased to $1.1 million during the nine months ended September 30, 1999 as compared to $2.4 million for the same period last year. The decrease for the nine months ended September 30, 1999 was due to increased financing costs and a decreased average outstanding balance of leases as compared to the same period last year. IBC also earned other income from servicing leases sold into its securitization facility of $1.1 million and $3.4 million for the quarter and nine months ended September 30, 1999, as compared to $1.1 million and $3.6 million for the same periods last year, respectively. IBC earned other income of $355,000 and $1.2 million for the quarter and nine months ended September 30, 1999 as compared to ($273,000) and $445,000 for the same periods last year, respectively. IBC's total expenses were $2.8 million and $8.2 million for the quarter and nine months ended September 30, 1999 as compared to $2.7 million and $8.5 million for the same period last year. Total expenses increased for the quarter ended September 30, 1999 as compared to the same period last year primarily due to higher personnel expenses associated with higher lease origination and securitization volume, partially offset by lower professional services, telephone and other communications, and lower general and administrative expenses relating to our focus on increasing operating efficiencies. IBC's FTE decreased to 91 FTE at September 30, 1999 compared to 100 FTE at September 30, 1998. At September 30, 1999, IBC's non-accruing leases were $1,000 as compared to $86,000 at June 30, 1999 and $669,000 at December 31, 1998. Loan Participation and Investment Group ("LPIG") LPIG's total net revenues were ($1.9) million and net loss was $1.4 million for the quarter ended September 30, 1999 as compared to net revenues and net income of $2.1 million and $917,000 for the same period last year, respectively. Total net revenues and net income decreased to $2.0 million and $514,000 for the nine months ended September 30, 1999 as compared to $6.9 million and $3.1 million for the same period last year, respectively. LPIG's net revenues and net income decreased in both the quarter and nine months ended September 30, 1999 as compared to the same periods last year as a result of a significant increase in the provision for loan losses during the quarter ended September 30, 1999. Net revenues include a provision for loan losses of $3.1 million for the quarter ended September 30, 1999 and a net recovery of $469,000 for the quarter ended September 30, 1998. Net revenues include a provision for loan losses of $5.3 million for the nine months ended September 30, 1999 and a net recovery of $583,000 for the nine months ended September 30, 1998. The increase in the provision for loan losses for both periods occurred as a result of an increase in non-accrual loans. LPIG's net interest income was $1.8 million for the quarter ended September 30, 1999 as compared to $1.5 million for the same period last year. Net interest income was $6.2 million for the nine months ended September 30, 1999 as compared to $5.0 million for the same period last year. The decrease in LPIG's loan yields to 6.94% and 7.51% for the quarter and nine months ended September 30, 1999 as compared to 8.08% and 8.28% for the same periods last year, respectively was primarily due to an increase in LPIG's non-accrual loans. For the quarter ended September 30, 1999, LPIG earned other income, which consisted primarily of loan fees and mark-to-market losses on securities of ($630,000) as compared to $143,000 for the same period last year. For the nine months ended September 30, 1999, LPIG earned other income, which consisted primarily of loan fees and mark-to-market losses on securities of $1.2 million as compared to $1.3 million for the same period last year. LPIG's loan fees were $1.5 million and mark-to-market losses were $183,000 for the nine months ended September 30, 1999 as compared to $2.3 million in loan fees and mark-to- market losses of $1.2 million for the same period last year. The decreases in loan fees for both periods resulted from reduced funding of new LPIG loan commitments. LPIG's total expenses were $400,000 and $1.1 million for the quarter and nine months ended September 30, 1999 as compared to $593,000 million and $1.6 million for the same periods last year, respectively. Total expenses decreased for the quarter ended September 30, 1999 as compared to the same period last year primarily due to lower personnel, commission, telephone and other communications, and lower general and administrative expenses relating to our focus on increasing operating efficiencies. FTE remained the same at 4 FTE at September 30, 1999 and 1998. 24 At September 30, 1999, LPIG's non-performing loans were $7.8 million as compared to $10.2 million at June 30, 1999, and $0 at December 31, 1998. The decrease in LPIG's non-performing loans for the third quarter ended September 30, 1999 was due to $2.4 million in loan charge-offs. LPIG's non-accrual loans at September 30, 1999 consisted of one loan, currently undergoing restructuring. LPIG has provided an additional $704,000 for potential losses from the restructuring or ultimate liquidation of this loan. We are not originating any new commitments for LPIG at this time since we believe that the capital that is currently being deployed at SPB to support LPIG's business could be more profitably used in CBC's, IWF's, and IPL's businesses. As such, we anticipate that the current outstanding balance of LPIG's loans will decrease over time as this portfolio runs-off. We do expect to expand our investments in LPIG type loan products through off-balance sheet financing instruments such as total rate of return swaps or collateralized loan obligation funds. Imperial Capital Group ("ICG") ICG's net revenues and pre-tax income increased to $7.9 million and $2.3 million for the quarter ended September 30, 1999 as compared to net revenues of $3.2 million and a pre-tax loss of ($4.6) million for the same period last year, respectively. For the nine months ended September 30, 1999 net revenues and pre-tax income were $19.5 million and $2.0 million as compared to net revenues of $13.1 million and a pre-tax loss of ($3.8) million for the same period last year, respectively. ICG's net revenue primarily consists of investment banking and brokerage fees. The increase in net revenue and pre-tax income for the quarter and nine months ended September 30, 1999 primarily resulted from increased fees received for successful corporate finance transactions completed by ICG through private placements and a lower level of negative mark to market adjustments on trading securities. For the nine months ended September 30, 1999 and 1998, ICG raised $128.0 million and $233.0 million of total debt and equity proceeds, respectively. ICG's total expenses were $5.6 million and $17.4 million for the quarter and nine months ended September 30, 1999 as compared to $7.8 million and $16.9 million for the same periods last year, respectively. Total expenses decreased for the quarter ended September 30, 1999 as compared to the same period last year primarily due to lower personnel, commission, telephone and other communications, and general and administrative expenses resulting from our focus on increasing operating efficiencies. ICG's FTE decreased to 82 FTE at September 30, 1999 compared to 96 FTE at September 30, 1998. Asset Management Activities ("AMA") AMA's net revenues and net income (loss) were $2.4 million and $69,000 for the quarter ended September 30, 1999 as compared to $1.4 million and ($197,000) for the same period last year. AMA net revenues and net income were $7.9 million and $313,000 for the nine months ended September 30, 1999 as compared to $4.4 million and $760,000 for the same period last year. AMA net revenues increased in both periods primarily as a result of growth in the average balance of assets under management, and lower negative mark-to-market adjustments. The average balance of assets under management increased to $1.3 billion for the quarter ended September 30, 1999 as compared to $1.1 billion for the same period last year. At September 30, 1999, we managed a commercial mortgage and equity REIT (See - "Recent Developments - ICCMIC Transaction"), a collateralized loan obligation fund, and two leveraged bank debt hedge funds. Total expenses from AMA activities were $2.3 million and $7.3 million for the quarter and nine months ended September 30, 1999 as compared to $1.7 million and $3.2 million for the same period last year. Total expenses increased for the both periods as compared to the same periods last year due to increased management activities as a result of growth in the balance of assets under management in 1999 as compared to 1998. Total AMA FTE increased to 33 FTE at September 30, 1999 compared to 16 FTE at September 30, 1998. Other Core Operations ("OCO") For the quarter ended September 30, 1999, net revenues of OCO were $2.2 million and net income was $3.6 million, as compared to ($48.5) million of net revenues and a net loss of ($34.5) million for the same period last year. For the nine months ended September 30, 1999, net revenues of OCO were ($1.5) million and the net loss ($1.7) million, as compared to ($49.3) million of net revenues and a net loss of ($37.3) million for the same period last year. The net income for the quarter ended September 30, 1999 includes a $3.7 million gain from the early extinguishment of debt. The significant negative net revenues and net income for both periods in 1998 were primarily the result of impairment and mark to market charges relating to the Company's equity securities (See -"Equity Interests - Equity Interest in SPFC"), and loan and 25 leases held for sale. OCO includes but is not limited to interest and dividend income from parent company loans, equity investments, interest expense on our long-term debt, mark-to-market charges on the securities we invested in at our holding company, and the costs of our support functions. We provide support to our subsidiaries through executive management oversight and advice, accounting, audit, operations, legal services, merger and acquisitions advice, human resources administration, insurance programs, office services, premises administration, and management information systems support. For the quarter ended September 30, 1999 and 1998, OCO earned interest and dividend income of $3.7 million and $8.1 million and incurred interest expense of $8.4 million and $7.8 million, respectively. For the nine months ended September 30, 1999 and 1998, OCO earned interest and dividend income of $12.5 million and $21.6 million and incurred interest expense of $23.6 million and $22.6 million, respectively. During the nine months ended September 30, 1999, we sold 500,000 shares of ICCMIC for a gain on sale of securities totaling $562,000. At September 30, 1999, we owned 9.0% of ICCMIC's outstanding common stock and 100% of the company that managed ICCMIC's assets through October 22, 1999. (See - "Recent Developments - ICCMIC Transaction") Total expenses of OCO were $2.4 million and $9.0 million for the quarter and nine months ended September 30, 1999 as compared to $7.9 million and $14.2 million for the same period last year. Total expenses of OCO for the quarter ended September 30, 1998 included a provision for loan repurchases on former mortgage banking operations of $4.8 million; no provision was needed in the quarter ended September 30, 1999. In addition, total expenses decreased for the quarter ended September 30, 1999 as compared to and same period last year primarily due to lower personnel, telephone and other communications, and lower general and administrative expenses relating to our focus on increasing operating efficiencies partially offset by higher professional fees. OCO's FTE decreased to 57 FTE at September 30, 1999 as compared to 67 FTE at September 30, 1998. NON CORE BUSINESS LINES We also operate "non-core" businesses, which consist of businesses that we've decided to de-emphasize in the future. We group these businesses into the following categories: . Equity interests-- Represents our equity investments in other publicly traded companies. At September 30, 1999, we owned an equity interest of 38.3% in FMC. This segment's source of revenue is our common stock ownership percentage in the equity interests' reported net income or loss in addition to our gains on sales of the equity interests' stock, or write-downs from the impairment of the equity interest; . De-emphasized/Discontinued/Exited Businesses-- represents our business units we decided to either de-emphasize, discontinue, or exit. We decided to de- emphasize, discontinue or exit these business lines because they were not meeting our expectations for a variety of reasons. These reasons included: significant credit losses, insufficient loan production volumes, inadequate gross profit margins, and risks associated with international lending operations. We include the following significant operations in Exited Businesses: Auto Lending, Alternative Residential Mortgage, and Consumer Loan Divisions of SPB, and Credito Imperial Argentina ("CIA"), our residential loan production business in Argentina. Exited Businesses also includes our former mortgage banking operations, certain problem loan or securities portfolios, SPB's income property servicing operations, and any loan portfolios at SPB from businesses which are no longer originating new loans. Exited Businesses' principal sources of net revenue are interest earned on mortgage and consumer loans and mark to market valuations on loan portfolios. Exited Businesses' principal expenses are interest expense allocations incurred from deposits and inter-company borrowings, and general and administrative expenses. Our exit from these non-core businesses will allow our management to focus on our core business lines that have proven to be our most profitable businesses. Equity Interests Equity interests include our portion of the net income or loss of FMC and Southern Pacific Funding Corporation ("SPFC"). For the quarter ended September 30, 1999, Equity interests generated net revenues of ($142,000) and a net loss of ($130,000) as compared to net revenues of ($82.0) million and a net loss of ($49.2) million for the same period last year. For the nine months ended September 30, 1999, Equity interests generated net revenues of $1.0 million and a net income of $439,000 as compared to net revenues of ($62.5) million and a net loss of ($36.7) million for the same period 26 last year. The significant negative net revenues at net loss for the quarter and nine months ended September 30, 1998 were primarily the result of impairment charges on our equity investment in SPFC. Equity Interest in SPFC On October 1, 1998, SPFC petitioned for Chapter 11-bankruptcy protection under Federal bankruptcy laws in the U.S. Bankruptcy Court for the District of Oregon. As a result of SPFC declaring Chapter 11 bankruptcy and the corresponding decline in its common stock to below one dollar per share, and subsequently being de-listed from the New York Stock Exchange, we wrote-off our total investment in and loan to SPFC. During the quarter and nine months ended September 30, 1999 and 1998, equity in the net income of SPFC was $0 and $0 and $0 and $12.7 million, respectively. Equity Interest in FMC The Company did not record equity in the net income or loss of FMC in the quarter ended September 30, 1999 as we determined that we did not have the ability to exercise significant influence over FMC, and the quarterly results of FMC were not made available, and are not expected to be made available to our company. Previously, we accounted for our investment in FMC under the equity method of accounting. On November 1, 1999, the merger between FMC and Bay View Capital ("Bay View") was completed. We received $27.7 million in cash and 4.4 million shares of Bay View common stock from the sale and exchange of our 38.3% interest in FMC. On November 5, 1999, we announced the sale of 4,342,451 shares of the Bay View common stock we received from the FMC/Bay View merger. As a result of these transactions, we received approximately $86.3 million in total cash proceeds. We expect to report a total pre-tax gain from both transactions of $30.1 million, resulting in an approximate net after tax gain of $0.55 per diluted share in the quarter ending December 31, 1999. Exited Businesses The Exited Businesses' net revenues were $5.1 million for the quarter ended September 30, 1999 as compared to ($13.9) million for the same period last year. The net revenues for the Exited Businesses were ($8.2) million for the nine months ended September 30, 1999 as compared to $6.4 million for the same period last year. The increase in net revenue for the quarter ended September 30, 1999 primarily resulted from no additional mark to market losses on our sub prime auto loan portfolio, and a lower provision for loan losses, partially offset by a decline in net interest income. Our non-core loans decreased to $154.9 million at September 30, 1999 as compared to $210.5 million at December 31, 1998, and $478.2 million at September 30, 1998. The remaining non-core portfolios primarily consist of lower risk single family mortgage loans of $108.2 million, franchise loans of $20.3 million, and consumer loans of $17.1 million. The following table reflects the ending outstanding balances of the loans from our Exited Businesses:
Loans and Leases Outstanding at September 30, ---------------------------- Exited Business Line 1999 1998 -------------------- ---- ---- Auto Lending Division of SPB $ 9,218 $171,766 Alternative Residential Mortgage Division of SPB 8,590 37,274 Consumer Lending Division of SPB 17,112 48,060 Credito Imperial Argentina ---- 18,771 Other exited loan portfolios 119,931 202,338 -------- -------- Total loans and leases from exited businesses $154,851 $478,209 ======== ========
The above table does not include net outstanding loans from the discontinued operations of AMN which were $6.0 million and $16.9 million at September 30, 1999 and 1998, respectively. During the quarter ended September 30, 1999, we continued to sell loans from our exited businesses. We sold $30.8 million of auto loans and $2.5 million of single family loans generating a net gain on sale of $15,000 during the third quarter ended September 30, 1999. For the nine months ended September 30, 1999, the Company sold $45.3 million of auto loans, $32.7 million of single family loans, $7.6 million of consumer loans, and the remaining Argentine mortgage loan portfolio of $22.4 million, generating a net gain on sale of $432,000. At September 30, 1999, the outstanding balance of the sub-prime auto loan portfolio was $9.2 million, and was carried at 36.5% of the outstanding principal balance. There were no write-downs of SPB's auto loan portfolio for the quarter ended September 30, 1999, and $24.8 million for the nine months ended September 30, 1999. The write-down in the nine months ended September 30, 1999 was based on pricing information obtained in connection with the sale of $30.8 27 million of sub prime auto loans in the third quarter of 1999. Total expenses at our Exited Businesses decreased to $3.2 million for the quarter ended September 30, 1999 as compared to $8.0 million for the same period last year. For the nine months ended September 30, 1999, total expenses at our Exited Businesses were $19.1 million as compared to $19.3 million for the same period last year. The decrease in total expenses was primarily due to the closure of non-core businesses. During the quarter and nine months ended September 30, 1999, we sold 490,600 shares and 1,887,110 shares of Impac Mortgage Holdings, Inc. ("IMH") stock resulting in a gain of $226,000 and $929,000, respectively. At September 30, 1999, we did not own any shares of IMH common stock. FTE from our Exited Businesses decreased to 11 FTE at September 30, 1999 as compared to 247 FTE at September 30, 1998. FUNDING Our liquidity requirements are met primarily by SPB deposits and to a much lesser extent warehouse lines and loan securitizations or sales. Business operations conducted through the divisions of SPB are primarily financed through FDIC insured deposits, Federal Home Loan Bank borrowings, and capital contributions from our parent company. Southern Pacific Bank Deposits SPB is an FDIC insured industrial bank that is regulated by the California Department of Financial Institutions and the FDIC. See "--Regulatory Matters" for a more detailed description of regulations governing SPB. At September 30, 1999 and December 31, 1998, SPB had total deposits of approximately $1.6 billion and $1.7 billion, respectively. SPB solicits both individual and institutional depositors for new accounts through print advertisements and computerized referral networks. SPB currently maintains two deposit gathering facilities in Southern California. At these facilities, tellers provide banking services to customers such as accepting deposits and making withdrawals. Generally, SPB's certificates of deposit are offered for terms of one to 12 months. SPB has historically increased its deposits as necessary so that deposits together with its cash, liquid assets, and Federal Home Loan Bank borrowings have been sufficient to provide funds for all of SPB's lending activities. We track, on a daily basis, all new loan applications and, based on historical closing statistics, estimate expected fundings. Cash management systems at SPB allow it to anticipate both fundings and sales and adjust deposit levels and short-term investments against the demands of our lending activities. We believe that SPB's local marketing strategies and its use of domestic money markets have allowed SPB to acquire new deposits at levels consistent with management's financial targets. As an additional source of funds, SPB was approved in 1991 to become a member of the Federal Home Loan Bank. Currently, SPB is approved for borrowings from the Federal Home Loan Bank pursuant to a secured line of credit that is automatically adjusted subject to applicable regulations and available pledged collateral. At September 30, 1999, there were no outstanding FHLB advances to SPB. Securitization Transactions and Loan Sales During the quarter ended September 30, 1999, we sold $16.8 million of income property loans and securitized $31.9 million of equipment leases, generating gains of $7,000 and $1.0 million, respectively. During the quarter ended September 30, 1998, we sold $73.7 million of income property loans and securitized $24.4 million of equipment leases generating gains of $2.6 million and $699,000, respectively. The decrease in loan sales of income property loans is consistent with our strategy to retain certain multifamily loans originated by IPL on our balance sheet. For the nine months ended September 30, 1999, we sold $170.9 million of income property loans, $21.8 million of loan participations and securitized $92.4 million of equipment leases, generating gains (losses) of $3.1 million, ($154,000) and $3.2 million, respectively. During the nine months ended September 30, 1998, we sold $263.7 million of income property loans and securitized $91.1 million of equipment leases generating gains of $8.3 million and $3.4 million, respectively. 28 ASSET QUALITY Allowance for Loan and Lease Losses The ratio of the allowance for loan and lease losses to non-accrual loans and leases at September 30, 1999 remained essentially the same at 48.49% as compared to 48.35% at June 30, 1999. The ratio of the allowance for loan and lease losses to total loans held for investment decreased to 2.13% at September 30, 1999 from 2.48% at June 30, 1999. The ratio of the allowance for loan and lease losses to non-accrual loans, and the allowance for loan and lease losses to total loans held for investment was 65.11% and 1.85% at December 31, 1998, respectively. Our ratio of the loan loss allowance to total non-accrual loans decreased at September 30, 1999 as compared to December 31, 1998 due to the charge-off and collection of a significant portion of higher-risk sub-prime auto non-accrual loans. The provision for loan and lease losses for the quarter ended September 30, 1999 decreased to $3.7 million as compared to $22.3 million for the prior quarter ended June 30, 1999 and $9.5 million for the same period last year. The decrease from the prior quarter ended June 30, 1999 was primarily due to lower net charge-offs. Net charge-offs decreased to $6.6 million for the quarter ended September 30, 1999 as compared to $15.5 million for the prior quarter ended June 30, 1999 and $11.2 million for the same period last year. The decrease in charge-offs from the prior quarter ended June 30, 1999 primarily resulted from lower net charge-offs at CBC. Charge-offs at CBC were $2.1 million for the quarter ended September 30, 1999 as compared to $13.1 million for the prior quarter ended June 30, 1999 and none for the same period last year. Net charge- offs were $24.6 million for the nine months ended September 30, 1999 as compared to $15.5 million for the same period last year. For the nine months ended September 30, 1999, the provision for loan and lease losses was $28.1 million as compared to $16.8 million for the same period last year. The increase in CBC's non-accrual loans and charge-offs for quarter ended June 30, 1999 and the nine months ended September 30, 1999 resulted from recent regulatory guidance that prevents CBC from considering the liquidation value of certain intangible assets of its customers in determining a loan's accrual status or, if necessary, the required charge-off amount. The effect of this guidance resulted in CBC changing its charge-off policy in the second quarter of 1999, and charging off gross amounts of outstanding problem loans as opposed to CBC's previous practice of reserving for and, if necessary, ultimately charging off the net deficiency amount of problem loans. Based on CBC's historical collection experience, CBC expects to recover at least half of the charged-off amounts over the course of the next six to 18 months. We review the allowance for loan and lease losses in connection with the overall loan and lease portfolio on a monthly basis. We believe the current balance of the allowance for loan and lease losses is sufficient in relation to the amount of risk in the loan and lease portfolio. 29 Activity in our allowance for loan and lease losses was as follows:
For the Nine months Ended ------------------------- September 30, ------------- 1999 1998 ---- ---- (In thousands) Beginning balance as of January 1, 1999 and 1998....................................... $ 24,881 $ 26,954 Provision for loan and lease losses.................................................... 28,130 16,800 -------- -------- 53,011 43,754 -------- -------- Loans and Leases charged off--Core Business Lines: Asset based loans...................................................................... (15,371) -- Loan Participations.................................................................... (2,882) -- Leases................................................................................. (1,699) (823) Mortgage warehouse lines............................................................... (1,625) -- Multifamily and commercial loans....................................................... (770) (733) -------- -------- (22,347) (1,556) -------- -------- Loans charged off--Non-Core Business Lines: Single family residential.............................................................. (2,177) (1,971) Consumer loans......................................................................... (1,266) (14,026) -------- -------- (3,443) (15,997) -------- -------- Total Charge-offs...................................................................... (25,790) (17,553) -------- -------- Recoveries on loans and leases previously charged off--Core Business Lines: Asset based loans...................................................................... 163 -- Leases................................................................................. 842 1,004 Multifamily and commercial loans....................................................... 94 177 -------- -------- 1,099 1,181 -------- -------- Net charge-offs--Core Business Lines................................................... (21,248) (375) -------- -------- Recoveries on loans previously charged off--Non-Core Business Lines: Single family residential.............................................................. 3 189 Consumer............................................................................... 121 645 -------- -------- 124 834 -------- -------- Total recoveries....................................................................... 1,223 2,015 -------- -------- Net charge-offs--Non-core business lines............................................... (3,319) (15,163) -------- -------- Total net-charge-offs.................................................................. (24,567) (15,538) -------- -------- Balance as of September 30, 1999 and 1998.............................................. $ 28,444 $ 28,216 -------- -------- Loan loss allowance at AMN as of September 30, 1999 and 1998........................... -- 3,576 -------- -------- $ 28,444 $ 31,792 ======== ======== Loan loss allowance to non accrual loans............................................... 48.49% 61.10%
Non-Performing Assets ("NPA") and Non-Accrual Loans and Leases Our NPA's consist of non-accruing loans, OREO and repossessed property. NPA's and non-accrual loans decreased to $65.0 million and $58.7 million at September 30, 1999 as compared to $72.1 million and $65.1 million from the prior quarter ended June 30, 1999, respectively. The decrease in NPA's was primarily related to IWF, LPIG, single family, multifamily and commercial loan portfolios partially offset by an increase in CBC's non-accrual loans. Total NPA's and non-accrual loans and leases were $54.1 million and $39.5 million at December 31, 1998. Total NPA's as a percentage of loans, OREO and repossessed assets were 3.92% at September 30, 1999, as compared to 3.17% at December 31, 1998. The increase in NPA's and total NPA's as a percentage of loans, OREO and repossessed assets from December 31, 1998 to September 30, 1999 was mainly attributable to increases in non-accrual loans at CBC, LPIG and IWF and a $48.0 million decrease in total loans, OREO and repossessed assets. The non-performing loan at LPIG consists of one credit, which is collateralized by a senior secured debt agreement. Accounts receivable and inventory collateralize the non-performing loans at CBC. The non-performing loans at IWF are collateralized by recently funded senior residential mortgage loans. 30 The following table sets forth the amount of non-performing assets attributable to our core lending activities and our Exited Businesses.
September 30, 1999 December 31, 1998 ------------------ ----------------- Core Lending Exited Core Lending Exited Activities Businesses Activities Businesses ----------- ---------- ---------- ---------- (Dollars in thousands) Non-accrual loans: - ------------------ IPL........................... $ 373 $ -- $ 866 $ -- IWF........................... 6,026 -- 4,141 -- CBC........................... 21,719 -- 1,117 -- IBC........................... 1 -- 669 -- LPIG.......................... 7,800 -- -- -- One to four family............ -- 16,486 -- 18,576 Consumer loans................ -- 538 -- 253 Auto loans.................... -- 3,522 -- 5,476 Other commercial.............. 463 1,733 -- 8,431 ---------- -------- ---------- -------- Total non-accrual loans........ 36,382 22,279 6,793 32,736 ---------- -------- ---------- -------- OREO: - ----- IPL........................... 869 -- 853 -- One to four family............ -- 3,160 -- 7,180 Other commercial.............. -- 1,187 -- 651 ---------- -------- ---------- -------- Total OREO..................... 869 4,347 853 7,831 ---------- -------- ---------- -------- Repossessed property: - --------------------- IBC........................... 737 -- 702 -- Auto Lending.................. -- 400 -- 5,169 ---------- -------- ---------- -------- Total repossessed property..... 737 400 702 5,169 ---------- -------- ---------- -------- Total NPA's.................... $ 37,988 $ 27,026 $ 8,348 $ 45,736 ---------- -------- ========== ======== Total loans, OREO and repossessed property.......... $1,491,719 $165,549 $1,310,283 $395,010 Total NPA's as a percentage of loans, OREO and repossessed property...................... 2.55% 16.33% 0.64% 11.58%
The table presented above excludes non-accrual loans held for sale which we carry at the lower of cost or market. There was one CBC borrower with an $11.5 million asset based loan over 90 days past due and accruing interest at September 30, 1999 as compared to $0 at December 31, 1998. At September 30, 1999, this borrower was in bankruptcy proceedings. CBC has subsequently received a relief from stay from the bankruptcy court. The principal and interest payments on this loan are now current through September 30, 1999. On an ongoing basis, we monitor our loan portfolios and evaluate the adequacy of the allowance for loan and lease losses. In determining the adequacy of the allowance for loan and lease losses, we consider 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 us to be uncollectable are charged to the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are credited to the allowance. Provisions for loan and lease losses are charged to expense and credited to the allowance in amounts deemed appropriate by us based upon our evaluation of the known and inherent risks in the loan portfolio. Future additions to the allowance for loan and lease losses may be necessary. 31 Loans held for investment consisted of the following at September 30, 1999 and December 31, 1998:
September 30, 1999 December 31, 1998 ------------------ ----------------- (In thousands) Loans secured by real estate: One-to-four family.......................................... $ 92,495 $ 125,616 Multi-Family................................................ 45,851 56,229 Commercial.................................................. 15,821 25,677 ---------- ---------- 154,167 207,522 Leases...................................................... 1,472 1,048 Consumer and auto loans..................................... 10,341 26,511 Franchise loans............................................. 20,305 50,520 Asset based loans........................................... 711,926 633,299 Loan participations......................................... 257,386 222,106 Mortgage warehouse lines.................................... 135,061 181,001 Commercial.................................................. 41,245 34,509 ---------- ---------- Total..................................................... 1,331,903 1,356,516 Loans in process............................................ 4,703 (5,636) Unamortized premium......................................... 2,149 3,109 Deferred loan fees.......................................... (9,175) (9,014) ---------- ---------- Total net loans........................................... 1,329,580 1,344,975 Allowance for loan and lease losses......................... (28,444) (24,880) ---------- ---------- Total..................................................... $1,301,136 $1,320,095 ========== ========== Allowance for loan and lease losses to net loans and leases................................... 2.14% 1.85%
Our loans held for investment are primarily comprised of asset based loans to middle market companies mainly in California, participations in commercial loan syndications, first and second lien mortgages secured by income producing and residential real property in California, and mortgage warehouse lines secured by newly originated residential mortgage loans. 32 RECENT DEVELOPMENTS Imperial Credit Commercial Mortgage Investment Company ("ICCMIC") Transaction On October 18, 1999, ICCMIC reported that the 60-day market check period during which ICCMIC was permitted to conduct an unrestricted solicitation of potentially superior proposals pursuant to the previously announced merger agreement with our company had expired. The special committee of ICCMIC's board of directors, comprised of ICCMIC's four independent directors, with advice from Prudential Securities Incorporated, determined that none of the proposals received during the 60-day market check period was superior to the proposed merger transaction with our company. The merger agreement provides that ICCMIC retains the ability to consider superior proposals, if any, received on an unsolicited basis. Upon completion of the proposed merger, ICCMIC's stockholders (other than ICII) will receive $11.57 in cash per share. The final purchase price was determined based on the Company's offer of $11.50 per share, plus a price adjustment of $.07 per share in connection with the results of an appraisal of ICII's management contract. The proposed merger is expected to be completed by early 2000. ICCMIC is a commercial mortgage real estate investment trust that has 28,500,000 outstanding common shares and total assets of approximately $700 million at September 30, 1999. We own 2,570,000 shares of ICCMIC, or 9.0% of ICCMIC's outstanding common stock, and 100% of the company ("ICCAMC") that managed ICCMIC's operations and assets through October 22, 1999. Additionally, the management agreement with ICCAMC was terminated at the close of business on October 22, 1999, and ICCMIC has internalized its management. ICCMIC, with the consent of ICCAMC, hired all of ICCAMC's employees to run ICCMIC's operations on an internalized basis. Based on the results of ICCAMC's operations for the nine months ended September 30, 1999, we expect the internalization of the ICCMIC management contract to result in a decrease in annual revenues to our company of approximately $7.0 million, and approximate decreases in income before income taxes and net income of $3.5 million, and $2.1 million, respectively. FMAX Transaction On November 1, 1999, the merger between FMC and Bay View was completed. We received $27.7 million in cash and 4.4 million shares of Bay View common stock from the sale and exchange of our 38.3% interest in FMC. On November 5, 1999, we announced the sale of 4,342,451 shares of our Bay View common stock. As a result of these transactions, we received approximately $86.3 million in total cash proceeds. We expect to report a total pre-tax gain from both transactions of $30.1 million, resulting in an approximate net after tax gain of $0.55 per diluted share in the quarter ending December 31, 1999. Additional Repurchases of Senior Notes Subsequent to September 30, 1999, we repurchased an additional $12.6 million of Senior Notes. The repurchase resulted in an extraordinary gain, net of taxes of approximately $1.5 million or $0.05 per diluted share, which we expect to report in the quarter ending December 31, 1999. The repurchase of the Senior Notes will result in annual interest savings before income taxes of $1.3 million, or $0.02 per diluted share after income taxes. Repurchase of Preferred Stock In November 1999, we repurchased and retired $30.0 million of the Series B 11.5% Mandatorily Redeemable Cumulative Preferred Stock, no par value. The repurchase resulted in an extraordinary loss, net of income taxes of approximately $1.2 million or $0.04 per diluted share, which we expect to report in the quarter ending December 31, 1999. The repurchase of the Preferred Stock will result in annual interest savings before income taxes of $4.4 million, or $0.13 per diluted share after income taxes. Lewis Horwitz Organization Acquisition On October 1, 1999 we acquired the Lewis Horwitz Organization ("LHO") located in Los Angeles, California in an asset purchase transaction. LHO is an internationally recognized commercial finance company engaged in providing financing for independent motion picture and television productions. LHO typically lends to independent producers of film and television programs on a senior secured basis, basing its credit decisions on the creditworthiness and reputation of distributors and sales agents who have contracted to distribute the films or television productions. We believe this acquisition continues our strategy of investing in companies that create commercial finance opportunities and diversification of our lending activities. 33 REGULATORY MATTERS SPB's Capital Ratios The following table presents SPB's actual capital ratios and the corresponding minimum adequate and well capitalized capital ratio requirements under the (i) FDIC Risk-based Capital and Tier 1 Capital regulations and (ii) the FDIC Leverage ratio regulation as of September 30, 1999.
Minimum Well Capitalized ------------------------ Actual Requirement Requirement ------ ----------- ----------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) Risk-based Capital.......... $215,397 10.28% $167,593 8.00% $204,491 10.00% Risk-based Tier 1 Capital... 155,452 7.42% 83,796 4.00% 125,694 6.00% FDIC Leverage Ratio......... 155,452 8.92% 83,796 4.00% 104,475 5.00%
MOU Compliance Update We responded to the FDIC's criticisms in its May 1998 information systems examination by retaining an internationally-recognized independent accounting firm to conduct a general ledger account reconciliation project in order to identify, trace and resolve all outstanding unreconciled general ledger items on SPB's books and records. Work on this reconciliation project was substantially completed by December 31, 1998. In consultation with the independent accounting firm, SPB has developed and implemented new policies and procedures which are designed to improve the efficiency and timeliness of general ledger reconciliation tasks and related financial accounting matters. SPB continues to reconcile all general ledger accounts on a timely basis. SPB, under the direction of its board of directors, has developed and implemented a Y2K readiness plan and budget, with specific deadlines and action steps. SPB believes it is currently in compliance in all material respects with FDIC minimum Y2K readiness requirements and guidelines. As a result of the progress SPB made in implementing its Y2K readiness plan, the FDIC and California Department of Financial Institutions ("DFI") terminated the November 2, 1998 Memorandum of Understanding ("MOU") primarily relating to Y2K concerns, during the third quarter ended September 30, 1999. LIQUIDITY AND CAPITAL RESOURCES We have an ongoing need for capital to finance our lending activities. This need is expected to increase as the outstanding balance of our loan and lease portfolios increase. Our primary cash requirements include the funding of (i) loan and lease originations and acquisitions, (ii) points and expenses paid in connection with the acquisition of wholesale loans, (iii) ongoing administrative and other operating expenses (iv) overcollateralization or reserve account requirements in connection with loans and leases pooled and sold and (v) fees and expenses incurred in connection with IBC's securitization programs. We have financed our lending activities through deposits or borrowings at SPB, warehouse lines of credit and repurchase facilities with financial institutions, equity and debt offerings in the capital markets and securitizations. We believe that such sources will be sufficient to fund our liquidity requirements for the foreseeable future. There can be no assurance that we will have access to the capital markets in the future or that financing will be available to satisfy our operating and debt service requirements or to fund our future growth. SPB obtains the liquidity necessary to fund its investing activities through deposits and, if necessary through borrowings under lines of credit and from the FHLB. At September 30, 1999 and 1998, SPB had maximum FHLB borrowings available equal to $54.8 million and $22.3 million, respectively. These borrowings must be fully collateralized by qualifying mortgage loans and may be in the form of overnight funds or term borrowings at SPB's option. The highest balance of FHLB advances outstanding during the quarter ended September 30, 1999 was $30.0 million, with an average outstanding balance of $4.9 million. There were no outstanding FHLB advances at September 30, 1999. FHLB advances are secured by certain real estate loans with a carrying value of $83.4 million and $51.9 million at September 30, 1999 and December 31, 1998, respectively. For the quarter ended September 30, 1999, SPB's deposit portfolio, which consists primarily of certificate accounts, increased $165.2 million to $1.6 billion from $1.4 billion at June 30, 1999. For the nine months ended September 30, 1999, SPB's deposit portfolio decreased $139.6 million to $1.6 billion from $1.7 billion at December 31, 1998. SPB has the capability to acquire new deposits through its local marketing strategies as well as domestic money markets. Additionally, SPB maintains liquidity in the form of cash and interest-bearing deposits with financial institutions. SPB tracks on a daily basis all new loan applications by office and, based on historical closing statistics, estimates expected fundings. Cash management systems at SPB allow SPB to anticipate both funding and sales and adjust deposit levels and short-term investments against the demands of SPB's lending activities. 34 We generate liquidity at our holding company from a variety of sources, including interest income from loans and investments, income tax payments received from our subsidiaries, dividends from subsidiary earnings, dividends from common stock holdings in publicly traded companies, and sales of non-core assets. As discussed in our annual report on Form 10-K, an industrial bank such as SPB may declare dividends only in accordance with California Industrial Banking Law, which results in statutory limitations on the payment of dividends. Our holding company's primary cash requirements include income tax payments and interest payments on outstanding debt and preferred stock obligations. We also use available cash to make loans to our operating companies and investments in subsidiaries and asset management vehicles. Item 3. Qualitative and Quantitative Disclosures about Market Risk ---------------------------------------------------------- There have been no material changes to the quantitative and qualitative disclosures about market risk included in our annual report on Form 10-K for the year ended December 31, 1998. Part II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- Our company and one of our directors are defendants in Judy L. Resnick v. Imperial Credit Industries, Inc., et al originally filed on January 14, 1998, in Los Angeles Superior Court. On March 27, 1998, the Los Angeles Superior Court ordered this case to binding arbitration before the National Association of Securities Dealers, Inc. ("NASD"). In September 1998, Resnick filed a Statement of Claim with the NASD, alleging causes of action for fraud, interference with advantageous business and contractual relationships, breach of the covenant of good faith and fair dealing, defamation and breach of fiduciary duty, all of which relate to Resnick's employment and compensation. Resnick is seeking damages in excess of $6.0 million. In July 1998, our company and the other defendants filed an answer and counterclaim seeking recovery from Resnick. The arbitration hearing was completed on September 28, 1999 and a decision is expected prior to year-end. Our company is a defendant in a consolidated federal securities class action, In re Southern Pacific Funding Corporation Securities Litigation, Lead Case No. CV98-1239-MA, in the U.S. District Court for the District of Oregon. The action also names as defendants two of our directors who are also former directors of SPFC and others. This action was initially filed in October 1998. Plaintiffs allege that SPFC failed to properly mark down the value of its residual interests, failed to properly reflect increased levels of prepayments and actual prepayment and default rates on its loans and made false and misleading public statements concerning its financial condition. Following a number of motions to dismiss, defendants answered and alleged affirmative defenses to the second consolidated complaint on June 22, 1999. On July 21, 1999, the Court certified a class of persons who purchased the securities of SPFC during the period October 7, 1997 through October 1, 1998. On September 10, 1999, plaintiffs filed a third consolidated complaint, alleging claims against our company and two of its directors (and others) under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. On September 21, 1999, plaintiffs sought leave to file a fourth consolidated complaint, alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 12 of the Securities Act of 1933. Defendants moved to dismiss the proposed fourth amended complaint on October 13, 1999. This motion was fully briefed as of November 2, 1999. Our company and three of its directors are defendants in a consolidated federal securities class action, In re Imperial Credit Industries, Inc. Securities Litigation, Case No. 98-8842 SVW, in the U.S. District Court for the Central District of California. This action, purportedly filed on behalf of a class of persons who purchased our company's securities during the period January 29, 1998 through October 1, 1998, was originally filed in November 1998. Plaintiffs allege that defendants made false and misleading statements and omitted to reveal the truth concerning the value of Imperial Credit Industries, Inc.'s investments in SPFC and FMC, resulting in an artificial inflation of the price of our securities. On June 21, 1999, defendants moved to dismiss plaintiffs' complaints. The matter was fully briefed and the Court held a hearing on July 26, 1999. At the hearing, the Court granted defendants' motions to dismiss plaintiffs' complaints, with leave to amend. The Court subsequently issued a written order on September 7, 1999. Plaintiffs filed a consolidated amended class action complaint on October 4, 1999, alleging a claim against our company and three of its directors for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On October 22, 1999, defendants moved to dismiss the consolidated amended class action complaint. This motion is set for hearing on November 22, 1999. The Court has not certified a class, nor have plaintiffs filed a motion for class certification. We are a defendant in Steadfast Insurance Company v. Auto Marketing Network Inc. and Imperial Credit Industries, Inc., filed on August 12, 1997 in the Northern District of Illinois, Case No. 97-C-5696. The plaintiff is seeking damages 35 in the amount of $27 million allegedly resulting from the fraudulent inducement to enter into, and the subsequent breach of, a motor vehicle collateral enhancement insurance policy. In May 1998, we filed a counterclaim against the plaintiff for $54 million in damages based on the allegation that the underlying claim was filed in bad faith. In January 1999, the Court entered a preliminary injunction which enjoined us from transferring assets of Auto Marketing Network, Inc., in amounts that would cause the total assets of Auto Marketing Network to be less than $20 million in value. The injunction has since been removed and the parties are presently engaged in pretrial discovery. We have moved to dismiss ICII from the lawsuit. We are a defendant along with ICCMIC and its directors, which includes two of our directors, in a putative class action lawsuit filed on July 22, 1999 by Riviera-Enid, a Florida limited partnership, in Los Angeles Superior Court, Case No. BC213902. The complaint alleges that the proposed merger between a subsidiary of ours and ICCMIC constitutes a breach of fiduciary duty by the defendants in that, allegedly, the merger price is unfair to stockholders, the merger price is less than the liquidation value of ICCMIC's assets and the termination fee for the management contract is excessive. The complaint also alleges that certain of the directors have conflicts of interest because of their affiliation with us and that the merger will benefit us at the expense of ICCMIC other stockholders. The complaint seeks certification of a class of all stockholders of ICCMIC whose stock will be acquired in connection with the merger and seeks injunctive relief that would, if granted, prevent the completion of the proposed merger. The complaint also seeks damages in an unspecified amount and other relief. On October 8, 1999, we filed a demurrer to plaintiff's complaint, which is set to be heard by the Court on November 22, 1999. On November 1, 1999, plaintiff served an amended class action complaint alleging the same claims but adding details from ICCMIC's preliminary proxy statement filed with the SEC. The Court has not certified a class, nor has plaintiff filed a motion for class certification. On November 3, 1999, ICCMIC's counsel received a letter from counsel for the plaintiffs asserting their intent to seek a temporary restraining order, expedited discovery, and a date for a preliminary injunction hearing. No motion for a preliminary injunction has been filed. By letter of November 10, 1999, counsel for the plaintiffs stated that the plaintiffs have decided not to move forward with a motion for a temporary restraining order or permanent injunction at this time. We and ICCMIC believe that the material allegations of the complaint are without merit. We continue to vigorously defend all of the above lawsuits. Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- The registrant filed the following report on Form 8-K dated November 5, 1999: On November 5, 1999, we announced the sale of 4.3 million shares of Bay View common stock. 36 Item 6 Imperial Credit Industries, Inc. Statement Regarding Computation Of Earnings (Loss) Per Share (In thousands, except per share amounts)
Quarter ended Nine months ended September 30, September 30, ------------------------ ---------------------- 1999 1998 1999 1998 -------- ---------- ---------- ---------- Income (loss) from continuing operations $ 5,295 $(96,774) $(13,844) $(65,771) Operating loss from discontinued operations of AMN, net of income taxes (722) (1,390) (722) (3,232) Loss on Disposal of AMN, including provision of $3.7 million for operating losses during phase-out period, net of income taxes -- (11,276) -- (11,276) ------- --------- -------- -------- Income (loss) before extraordinary item 4,573 (109,440) (14,566) (80,279) Extraordinary item--Gain on early extinguishment of debt, net of income taxes 3,670 -- 3,670 -- ------- --------- -------- -------- Net income (loss) $ 8,243 $(109,440) $(10,896) $(80,279) ======= ========= ======== ======== Weighted -average common shares outstanding used to compute basic income (loss) per share 33,143 38,605 34,975 38,699 Assumed common shares issued on exercise of stock options 993 -- -- -- ------- --------- -------- -------- Number of common shares used to compute diluted income (loss) per share 34,136 38,605 34,975 38,699 ======= ========= ======== ======== Basic earnings per share: - ------------------------- Income (loss) from continuing operations $ 0.16 $ (2.50) $ (0.40) $ (1.70) Operating loss from discontinued operations, net of income taxes (0.02) (0.04) (0.02) (0.08) Loss on disposal of AMN, net of income taxes -- (0.29) -- (0.29) Extraordinary item--Gain on early extinguishment of debt, net of income taxes 0.11 -- 0.11 -- ------- --------- -------- -------- Net income (loss) per common share $ 0.25 $ (2.83) $ (0.31) $ (2.07) ======= ========= ======== ======== Diluted earnings per share: - --------------------------- Income (loss) from continuing operations $ 0.16 $ (2.50) $ (0.40) $ (1.70) Operating loss from discontinued operations, net of income taxes (0.02) (0.04) (0.02) (0.08) Loss on disposal of AMN, net of income taxes -- (0.29) -- (0.29) Extraordinary item--Gain on early extinguishment of debt, net of income taxes 0.10 -- 0.11 -- ------- --------- -------- -------- Net income (loss) per common share $ 0.24 $ (2.83) $ (0.31) $ (2.07) ======= ========= ======== ========
37 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 15, 1999 By: /s/ Brad S. Plantiko _____________________________________ Brad S. Plantiko Executive Vice President-- Chief Financial Officer 38 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 SEP-30-1998 123,737 283,939 5,808 14,187 0 0 71,622 70,993 71,717 69,937 0 0 0 0 1,642,641 1,669,306 28,444 28,216 2,110,500 2,325,312 1,571,732 1,711,397 1,220 40,544 51,384 58,002 259,513 289,847 30,000 0 0 0 96,928 128,711 97,533 96,784 2,110,500 2,094,389 133,121 149,227 18,507 19,294 3,163 4,844 154,791 173,365 63,886 62,253 90,090 89,473 64,701 83,892 28,130 16,800 3,098 (564) 86,539 87,453 (23,684) (113,500) (14,566) (80,279) 3,670 0 0 0 (10,896) (80,279) (0.31) (2.07) (0.31) (2.07) 0 0 58,661 48,248 11,500 0 0 0 0 0 24,881 26,954 25,790 17,553 1,223 2,015 28,444 28,216 28,444 28,216 0 0 0 0
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