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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 30, 1995
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
California 95-2575576
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9920 South La Cienega Boulevard
Inglewood, California 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
Common Stock: Number of Shares of Common Stock outstanding as of
June 30, 1995: 13,645,806 shares.
Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of June 30, 1995, $5,873,000 in principal amount of
such Notes and $2,210,000 in principal amount of such
Debentures were outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
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IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 30, 1995
Financial Review
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes in
trends related to the financial condition of Imperial Bancorp (the
"Company") and its results of operations for three and six months ended
June 30, 1995.
PERFORMANCE SUMMARY
Net income for the quarter ended June 30, 1995 amounted to $4,648,000
or $0.33 per share, as compared to $1,209,000 or $0.09 per share for
the same quarter of 1994. Net income for the first six months of 1995
amounted to $9,304,000 or $0.66 per share, as compared to $2,334,000 or
$0.17 per share for the same period of 1994. Earnings as measured by
return on average total assets was 0.82% and 0.83%, respectively, for
the three and six months ended June 30, 1995, as compared to 0.22% and
0.20%, respectively, for the three and six months ended June 30, 1994.
Return on average stockholders equity was 9.02% and 9.14%,
respectively, for the second quarter and first six months of 1995, a
significant increase from the 2.55% and 2.48% returned on average
stockholders equity for the same periods of 1994. The increase in net
income was attributable to several factors: overall improvement in
asset quality; 14% growth in the loan portfolio from the prior year;
continued growth in the Company's fee based activities; and the
Company's efforts to reduce operating costs.
At June 30, 1995, the Company's total assets were $2.6 billion, total
loans were $1.5 billion and stockholders' equity and allowance for loan
losses totaled $248 million. This compares to total assets of $2.4
billion, total loans of $1.4 billion and stockholders' equity and
allowance for loan losses of $238 million at December 31, 1994.
Asset quality improvement was evidenced by a $8.9 million reduction in
nonaccrual loans from June 30, 1994 as well as a $17.0 million
reduction in real estate owned ("REO") from June 30, 1994. Nonaccrual
loans of $14.5 million at June 30, 1995 decreased $3.7 million from
year end 1994 while REO of $22.9 million at June 30, 1995 decreased
$6.1 million from year end 1994. These improvements in asset quality
have resulted in a reduced provision for loan losses and costs for REO.
For the quarter and six months ended June 30, 1995, the provision for
loan losses totaled $3.2 million and $4.6 million, respectively,
decreases of $1.9 million and $2.7 million, respectively, from the same
periods of 1994. REO expenses totaled $1.2 million for the second
quarter of 1995 and $2.3 million for the first half of 1995. These
expenses decreased $0.6 million and $0.8 million, respectively, from
the quarter and six months ended June 30, 1994.
Net interest income and net interest margin were $28.0 million and
5.6%, respectively, for the quarter ended June 30, 1995 as compared to
$24.7 million and 5.3%, respectively, for the quarter ended June 30,
1994. For the six months ended June 30, 1995, net interest income and
net interest margin were $53.0 million and 5.5%. This compares to net
interest income and net interest margin of $49.3 million and 5.1% for
the first half of 1994.
Noninterest income for the second quarter and first six months of 1995
totaled $9.4 million and $17.7 million, respectively, increasing $1.1
million and $1.6 million, respectively, from the same periods in the
prior year. Operating expenses amounted to $26.8 million and $53.2
million for the three and six months ended June 30, 1995. This compares
to $26.0 million and $54.6 million reported for the same periods of
1994. Excluding a $1.7 million lawsuit settlement collected in the
second quarter of 1994, noninterest expenses decreased $0.8 million and
$2.9 million, respectively, from the same periods of 1994. These
reductions reflects the Company's ongoing efforts to reduce operating
costs.
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EARNINGS PERFORMANCE
Net Interest Income: The Company's operating results depend primarily
on net interest income. A primary factor affecting the level of net
interest income is the Company's interest rate margin between the yield
earned on interest-earning assets and interest-bearing liabilities as
well as the difference between the relative amounts of average
interest-earning assets and average interest-bearing liabilities. Net
interest income was $28.0 million for the quarter ended June 30, 1995
as compared to $24.7 million for the quarter ended June 30, 1994. For
the six months ended June 30, 1995, net interest income was $53.0
million as compared to $49.3 million for the same period of 1994.
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Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1995 1994 1995 1994
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Interest income................ $43,660 $33,395 $82,260 $66,150
Interest expense............... 15,692 8,675 29,228 16,860
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Net interest income $27,968 $24,720 $53,032 $49,290
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Net interest margin 5.6% 5.3% 5.5% 5.1%
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The Company's net interest margin increased to 5.6% and 5.5%,
respectively, for the first quarter and six months of 1995 from 5.3%
and 5.1%, respectively, for the same periods of 1994. The increased
spread resulted primarily from an increase in the Company's base
lending rate which rose an average of 112 basis points since the
quarter ended June 30, 1994. In addition to the increase in interest
rates, the Company's average loan portfolio for the quarter ended June
30, 1995 grew $150 million, or 11% from the same quarter of 1994. For
the six months ended June 30, 1995, the average loan portfolio
increased approximately $80 million, or 6% from the first half of 1994.
As illustrated by Tables 1 and 2 (see pages 15 and 16), the growth in
the Company's loan portfolio significantly impacted net interest income
for both the quarter and six months ended June 30, 1995. Concurrently,
the Company's borrowing rates have increased, as has its volume of
interest-bearing liabilities, although not as rapidly as its lending
rates, resulting in part from the Company's efforts to competitively
market its certificates of deposit ("CD"). Average demand deposit
levels for the quarter and six months ended June 30, 1995 declined
approximately $121 million and $206 million, respectively, from the
same periods in the prior year. As a result, the Company returned to
the CD market to supplement its funding base. This is evidenced by the
growth in average time deposits which increased $221 million and $160
million for the quarter and six months ended June 30, 1995, as compared
to the same period of 1994.
The net effect of the Company's investment in derivative financial
instruments was a $2.9 million and $5.9 million reduction,
respectively, in net interest income for the quarter and six months
ended June 30, 1995, resulting in a 58 basis point reduction in net
interest margin for the quarter ended June 30, 1995 and a 60 basis
point reduction in net interest margin for the first half of 1995 (see
Asset/Liability Management). The impact of these instruments for the
quarter and six months ended June 30, 1994 was 16 and 5 basis point
reductions in net interest margin.
In conformity with banking industry practice, payments for accounting,
courier and other deposit related services provided to the Company's
real estate related customers are recorded as noninterest expense. If
these deposits were treated as interest-bearing and the payments
reclassified as interest expense, the Company's reported net interest
income and noninterest expense would have been reduced by $4.0 million
and $3.7 million, respectively, for the six months ended June 30, 1995
and 1994. The net interest margin for each period would have been 5.0%
and 4.7%, respectively.
Provision for Loan Losses: The provision for loan losses totaled $3.2
million and $4.6 million, respectively, for the quarter and six months
ended June 30, 1995 as compared to $5.1 million and $7.2 million,
respectively, for the same periods of 1994. Net charge-offs amounted to
$6.1 million and $9.7 million, respectively, for the six months ended
June 30, 1995 and 1994. As a percentage of average loans outstanding,
net charge-offs were 0.84% and 1.39%, respectively, for the six months
ended June 30, 1995 and 1994. The provision for loan losses reflects
management's ongoing evaluation of the risk inherent in the loan
portfolio, which includes consideration of numerous factors, such as
economic conditions, relative risks in the loan portfolio, loan loss
experience and review and monitoring of individual loans for
identification and resolution of potential problems.
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Noninterest Income: Noninterest income amounted to $9.4 million and
$17.7 million for the second quarter and first half of 1995 as compared
to $8.3 million and $16.1 million recorded for the same periods of
1994.
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Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1995 1994 1995 1994
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Service charges on deposit
accounts...................... $ 1,056 $ 1,244 $ 2,058 $ 2,579
Trust fees..................... 1,892 1,649 3,807 3,292
Gain on origination and
sale of loans................. 429 1,190 960 2,087
Equity in net earnings of
Imperial Credit
Industries, Inc............... 1,123 280 1,057 471
Other service charges and
fees.......................... 1,851 1,556 3,363 3,043
Merchant and credit card
fees.......................... 1,575 1,570 3,014 2,931
Gain (loss) on securities
available for sale............ (76) (313) 267 (264)
Gain on trading account
securities.................... 1,101 236 1,808 446
Gain on sale of real
property held for
sale or investment............ -- 507 -- 507
Other income................... 424 393 1,399 1,043
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Total $ 9,375 $ 8,312 $17,733 $16,135
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The Company engages in trading various instruments including the
guaranteed portion of government guaranteed loans, precious metals and
foreign currencies. Combined, these trading activities resulted in a
$0.9 million increase in trading income for the second quarter of 1995
from the same quarter of 1994. Trading income for the first half of
1995 was up $1.4 million from the same period of 1994. Trust fees grew
$0.2 million, or 15%, in the second quarter of 1995 over the same
period of last year while increasing $0.5 million, or 16%, year to
year. These increases result from the Company's trust subsidiary's
strategies to retain higher margin business relationships.
Gain on origination and sale of loans for the period ended June 30,
1995 represents earnings on Small Business Administration ("SBA")
lending activities. The decline in earnings from the prior year is
related to the dissolution of the Company's mortgage banking division
in the fourth quarter of 1994. Excluding mortgage banking activity from
prior year earnings, gain on origination and sale of SBA loans for the
six months ended June 30, 1995 has increased $0.2 million, or 17% from
the same period of 1994. Service charges on deposit accounts for the
quarter and six months ended June 30, 1995 have declined $0.2 million
and $0.5 million, respectively, from the same periods in the prior year
due to the decrease in demand deposits.
Included in the equity pickup from Imperial Credit Industries, Inc.
(NASDAQ-NMS-ICII) for the three and six months ended June 30, 1995 was
an adjustment to the income recognized for the first quarter of 1995.
On July 24, 1995, ICII revised its previously reported earnings for the
quarter ended March 31, 1995 as a result of Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("FAS 122"). The adjustment related to the implementation of
FAS 122 was not material.
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Noninterest Expense: Noninterest expense totaled $26.9 million and
$53.2 million for the quarter and six months ended June 30, 1995 as
compared to $26.0 million and $54.6 million for the same periods in the
prior year.
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Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1995 1994 1995 1994
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Salary and employee benefits..... $11,532 $10,936 $23,121 $22,919
Net occupancy expense............ 2,203 2,372 4,312 4,735
Furniture and equipment.......... 1,265 1,382 2,503 2,629
Data processing.................. 1,937 2,636 4,019 4,798
Customer services................ 1,960 1,511 4,001 3,726
Net real estate owned expense.... 1,214 1,850 2,328 3,171
Regulatory assessments........... 1,242 1,556 2,512 3,197
Professional and consulting...... 1,093 1,168 1,912 2,272
Business development............. 799 833 1,614 1,620
Lawsuit settlement............... 143 (1,734) 193 (1,734)
Other expense.................... 3,491 3,442 6,705 7,083
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Total $26,879 $25,952 $53,220 $54,416
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Exclusive of the lawsuit settlement recorded in the prior year which
netted the Company $1.7 million, noninterest expense for the quarter
and six months ended June 30, 1995 decreased $0.8 million and $2.9
million, respectively. As evidenced by the above table, the decrease in
noninterest expense was primarily due to a reduction in the Company's
operating expenses, including deposit insurance premiums, which
declined $0.7 million for the six months ended June 30, 1995 from the
same period of 1994. The Company's data processing costs for the
quarter ended June 30, 1995 dropped $0.7 million compared to the prior
year as a result of the major conversion of the Company's data
processing systems which took place in 1994. For the second quarter of
1995 to second quarter 1994, operating costs were down $0.8 million.
The Company's cost to carry REO during the first half of 1995 has
decreased $0.8 million from the prior year as a result of the lower REO
balances experienced during the first half of 1995.
Income Taxes: The Company recorded income tax expense of $3.7 million
for the six months ended June 30, 1995 representing an effective tax
rate of approximately 28%. For the same period of 1994, the Company's
effective tax rate approximated 38%. During the first quarter of 1995,
the Company recorded a $0.9 million reduction of tax expense to reflect
the finalization of prior years income tax issues. Excluding this one
time reduction of income tax expense, the Company's effective tax rate
would have been 35% for the first half of 1995. At June 30, 1995, the
Company had a net deferred tax receivable of $6.2 million, net of a
$1.5 million valuation allowance as compared to a $7.1 million net
deferred tax receivable, net of a $2.3 million valuation allowance at
December 31, 1994. The Company's net deferred tax receivable is
supported by carryback and carryforward provisions of the tax laws as
well as the Company's projection of taxable income for 1995. The $0.8
million net change in the valuation allowance for deferred tax assets
from year end 1994 primarily results from actual taxable income
experienced to date which currently exceeds the Company's projection of
taxable income for 1995.
ASSET/LIABILITY MANAGEMENT
Liquidity: For the Company, as with most commercial banking
institutions, liquidity is the ability to roll over substantial amounts
of maturing liabilities and to acquire new liabilities at levels
consistent with management's financial targets. The key to this on-
going replacement activity is the Company's reputation in the domestic
money markets, which is based upon its financial condition and its
capital base.
The overall liquidity position of the Company has been enhanced by a
sizable base of demand deposits resulting from the Company's long
standing relationships with the real estate services industry which
have provided a relatively stable and low cost funding base. Demand
deposits averaged $789 million and $780 million, respectively, for the
quarter and six months ended June 30, 1995 as compared to $910 million
and $987 million for the same periods of 1994. The Company's average
demand deposits
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and average shareholders equity funded 43.7% and 44.1%, respectively,
of average total assets for the second quarter and first six months of
1995 as compared to 49.7% and 51.0% respectively, for the same periods
of 1994. These funding sources are augmented by payments of principal
and interest on loans and the routine liquidation of securities from
the trading and available for sale portfolios and Federal funds sold
and securities purchased under resale agreements. During the first six
months of 1995, the Company experienced a net cash outflow from its
investing activities of $190.3 million primarily from the growth in the
Company's loan portfolio. The outflows were offset by the $232.7
million net cash provided by the Company's financing activities
consisting mainly of deposit inflows, primarily certificates of
deposit. These deposit inflows were partially offset by the repayment
of short-term borrowings.
Interest Rate Sensitivity Management: The primary objectives of the
asset liability management process are to provide a stable net interest
margin, generate net interest income to meet the Company's earnings
objectives, and manage balance sheet risks. These risks include
liquidity risk, capital adequacy and overall interest rate risk
inherent in the Company's balance sheet. In order to manage its
interest rate sensitivity, the Company has adopted policies which
attempt to limit the change in pre-tax net interest income assuming
various interest rate scenarios. This is accomplished by adjusting the
repricing characteristics of the Company's assets and liabilities as
interest rates change. The Company's Asset Liability Committee chooses
strategies in conformance with its policies to achieve an appropriate
trade off between interest rate sensitivity and the volatility of pre-
tax net interest income and net interest margin.
Each month the Company assesses its overall exposure to potential
changes in interest rates and the impact such changes may have on pre-
tax interest income and net interest margin by simulating various
interest rate scenarios over future time periods. Through the use of
these simulations, the Company can approximate the impact of these
projected rate changes on its entire on and off-balance sheet position
or any particular segment of the balance sheet.
Cumulative interest sensitivity gap represents the difference between
interest-earning assets and interest-bearing liabilities maturing or
repricing, whichever is earlier, at a given point in time. At June 30,
1995, the Company maintained a positive cumulative one year gap of
approximately $603 million as its interest rate sensitive assets
exceeded its interest rate sensitive liabilities. This positive
cumulative gap positions the Company for increased net interest income
during a period of rising interest rates but also exposes it to an
adverse impact on net interest income in a falling rate environment.
The Company's asset sensitivity, as measured by its cumulative positive
one year gap, increased from year end 1994 as it is no longer impacted
by its derivative instruments.
The Company's net interest margin is very sensitive to sudden changes
in interest rates. In addition, the Company's interest-earning assets,
primarily its loans. are tied to the Prime rate, an index that tends to
react more slowly to changes in market rates than other money market
indices such as LIBOR (London Interbank Offered Rate). The rates paid
for the Company's interest-bearing liabilities, however, do correlate
with LIBOR. This mismatch creates a spread relationship risk between
the Company's Prime based assets and LIBOR correlated liabilities. An
analysis of the historic relationship between the Prime rate and LIBOR
showed that the spread between the indices narrows in an environment of
rising interest rates and widens in a falling rate environment. In
order to provide protection against a narrowing of the Prime rate and
LIBOR spread and reduce asset sensitivity in the event of falling
interest rates, the Company entered into a series of derivative
financial contracts in 1993 and 1994 to establish a balance sheet
position which would provide some protection against a decrease in
interest rates while providing an increasing rate asset whose
characteristics would meet the objectives of the Company's asset
liability policy. The purpose of the instruments was to synthetically
alter the sensitivity of a portion of the Company's Prime based loan
portfolio, while retaining some positive asset sensitivity in the event
of an increase in interest rates.
At June 30, 1995, the Company's derivative financial contracts
consisted of several types of instruments including interest rate swaps
with embedded options and associated written options, purchased options
and interest rate floors. The interest rate swaps with embedded options
had a notional value of $200 million at June 30, 1995 and mature in the
first quarter of 1996. The embedded options with increasing strike
prices of 25 basis points per quarter cap the rate received on the
interest rate swaps.
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The embedded options were intended to provide a limited degree of
protection against a narrowing of the net interest margin in the event
of a decrease in short-term interest rates while providing an
increasing rate asset to retain asset sensitivity.
The interest rate swaps with linked written options had a notional
value of $300 million at June 30, 1995 and mature in the fourth quarter
of 1995 and first quarter of 1996. The associated options had a
notional value of $400 million at June 30, 1995 including $268 million
of financial futures contracts. These linked options, in the same
manner as the embedded options, were intended to cap the rate received
on the interest rate swaps at escalating strike prices built into the
options. The packaged options and futures contracts are stacked with
$300 million expiring during the third quarter and the final $100
million in the fourth quarter of 1995.
As interest rates continued to rise more quickly than anticipated in
1994 and other market related events caused a deterioration in the
values of derivative instruments, the strike price of the escalating
options written was exceeded by LIBOR. To prevent further negative
impact on interest income from the interest rate swaps with both
embedded and linked options, the Company purchased options during the
second half of 1994 with terms similar to the linked options written
and embedded options thus effectively capping the Company's exposure to
further losses. The notional value of the options purchased was $800
million at June 30, 1995.
The combined economic impact of the Company's derivative financial
instruments discussed above was a $2.9 million and $5.9 million
reduction, respectively, in net interest income for the quarter and six
months ended June 30, 1995 resulting in a 58 basis point reduction in
net interest margin for the quarter ended June 30, 1995 and a 60 basis
point reduction in net interest margin for the first half of 1995. The
impact of these instruments for the quarter and six months ended June
30, 1994 was 16 and 5 basis point reductions in net interest margin.
The total cost to terminate the Company's derivative financial
positions as of June 30, 1995 would have been $ 2.4 million with a
maximum potential loss exposure of $7.6 million. This had improved to a
cost to terminate of $1.5 million and a maximum loss exposure of $6.2
million at July 31, 1995. Exclusive of the impact of premiums received
on linked options and paid for purchased options, the cash requirement
and negative impact on net interest income associated with the
derivative transactions would be $3.1 million if interest rates remain
unchanged through the final maturity of these instruments in early
1996.
During the first and second quarter of 1995, the Company's asset
sensitivity was increasing as previously discussed. In response to this
and the general asset sensitive nature of the balance sheet, the
Company purchased interest rate floors whose purpose was to protect
against a drop in interest rates. The Company also purchased interest
rate caps to protect its fixed rate loans from an increase in interest
rates which would narrow the Company's net interest margin. The
interest rate floors, with a notional value of $500 million at June 30,
1995, expire in the second quarter of 1996. The floors provide
protection to the Company in the event that the three month LIBOR drops
below the strike price of 6.0% associated with the floor. In July 1995,
the Company revised the interest rate floor to decrease the associated
strike price to 5.5%. The unrealized gain of the floors approximated
$3.4 million at June 30, 1995. The interest rate caps have a notional
value of $1.1 billion at June 30, 1995 and expire at the rate of $250
million per quarter beginning in the fourth quarter of 1995 with the
final $100 million expiring in the final quarter of 1996. The caps
provide protection to the Company in the event that the three month
LIBOR rises above the strike prices of the caps which range from 8.0%
to 8.5%. The unrealized gain of the caps approximated $57,000 at June
30, 1995. During July 1995, the Company purchased an additional $550
million in interest rate caps which expire in a manner similar to the
caps previously discussed; $125 million in the fourth quarter of 1995
and third quarter of 1996, and $150 million in the first and second
quarter of 1996.
ASSET QUALITY
Allowance for loan losses: The Company's determination of the level of
the allowance for loan losses, and correspondingly, the provision for
loan losses rests upon various judgments and assumptions, including
general economic conditions (especially in California), loan portfolio
composition, prior loan loss experience and the Company's on-going
examination process to ensure timely identification of potential
problem loans. At June 30, 1995, the allowance for loan losses amounted
to $38.5 million or 2.5% of total loans as compared to $40.1 million or
2.9% of total loans at December 31, 1994 and
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$40.3 million or 3.0% of total loans at June 30, 1994. While management
uses available information to analyze losses on loans, future additions
to the allowance may be considered necessary based on changes in
economic conditions and loss trends in the loan portfolio.
Nonaccrual loans, restructured loans and real estate owned: Asset
quality improvement was evidenced by an $8.9 million reduction in
nonaccrual loans from June 30, 1994, as well as a $17.0 million
reduction in real estate owned from June 30, 1994. Nonaccrual loans of
$14.5 million decreased $3.7 million from year end 1994 while REO of
$22.9 million at June 30, 1995 decreased $6.1 million from year end
1994. The allowance for loan losses coverage of nonaccrual loans at
second quarter end approximated 266%, an increase from 221% at year end
1994 and an increase from 172% at June 30, 1994. Consistent with prior
reporting periods, there were no loans past due 90 days or more which
were still accruing interest and all interest associated with
nonaccrual loans had been reversed. It has been the Company's policy to
recognize interest on nonaccrual loans only as collected.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("FAS 114") as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure" ("FAS 118"). FAS 114 requires the
measurement of impaired loans to be based on (1) the present value of
the expected future cash flows of the impaired loan discounted at the
loan's original effective interest rate, (2) the observable market
price of the impaired loan or (3) the fair value of the collateral of a
collateral dependent loan. The adoption of FAS 114 had no material
effect on the Company's financial position or results of operations and
did not result in additional provisions for loan losses.
The Company considers a loan to be impaired when it is "probable" that
it will be unable to collect all amounts due (i.e., both principal and
interest) according to the contractual terms of the loan agreement. In
determining impairment, the Company considers loans with the following
characteristics: nonaccrual loans, restructured loans, and performing
loans for which it is probable the contractual terms of the original
loan agreement will not be met. The Company bases the measurement of
collateral dependent impaired loans on the fair value of the loan's
collateral. Non-collateral dependent loans are valued based on a
present value calculation of expected future cash flows discounted at
the loan's effective rate. Impairment losses are included in the
allowance for loan losses through a charge to the provision for loan
losses. Principal deemed to be uncollectible is recorded through a
charge-off to the allowance for loan losses. At June 30, 1995, the
recorded investment in loans for which impairment has been recognized
in accordance with FAS 114 totaled $36.0 million, of which $14.5
million were on nonaccrual status. The total allowance for potential
losses related to such loans was $8.7 million. During the first six
months of 1995, total interest recognized on the impaired loan
portfolio, on a cash basis, was $1.0 million. At June 30, 1995, $6.6
million of the impaired loans were current as to principal and
interest.
Excluding nonaccrual loans, restructured loans and impaired loans, the
Company had potential problem loans approximating $49.5 million at June
30, 1995. The balance primarily represented real estate loans secured
by commercial real estate. At June 30, 1995, these loans were current
as to principal and interest.
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Detailed information regarding nonaccrual loans, restructured loans and
real estate owned is presented below.
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June 30, March 31, Dec. 31, Sept. 30, June 30,
(In Thousands) 1995 1995 1994 1994 1994
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Nonaccrual loans:
Commercial loans.............................. $ 7,358 $ 11,954 $ 10,884 $ 8,098 $ 16,071
Real estate loans............................. 7,121 6,623 7,272 2,392 7,398
Consumer loans................................ -- -- -- -- --
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Total nonaccrual loans $ 14,479 $ 18,577 $ 18,156 $ 10,490 $ 23,469
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Restructured loans $ 4,097 $ 3,238 $ 5,948 $ 4,116 $ 4,128
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Real estate owned:
Foreclosed assets............................. $ 26,272 $ 25,138 $ 35,446 $ 41,470 $ 26,656
In-substance foreclosures..................... -- -- -- 2,995 17,150
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REO, gross.................................... $ 26,272 $ 25,138 $ 35,446 $ 44,465 $ 43,806
Less valuation allowance...................... (3,381) (3,312) (6,475) (5,434) (3,965)
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REO, net $ 22,891 $ 21,826 $ 28,971 $ 39,031 $ 39,841
------------------------------------------------------------------------------------------------------------------------
Total $ 41,467 $ 43,641 $ 53,075 $ 53,637 $ 67,438
------------------------------------------------------------------------------------------------------------------------
On an on-going basis, management closely monitors the loan portfolio in
addition to evaluating the continued adequacy of the allowance for loan
losses. Loans deemed uncollectible by management are charged to the
allowance for loan losses. Recoveries on previously charged off loans
are credited to the allowance.
CAPITAL
Retained earnings from operations has been the primary source of new
capital for the Company, with the exception of its long term debt
offering in 1979, and on a smaller scale, the exercise of employee
stock options. At June 30, 1995, shareholders equity totaled $210
million as compared to $198 million at December 31, 1994 and $189
million at June 30, 1994.
Management is committed to maintaining capital at a sufficient level to
assure shareholders, customers and regulators that the Company and the
Bank are financially sound. Risk-adjusted capital guidelines, issued by
bank regulatory agencies, assign risk weightings to assets both on and
off-balance sheet and place increased emphasis on common equity. Under
Prompt Corrective Action legislation, the guidelines require adequately
capitalized institutions to maintain a Tier I (core) capital ratio of
4% and a combined Tier I and Tier II capital ratio of 8%. Institutions
whose Tier I and total capital ratios meet or exceed 6% and 10%,
respectively, are deemed to be well capitalized. Tier I capital
basically consists of common stockholders equity and noncumulative
perpetual preferred stock and minority interest in consolidated
subsidiaries minus intangible assets. The Bank is considered well
capitalized with Tier I and total capital ratios at June 30, 1995 of
9.8% and 11.0%, respectively, as compared to 10.7% and 12.0%,
respectively, the year earlier.
-------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
9
--------------------------------------------------------------------------------
Capital Ratios for Imperial Bank/(1)/
--------------------------------------------------------------------------------------------------------------
June 30, (In Thousands) 1995 1994
--------------------------------------------------------------------------------------------------------------
Tier I:
Common stockholders' equity and preferred stock/(2)/.................. $ 199,537 $ 188,652
Disallowed assets..................................................... (2,523) (1,342)
--------------------------------------------------------------------------------------------------------------
Tier I capital $ 197,014 $ 187,310
--------------------------------------------------------------------------------------------------------------
Tier II:
Allowance for loan losses allowable in Tier II........................ 25,392 22,117
--------------------------------------------------------------------------------------------------------------
Total risk-based capital $ 222,406 $ 209,427
--------------------------------------------------------------------------------------------------------------
Risk-weighted balance sheet assets $1,803,950 $1,625,189
--------------------------------------------------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans................................. 152,281 84,028
Standby letters of credit............................................. 59,012 43,965
Other................................................................. 18,626 17,528
--------------------------------------------------------------------------------------------------------------
Total risk-weighted off-balance sheet items $ 229,919 $ 145,521
--------------------------------------------------------------------------------------------------------------
Disallowed assets........................................................ (2,523) (1,342)
Allowance for loan losses not included in Tier II........................ (13,092) (18,247)
--------------------------------------------------------------------------------------------------------------
Total risk-weighted assets $2,018,254 $1,751,121
--------------------------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital (4.0% minimum requirement)............................. 9.8% 10.7%
Total capital (8.0% minimum requirement).............................. 11.0% 12.0%
Leverage ratio (6.5% minimum requirement)............................. 8.6% 8.5%
--------------------------------------------------------------------------------------------------------------
/(1)/ As reported on the June 30, 1995 and 1994 FDIC call reports.
/(2)/ Excludes unrealized gain (loss) on securities available for sale.
In addition to the risk-weighted ratios, all banks are required to
maintain leverage ratios, to be determined on an individual basis, but
not below a minimum of 3%. The ratio is defined as Tier I capital to
average total assets for the most recent quarter. The Bank's leverage
ratio requirement is 6.5% as stipulated in its Memorandum of
Understanding ("MOU") with the Federal Deposit Insurance Company
("FDIC") and the California State Banking Department ("State") which
was revised during the third quarter of 1993. The Bank's leverage ratio
for June 30, 1995 was 8.6% as compared to 8.5% the prior year. In
addition to the leverage ratio requirement, the revised MOU established
levels for the reduction of classified assets identified in the 1992
examination. No specific targets for the reduction of classified assets
were set in the revised MOU as a result of the 1993 examination. In
addition, the MOU requires the prior written consent of dividends of
the Bank by the FDIC and the State. Management believes that the Bank
was in compliance with the terms of the MOU at June 30, 1995.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
10
--------------------------------------------------------------------------------
Consolidated Balance Sheet
-----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Imperial Bancorp and Subsidiaries June 30, December 31,
(In Thousands, Except Share Data) 1995 1994
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks.......................................................... $ 234,101 $ 168,626
Deposits placed with banks....................................................... 823 --
Trading account securities....................................................... 68,065 74,028
Securities available for sale (at fair value).................................... 233,853 388,249
Investment securities (fair value of $5,882 and $6,146 for 1995 and
1994, respectively)............................................................. 5,882 6,146
Federal funds sold and securities purchased under resale agreements.............. 455,000 276,500
Loans held for sale (fair value of $1,722 and $768 for 1995 and
1994, respectively)............................................................. 1,569 768
Loans:
Loans, net of unearned income and deferred loan fees.......................... 1,544,684 1,375,146
Less allowance for loan losses............................................. (38,484) (40,072)
-----------------------------------------------------------------------------------------------------------------------
Total net loans $1,506,200 $1,335,074
-----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net...................................................... 16,921 18,254
Accrued interest receivable...................................................... 14,673 12,769
Real estate owned, net........................................................... 22,891 28,971
Income taxes receivable.......................................................... 5,297 3,573
Real property held for sale or investment........................................ -- 234
Investment in Imperial Credit Industries, Inc.................................... 31,991 30,934
Other assets..................................................................... 31,063 34,583
-----------------------------------------------------------------------------------------------------------------------
Total assets $2,628,329 $2,378,709
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand........................................................................ $1,049,362 $ 928,728
Savings....................................................................... 17,288 27,207
Money market.................................................................. 436,378 491,090
Time--under $100,000.......................................................... 255,681 168,044
Time--$100,000 and over....................................................... 502,668 344,641
-----------------------------------------------------------------------------------------------------------------------
Total deposits 2,261,377 1,959,710
-----------------------------------------------------------------------------------------------------------------------
Accrued interest payable......................................................... 6,684 5,209
Short-term borrowings............................................................ 121,509 190,919
Long-term borrowings............................................................. 8,083 8,153
Other liabilities................................................................ 20,175 16,942
Minority interest in consolidated subsidiary..................................... 654 --
-----------------------------------------------------------------------------------------------------------------------
Total liabilities $2,418,482 $2,180,933
-----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock--no par, 50,000,000 shares authorized; 13,645,806
shares at June 30, 1995 and 12,832,609 shares at December 31, 1994
issued and outstanding..................................................... 128,434 117,144
Unrealized gain (loss) on securities available for sale, net of tax........... 577 (847)
Retained earnings............................................................. 80,836 81,479
-----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 209,847 $ 197,776
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,628,329 $2,378,709
-----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
11
--------------------------------------------------------------------------------
Consolidated Statement of Income
------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
Imperial Bancorp and Subsidiaries June 30, June 30,
(In Thousands, Except Per Share Data) 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans....................................................... $35,614 $28,155 $66,769 $55,686
Deposits placed with banks.................................. $ 5 $ -- $ 5 $ --
Trading account securities.................................. 1,368 778 2,319 1,219
Securities available for sale............................... 4,178 2,667 8,925 5,203
Investment securities....................................... 79 110 153 250
Federal funds sold and securities purchased under
resale agreements.......................................... 2,340 1,522 3,933 3,389
Loans held for sale......................................... 76 163 156 403
------------------------------------------------------------------------------------------------------------------------
Total interest income $43,660 $33,395 $82,260 $66,150
------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits.................................................... 14,427 7,671 26,442 14,668
Short-term borrowings....................................... 1,110 836 2,481 1,857
Long-term borrowings........................................ 155 168 305 335
------------------------------------------------------------------------------------------------------------------------
Total interest expense $15,692 $ 8,675 $29,228 $16,860
------------------------------------------------------------------------------------------------------------------------
Net interest income......................................... 27,968 24,720 53,032 49,290
Provision for loan losses................................... 3,175 5,084 4,556 7,216
------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $24,793 $19,636 $48,476 $42,074
------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts......................... 1,056 1,244 2,058 2,579
Trust fees.................................................. 1,892 1,649 3,807 3,292
Gain on origination and sale of loans....................... 429 1,190 960 2,087
Equity in net earnings of Imperial Credit
Industries, Inc............................................ 1,123 280 1,057 471
Other service charges and fees.............................. 1,851 1,556 3,363 3,043
Merchant and credit card fees............................... 1,575 1,570 3,014 2,931
(Loss) gain on securities available for sale................ (76) (313) 267 (264)
Gain on trading account securities.......................... 1,101 236 1,808 446
Gain on sale of real property held for sale or investment... -- 507 -- 507
Other income................................................ 424 393 1,399 1,043
------------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 9,375 $ 8,312 $17,733 $16,135
------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits................................ 11,532 10,936 23,121 22,919
Net occupancy expense....................................... 2,203 2,372 4,312 4,735
Furniture and equipment..................................... 1,265 1,382 2,503 2,629
Data processing............................................. 1,937 2,636 4,019 4,798
Customer services........................................... 1,960 1,511 4,001 3,726
Net real estate owned expense............................... 1,214 1,850 2,328 3,171
Regulatory assessments...................................... 1,242 1,556 2,512 3,197
Professional and consulting................................. 1,093 1,168 1,912 2,272
Business development........................................ 799 833 1,614 1,620
Lawsuit settlement.......................................... 143 (1,734) 193 (1,734)
Other expense............................................... 3,491 3,442 6,705 7,083
------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $26,879 $25,952 $53,220 $54,416
------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest............... 7,289 1,996 12,989 3,793
Income tax provision........................................... 2,637 787 3,681 1,459
Minority interest in income of consolidated subsidiary......... 4 -- 4 --
------------------------------------------------------------------------------------------------------------------------
Net income $ 4,648 $ 1,209 $ 9,304 $ 2,334
------------------------------------------------------------------------------------------------------------------------
Net income per share $0.33 $0.09 $0.66 $0.17
------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
12
--------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
------------------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries
Six months ended June 30, (In Thousands) 1995 1994
------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income.................................................................... $ 9,304 $ 2,334
Adjustments for noncash charges (credits):
Depreciation and amortization.............................................. 638 133
Accretion of purchased loan discount....................................... (1,260) --
Provision for loan losses.................................................. 4,556 7,216
Provision for real estate owned............................................ 989 1,808
Equity in net earnings of Imperial Credit Industries, Inc.................. (1,057) (471)
(Gain) loss on sale of real estate owned................................... (40) (3)
Gain on sale of real property held for sale or investment.................. (75) (507)
(Gain) loss on sale of premises and equipment.............................. (4) 111
Writedown for impairment of equity investment.............................. 500 503
(Gain) loss on securities available for sale............................... (267) 264
Net change in trading account securities................................... 5,963 (23,043)
Net change in loans held for sale.......................................... (801) 13,684
Net change in accrued interest receivable.................................. (1,904) (2,116)
Net change in accrued interest payable..................................... 1,475 1,779
Net change in income taxes receivable...................................... (1,724) 8,314
Net change in other liabilities............................................ 3,233 (1,777)
Net change in other assets................................................. 3,520 (8,157)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 23,046 $ 72
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in deposits placed with banks...................................... (823) --
Proceeds from investment securities........................................... 14 2,950
Purchase of investment securities............................................. (250) (251)
Proceeds from sale of securities available for sale........................... 774,005 1,205,700
Proceeds from maturities of securities available for sale..................... 424,194 300,937
Purchase of securities available for sale..................................... (1,040,973) (1,375,767)
Net change in federal funds sold and securities
purchased under resale agreements............................................ (178,500) 225,019
Net change in loans........................................................... (183,412) 107,358
Capital expenditures.......................................................... (2,176) (4,529)
Proceeds from sale of real estate owned....................................... 17,278 20,341
Proceeds from sale of real property held for sale or investment............... 309 14,628
Proceeds from sale of premises and equipment.................................. 9 --
------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (190,325) $ 496,386
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits, savings, and money market accounts............. 55,420 (349,249)
Net change in time deposits................................................... 245,664 (13,365)
Net change in short-term borrowings........................................... (68,827) (77,546)
Retirement of long-term borrowings............................................ (70) (25)
Proceeds from exercise of employee stock options.............................. 578 1,004
Other......................................................................... (11) (9)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 232,754 $ (439,190)
------------------------------------------------------------------------------------------------------------------------
Net change in cash and due from banks $ 65,475 $ 57,268
------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, beginning of year $ 168,626 $ 158,126
------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 234,101 $ 215,394
------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
13
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Imperial Bancorp and Subsidiaries
NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all footnotes as would be necessary for a
fair presentation of financial position, results of operations,
and changes in cash flows in conformity with generally accepted
accounting principles. However, these interim financial statements
reflect all normal recurring adjustments, which are, in the
opinion of the management, necessary for a fair presentation of
the results for the interim periods presented. All such
adjustments were of a normal recurring nature. The Consolidated
Balance Sheet, Consolidated Statement of Income and Consolidated
Statement of Cash Flows are presented in the same format as that
used in the Company's most recently filed Report on Form 10-K. The
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries.
NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC.
During 1993, the Bank sold 2,800,000 shares of the common stock of
Imperial Credit Industries, Inc. ("ICII") reducing its ownership
of ICII to 40.2%. After the 1993 sale of ICII stock, the Company
no longer exercised significant control over the operations of
ICII, and therefore, the results of ICII operations are now
accounted for in the Company's financial statements as an equity
investment. The equity investment in ICII is carried at cost
adjusted for equity in undistributed earnings.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows.
------------------------------------------------------------------
June 30, (In Thousands) 1995 1994
------------------------------------------------------------------
Interest paid............................... $27,753 $15,081
Taxes refunded.............................. -- 6,499
Taxes paid.................................. 6,770 3,756
Significant noncash transactions:
Loans transferred to real estate owned... 10,983 7,891
------------------------------------------------------------------
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
14
--------------------------------------------------------------------------------
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID
The following table sets forth the average daily balances for major categories
of assets, liabilities and stockholders' equity including interest-earning
assets and interest-bearing liabilities and the average interest rates earned
and paid thereon. The yields are not presented on a tax equivalent basis as the
effects are not material.
Three months ended June 30,
------------------------------------------------------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
------------------------------------------------------------------------------------------------------------------------------------
Earning assets:
Loans(1).................................. $1,508,567 $35,614(2) 9.4% $1,358,824 $28,155(2) 8.3%
Deposits placed with banks................ 406 5 4.9 -- -- --
Trading account securities................ 72,306 1,368 7.6 59,223 778 5.3
Securities available for sale............. 250,290 4,178 6.7 282,235 2,667 3.8
Investment securities..................... 6,218 79 5.1 6,011 110 7.3
Federal funds sold and securities
purchased under resale agreements....... 154,814 2,340 6.0 153,590 1,522 4.0
Loans held for sale....................... 2,699 76 11.3 8,407 163 7.8
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $1,995,300 $43,660 8.8% $1,868,290 $33,395 7.1%
------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses.................... (40,536) (43,199)
Cash......................................... 196,601 226,589
Other assets................................. 123,299 162,373
---------- ----------
Total assets.............................. $2,274,664 $2,214,053
========== ==========
Interest-bearing
liabilities:
Savings................................... $ 21,309 $ 134 2.5% $28,133 175 2.5%
Money market.............................. 432,846 3,063 2.8 469,737 2,657 2.3
Time - under $100,000..................... 254,996 4,120 6.5 189,720 1,933 4.1
Time - $100,000 and over.................. 458,821 7,110 6.2 303,375 2,906 3.8
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,167,972 $14,427 4.9% 990,965 $ 7,671 3.1%
-----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings..................... 75,055 1,110 5.9 93,451 836 3.6
Long-term borrowings...................... 8,109 155 7.6 9,865 168 6.8
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,251,136 $15,692 5.0% 1,094,281 $ 8,675 3.2%
-----------------------------------------------------------------------------------------------------------------------------------
Demand deposits.............................. 788,540 909,798
Other liabilities............................ 28,755 20,197
Stockholders' equity......................... 206,233 189,777
---------- ----------
Total liabilities and
stockholders' equity.................. $2,274,664 2,214,053
========== ==========
Net interest income/net
interest margin............................. $27,968 5.6% $24,720 5.3%
=================== ===================
Six months ended June 30,
------------------------------------------------------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
---------------------------------------------------------------------------------------------------------------------------------
Loans(1).................................. $1,464,289 $66,769(2) 9.1% $1,384,465 $55,686(2) 8.0%
Deposits placed with banks................ 204 5 4.9 -- -- --
Trading account securities................ 63,095 2,319 7.4 49,171 1,219 5.0
Securities available for sale............. 275,974 8,925 6.5 301,630 5,203 3.4
Investment securities..................... 6,181 153 5.0 6,860 250 7.3
Federal funds sold and securities
purchased under resale agreements....... 132,297 3,933 5.9 190,598 3,389 3.6
Loans held for sale....................... 2,787 156 11.2 12,793 403 6.3
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $1,944,827 $82,260 8.5% $1,945,517 $66,150 6.8%
------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses.................... (40,471) (43,116)
Cash......................................... 200,049 241,191
Other assets................................. 127,420 162,501
---------- ----------
Total assets.............................. $2,231,825 $2,306,093
========== ==========
Interest-bearing
liabilities:
Savings................................... $ 28,857 $ 359 2.5% $ 25,918 $ 322 2.5%
Money market.............................. 448,193 6,172 2.8 461,411 5,062 2.2
Time - under $100,000..................... 237,201 7,409 6.2 179,563 3,570 4.0
Time - $100,000 and over.................. 414,175 12,502 6.0 312,071 5,714 3.7
------------------------------------------------------------ -----------------------------------------------------------------------
Total interest-bearing deposits $1,128,426 $26,442 4.7% $ 978,963 $14,668 3.0%
------------------------------------------------------------ -------------------------------------------------- --------------------
Short-term borrowings..................... 85,020 2,481 5.8 122,988 1,857 3.0
Long-term borrowings...................... 8,129 305 7.5 9,866 335 6.8
------------------------------------------------------------ -----------------------------------------------------------------------
Total interest-bearing liabilities $1,221,575 $29,228 4.8% $1,111,817 $16,860 3.0%
------------------------------------------------------------ -----------------------------------------------------------------------
Demand deposits.............................. 780,142 986,989
Other liabilities............................ 26,522 18,697
Stockholders' equity......................... 203,586 188,590
Total liabilities and ----------
----------
stockholders' equity.................. 2,231,825 2,306,093
========== ==========
Net interest income/net
interest margin............................. $53,032 5.5% $49,290 5.1%
=================== ===================
(1) Includes nonaccrual loans.
(2) Includes net loan fees of $2,030,000 and $2,342,000 for the six months ended
June 30, 1995 and 1994, respectively, and $1,198,000 and $1,398,000 for the
three months ended June 30, 1995 and 1994, respectively.
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST MARGIN
Changes in the Company's net interest income are a function of both
changes in rates and changes in volumes of interest-earning assets and
interest-bearing liabilities. The following table sets forth
information regarding changes in interest income and interest expense
for the years indicated. The total change is segmented into the change
attributable to variations in volume (changes in volume multiplied by
old rate) and the change attributable to variations in interest rates
(changes in rates multiplied by old volume). The change in interest due
to both rate and volume (changes in rate multiplied by changes in
volume) is classified as rate/volume. Nonaccrual loans are included in
average loans used to compute this table. The table is not presented on
a tax equivalent basis as the effects are not material.
-----------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
-----------------------------------------------------------------------------------------------------------------------------------
1995 Over 1994 1995 Over 1994
Rate/ Rate/
(In Thousands) Volume Rate(1) Volume Total Volume Rate(1) Volume Total
-----------------------------------------------------------------------------------------------------------------------------------
Increase/(Decrease) in:
Loans, net of unearned
income and deferred
loan fees................. 3,107 3,737 615 7,459 3,193 7,615 275 11,083
Deposits placed with
banks..................... 5 -- -- 5 5 -- -- 5
Trading account
securities................ 173 341 76 590 348 590 162 1,100
Securities available
for sale.................. (303) 2,046 (232) 1,511 (436) 4,675 (517) 3,722
Investment securities...... 4 (33) (2) (31) (25) (79) 7 (97)
Federal funds sold and
securities purchased
under resale agreements... 12 768 38 818 (1,049) 2,192 (599) 544
Loans held for sale........ (111) 73 (49) (87) (315) 313 (245) (247)
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income $2,887 $6,932 $ 446 $10,265 $ 1,721 $15,306 $ (917) $16,110
-----------------------------------------------------------------------------------------------------------------------------------
Savings.................... (41) -- -- (41) 37 -- -- 37
Money market............... (212) 587 31 406 (145) 1,384 (129) 1,110
Time - under $100,000...... 669 1,138 380 2,187 1,153 1,975 711 3,839
Time - $100,000 and over... 1,477 1,820 907 4,204 1,889 3,589 1,310 6,788
-----------------------------------------------------------------------------------------------------------------------------------
Total deposits $1,893 $3,545 $1,318 $ 6,756 $ 2,934 $ 6,948 $ 1,892 $11,774
-----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings...... (166) 538 (98) 274 (570) 1,722 (528) 624
Long-term borrowings....... (30) 20 (3) (13) (60) 35 (5) (30)
-----------------------------------------------------------------------------------------------------------------------------------
Total interest
expense $1,697 $4,103 $1,217 $ 7,017 $ 2,304 $ 8,705 $ 1,359 $12,368
-----------------------------------------------------------------------------------------------------------------------------------
Changes in net
interest income $1,190 $2,829 $ (771) $ 3,248 $ (583) $ 6,601 $(2,276) $ 3,742
-----------------------------------------------------------------------------------------------------------------------------------
(1) The rate change for interest income includes a $2.9 million and
$5.9 million impact of derivative instruments for the three and six
months ended June 30, 1995.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
16
--------------------------------------------------------------------------------
TABLE 3 - SECURITIES
(a) Investment Securities
The following is a summary for the major categories of investment
securities.
------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------
June 30, 1995
Industrial development bonds.......... $4,532 $ -- $ -- $4,532
Other securities...................... 1,350 -- -- 1,350
------------------------------------------------------------------------------------------------------
Total $5,882 $ -- $ -- $5,882
------------------------------------------------------------------------------------------------------
December 31, 1994
Industrial development bonds.......... $4,546 $ -- $ -- $4,546
Other securities...................... 1,600 -- -- 1,600
------------------------------------------------------------------------------------------------------
Total $6,146 $ -- $ -- $6,146
------------------------------------------------------------------------------------------------------
(b) Securities Available for Sale
The following is a summary for the major categories of securities
available for sale.
------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------
June 30, 1995
U.S. Treasury and federal agencies.... $ 200,362 $ 1,293 $ (20) $201,635
Mutual funds.......................... 26,971 -- -- 26,971
Other securities...................... 5,518 -- (271) 5,247
------------------------------------------------------------------------------------------------------
Total $ 232,851 $ 1,293 $ (291) $233,853
------------------------------------------------------------------------------------------------------
December 31, 1994
U.S. Treasury and federal agencies.... $ 321,455 $ 11 $ (517) $320,949
Mutual funds.......................... 56,915 -- -- 56,915
Other securities...................... 11,352 2 (969) 10,385
------------------------------------------------------------------------------------------------------
Total $ 389,722 $ 13 $(1,486) $388,249
------------------------------------------------------------------------------------------------------
Gross realized gains and losses for the three months ended June 30,
1995 were $10,000 and $86,000, respectively. For the same period of
1994, these amounts were zero and $313,000, respectively. Gross
realized gains and losses for the six months ended June 30, 1995 were
$417,000 and $150,000, respectively. These amounts were $49,000 and
$313,000, respectively for the same period in the prior year.
--------------------------------------------------------------------------------
Imperial Bancorp [LOGO]
17
--------------------------------------------------------------------------------
TABLE 4 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan losses
and pertinent ratios.
-------------------------------------------------------------------------------------------------------------------
Six months ended June 30, (In Thousands) 1995 1994
-------------------------------------------------------------------------------------------------------------------
Allowance for loan losses:
Balance, beginning of year........................................... $ 40,072 $ 42,800
Loans charged off:
Commercial........................................................... (3,712) (6,169)
Real estate.......................................................... (3,501) (5,196)
Consumer............................................................. (37) (80)
-------------------------------------------------------------------------------------------------------------------
Total loans charged off $ (7,250) $ (11,445)
-------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial........................................................... 1,042 1,713
Real estate.......................................................... 43 44
Consumer............................................................. 21 36
-------------------------------------------------------------------------------------------------------------------
Total loan recoveries $ 1,106 $ 1,793
-------------------------------------------------------------------------------------------------------------------
Net loans charged off................................................... (6,144) (9,652)
Provision for loan losses............................................... 4,556 7,216
-------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 38,484 $ 40,364
-------------------------------------------------------------------------------------------------------------------
Loans outstanding, end of period $1,544,684 $1,355,731
-------------------------------------------------------------------------------------------------------------------
Average loans outstanding $1,464,289 $1,384,465
-------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans............................... 0.84%(1) 1.39%(1)
Ratio of allowance for loan losses to average loans..................... 2.63% 2.92%
Ratio of allowance for loan losses to loans outstanding at June 30...... 2.49% 2.98%
Ratio of provision for loan losses to net chargeoffs.................... 74% 75%
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(1) Annualized
The Company evaluates the adequacy of its allowance for loan losses on
an overall basis rather than by specific categories of loans. In
determining the adequacy of the allowance for loan losses, management
considers such factors as historical loan loss experience, known
problem loans, evaluations made by bank regulatory authorities,
assessment of economic conditions and other appropriate data to
identify the risks in the loan portfolio.
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TABLE 5 - REAL ESTATE OWNED
(a) Real Estate Owned by Type of Project
At June 30, 1995 and December 31, 1994, real estate owned by type of
project is presented in the following table:
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June 30, December 31,
(In Thousands) 1995 1994
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Acquisition and land development................... $11,608 $15,010
Single-family residential.......................... 7,988 14,579
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Total residential $19,596 $29,589
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Acquisition and land development................... 5,205 255
Retail facilities.................................. -- 2,214
Office............................................. 1,471 3,388
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Total nonresidential $ 6,676 $ 5,857
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REO, gross $26,272 $35,446
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Less valuation allowance........................... (3,381) (6,475)
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REO, net $22,891 $28,971
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(b) Net Real Estate Owned Expense
For the periods ended June 30, 1995 and 1994, net real estate owned
expense was comprised of the following:
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Three months ended Six months ended
June 30, June 30,
(In Thousands) 1995 1994 1995 1994
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Net loss (gain) on sale of
real estate owned....................... $ 5 $ (109) $ (40) $ (3)
Valuation adjustments
charged to operations................... 489 1,200 989 1,808
Direct holding costs..................... 720 759 1,379 1,366
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Net real estate owned
expense $ 1,214 $ 1,850 $2,328 $3,171
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The following table sets forth information regarding the Company's
valuation allowance for REO.
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June 30, December 31,
(In Thousands) 1995 1994
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Balance, beginning of period................................ $ 6,475 $ 3,084
Provision for REO........................................... 989 5,291
REO charged off............................................. (4,083) (1,900)
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Balance, end of period $ 3,381 $ 6,475
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TABLE 6 - FINANCIAL RATIOS
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Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
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Net income as a percentage of: (1)
Average stockholders' equity.............................. 9.02% 2.55% 9.14% 2.48%
Average total assets...................................... 0.82 0.22 0.83 0.20
Average earning assets.................................... 0.93 0.26 0.96 0.24
Average stockholders' equity as a percentage of:
Average assets............................................ 9.07% 8.57% 9.12% 8.18%
Average loans............................................. 13.67 13.97 13.90 13.62
Average deposits.......................................... 10.54 9.98 10.67 9.59
Stockholders' equity at period end as a percentage of:
Total assets at period end................................ -- -- 7.98% 8.01%
Total loans at period end................................. -- -- 13.59 13.93
Total deposits at period end.............................. -- -- 9.28 9.32
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(1) Annualized
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Exhibits
Part I
COMPUTATION OF EARNINGS PER SHARE
Imperial Bancorp (the "Company") has outstanding certain employee stock
options, which options have been determined to be common stock
equivalents for purposes of computing earnings per share.
During the periods ended June 30, 1995 and 1994, the market price of
the Company's common stock exceeded the exercise price of certain of
these common stock equivalents. Under the treasury stock method, the
following weighted average shares of common stock and common stock
equivalents outstanding were used in the respective earnings per share
computations.
Three months ended June 30, Six months ended June 30,
---------------------------------------------------------------------
1995 1994 1995 1994
---------- ------------------------------ ---------------
14,213,553 13,621,623/(1)/ 14,145,744 13,512,240/(1)/
/(1)/ Adjusted for a 5% stock dividend paid in the first quarter of
1995.
Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
Due to the nature of the businesses, the Company and its
subsidiaries are subject to numerous legal actions, threatened
or filed, arising in the normal course of business. Certain of
the actions currently pending seek punitive damages, in
addition to other relief. The Company is of the opinion that
the eventual outcome of all currently pending legal proceedings
will not be materially adverse to the Company, nor has the
resolution of any proceeding since the Company's last filing
with the Commission materially adversely affected the
registrant or any subsidiary thereof.
ITEM 2. Changes in Securities
No events have transpired which would make response to this
item appropriate.
ITEM 3. Defaults upon Senior Securities
No events have transpired which would make response to this
item appropriate.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No events have transpired which would make response to this
item appropriate.
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ITEM 5. Other Information
During the third quarter of 1993, the Bank entered into a
revised Memorandum of Understanding ("MOU") with the Federal
Deposit Insurance Corporation ("FDIC") and the California State
Banking Department ("State"). The revised MOU established a new
level for the reduction of classified assets. The MOU continued
the prior written approval of dividends of the Bank by the FDIC
and the State and a minimum leverage ratio of 6.5% which began
with the first quarter of 1993. At June 30, 1995, the Bank's
leverage ratio was 8.6%. Management believes the Bank was in
compliance with the terms of the MOU as of June 30, 1995.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
All other material referenced in this report which is
required to be filed as an exhibit hereto has previously
been submitted.
(b) Reports on Form 8-K. No reports on Form 8-K have been
filed during the period, and no events have occurred which
would require one to be filed.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IMPERIAL BANCORP
Dated: August 14, 1995 By: Robert M. Franko
----------------------------
Robert M. Franko
Executive Vice President and
Chief Financial Officer
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