UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1999
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
California 95-2575576
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
9920 South La Cienega Boulevard
Inglewood, California 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
Common Stock: Number of Shares of Common Stock outstanding as of March 31, 1999:
41,899,886 shares.
Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of March 31, 1999, $1,106,000 in principal amount of
such Notes and $999,000 in principal amount of such Debentures
were outstanding.
Capital Securities: 9.98 percent Series B Capital Securities of Imperial Capital
Trust I Due 2026. As of March 31, 1999, $73,386,000 in net
principal amount was outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1999
Except for the historical information contained herein, the following discussion
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of forward-
looking terminology including "may", "will", "intend", "should", "expect",
"anticipate", "estimate" or "continue" or the negatives thereof or other
comparable terminology. The Company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of various
factors, including those set forth in documents filed with the Securities and
Exchange Commission.
FINANCIAL REVIEW
The following discussion presents information about the results of operations,
financial condition, liquidity, and capital resources of Imperial Bancorp ("the
Company") for the three months ended March 31, 1999. This information should be
read in conjunction with the Company's 1998 consolidated financial statements
and notes thereto, and the accompanying quarterly unaudited consolidated
financial statements and notes thereto.
PERFORMANCE SUMMARY
Net income for the three months ended March 31, 1999, increased to $14.2
million, or $0.33 a diluted share, from $13.4 million, or $0.30 a diluted share,
for the year-earlier period. Normalized net income increased to $12.9 million
for the three months ended March 31, 1999, from $11.7 million for the year-
earlier period. Normalized earnings per share for the first quarter of 1999
increased approximately 15 percent to $0.30 a diluted share from $0.26 a diluted
share for the first quarter of 1998. For purposes of these comparisons,
normalized net income excludes equity in the earnings of Imperial Credit
Industries, Inc. ("ICII") (NASDAQ-ICII). The normalizing adjustments reduced
net income by $1.3 million and $1.7 million for the quarters ended March 31,
1999 and 1998, respectively. Net income growth continues to be driven by the
Company's core commercial banking business.
The following table provides the calculation of normalized net income for the
periods indicated:
================================================================================
Three months ended
March 31,
(Dollars in thousands, except per share amounts) 1999 1998
================================================================================
Net income $ 14,223 $ 13,375
After-tax adjustments:
Equity in net income of ICII (1,298) (1,671)
---------- -----------
Normalized net income $ 12,925 $ 11,704
========== ==========
Normalized diluted earnings per share $ 0.30 $ 0.26
Normalized return on average assets (1) 0.98% 1.10%
Normalized return on average equity 13.53% 13.21%
===============================================================================
(1) The balance of average assets excludes the Company's investment in ICII.
Earnings per share for first quarter 1998 has been adjusted to reflect an 8
percent stock dividend paid on March 5, 1999.
The annualized return on average assets decreased to 1.07 percent for the three
months ended March 31, 1999, from 1.23 percent for the year-earlier period. The
annualized return on average assets, based on normalized net income, declined to
0.98 percent for the three months ended March 31, 1999, from 1.10 percent for
the year-earlier period. A 22 percent increase in average assets combined with a
decline in the net interest margin contributed to the decrease in the annualized
return on average assets for the first quarter of 1999 compared with the first
quarter of 1998. The annualized return on average equity decreased to 14.89
percent for the three months ended March 31, 1999, from 15.10 percent for the
year-
1
earlier period. The annualized return on average equity, based on normalized net
income, increased to 13.53 percent for the first quarter of 1999 from 13.21
percent for the first quarter of 1998.
Net interest income increased 3 percent for the three months ended March 31,
1999, to $62.8 million from $60.8 million for the three months ended March 31,
1998. The increase in net interest income is primarily due to growth in the
loan portfolio. Average loan balances increased approximately $840.1 million,
or 28 percent, for the three months ended March 31, 1999, compared with the
year-earlier period.
Net interest margin decreased to 5.25 percent for the three months ended March
31, 1999, from 6.24 percent for the year-earlier period. The decline in net
interest margin compared with the prior year is primarily due to a decrease in
the yield on commercial loans. The decrease in yield is due in part to a 75
basis point decline in the average prime rate for the first quarter of 1999
compared with the first quarter of 1998. The Company's overall cost of funds
decreased to 4.05 percent for the three months ended March 31, 1999, from 4.96
percent for the prior year.
============================================================================
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------
Interest income $ 87,432 $ 84,258
Interest expense 24,605 23,434
- ----------------------------------------------------------------------------
Net interest income $ 62,827 $ 60,824
______________________________________________________________________________
Net interest margin 5.25% 6.24%
==============================================================================
The loan loss provision totaled $4.8 million and $5.8 million for the three
months ended March 31, 1999 and 1998, respectively. Net charge-offs were $3.7
million, or 0.39 percent of average loans on an annualized basis, for the first
quarter of 1999 compared with $1.3 million, or 0.18 percent of average loans on
an annualized basis, for the year-earlier quarter. The ratio of the allowance
for loan losses to period-end outstanding loans was 1.81 percent at March 31,
1999, 1.82 percent at December 31, 1998, and 1.83 percent at March 31, 1998.
Noninterest income increased to $22.0 million for the three months ended March
31, 1999, from $17.9 million for the year-earlier period. Excluding equity in
the net income of ICII, noninterest income increased 31 percent to $19.7 million
for the first quarter of 1999 from $15.0 million for the first quarter of 1998.
The Company experienced growth in most noninterest income categories, including
gains on the exercise and sale of equity warrants, fees derived from the sale of
nonproprietary mutual funds and merchant card processing fees.
Noninterest expense increased approximately 13 percent to $56.5 million for the
three months ended March 31, 1999, from $50.1 million for the year-earlier
period. The increase in noninterest expense for the first quarter of 1999
compared with the same period of 1998 occurred primarily in salaries and
benefits expense, occupancy and equipment expense, telephone expense,
professional fees and customer services expense. The increase in salaries and
benefits expense and occupancy and equipment expense is the result of growth in
the Company's lending and deposit businesses and support operations. The
average number of full-time equivalent staff increased to 1,255 for the first
quarter of 1999 from 1,048 for the first quarter of 1998. Salaries expense for
the three months ended March 31, 1999, includes commissions totaling $1.2
million associated with the exercise and sale of equity warrants compared with
$8,000 for the year-earlier quarter. The increase in customer services expense
is directly related to growth in deposit balances generated by the Financial
Services Division.
Total assets at March 31, 1999, were $6.4 billion, a 4 percent increase from
$6.2 billion at December 31, 1998, and a 12 percent increase from $5.7 billion
reported at March 31, 1998. Total loans were $3.5 billion at March 31, 1999,
and $3.4 billion at December 31, 1998, an increase of 15 percent from $3.0
billion at March 31, 1998. The growth in the loan portfolio at March 31, 1999,
occurred in commercial and construction loans which increased 17 and 55 percent,
respectively, over March 31, 1998. Total deposits increased to $5.8 billion at
March 31, 1999, from $5.6 billion at December 31, 1998, and $5.1 billion at
March 31, 1998. The increase in total deposits compared with a year ago is due
to a $388.2 million, or 12 percent, increase in noninterest-bearing demand
deposits to $3.5 billion at March 31, 1999, from $3.1 billion at March 31, 1998.
Noninterest-bearing demand deposits comprised 60 percent of total deposits at
2
March 31, 1999, down slightly from 61 percent at March 31, 1998. Shareholders'
equity increased to $388.1 million at March 31, 1999, from $381.8 million at
December 31, 1998, and $369.6 million at March 31, 1998.
Nonaccrual loans totaled $43.0 million, or 1.22 percent of total loans, at March
31, 1999, compared with $30.6 million, or 0.89 percent of total loans, at
December 31, 1998, and $12.3 million, or 0.40 percent of total loans, at March
31, 1998. Restructured loans decreased to $7.3 million at March 31, 1999, from
$9.8 million at December 31, 1998, and $23.1 million at March 31, 1998. The
percentage of nonaccrual and restructured loans to total loans increased to 1.43
percent at March 31, 1999, from 1.17 percent at December 31, 1998, and 1.16
percent at March 31, 1998. The increase in nonaccrual loans at March 31, 1999,
compared with December 31, 1998, includes a $10.0 million commercial real estate
loan. All restructured loans were performing in accordance with their modified
terms at March 31, 1999. The balance of real estate and other assets owned net
of allowance ("OREO") decreased to $2.0 million at March 31, 1999, from $2.3
million at December 31, 1998, and $3.0 million at March 31, 1998.
Imperial Bancorp is classified as well capitalized with leverage, Tier 1 and
total capital ratios of 8.45 percent, 9.73 percent and 11.02 percent,
respectively, at March 31, 1999.
Stock Dividend
On February 3, 1999, the Company announced an 8 percent stock dividend paid on
March 5, 1999, to shareholders of record as of February 19, 1999.
Subordinated Debt Issue
On April 7, 1999, Imperial Bank completed a $100 million offering of 8.5 percent
Subordinated Capital Notes due 2009. The Notes qualify as Tier 2 capital under
FDIC guidelines.
Sale of Imperial Trust Company
On April 23, 1999, the Company announced the sale of the business portfolio of
Imperial Trust Company ("ITC") to Union Bank of California, N.A. ("UBOC").
Regulatory approval has been received and the sale is expected to close prior to
the end of May 1999. The Company expects to record a pretax gain of
approximately $9.0 million in the second quarter of 1999 and an additional gain
of up to $3.5 million in the second quarter of 2000, based on the earnings
performance of the trust business for UBOC. ITC currently has over $10.0
billion of assets under administration.
EARNINGS PERFORMANCE
Net Interest Income:
The Company's operating results depend primarily on net interest income. Net
interest income is the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities. Net interest margin
is net interest income expressed as a percentage of average interest-earning
assets. Net interest income increased to $62.8 million for the three months
ended March 31, 1999, from $60.8 million for the year-earlier period. The
increase in net interest income is due to growth in average earning assets,
primarily loans which increased by $840.1 million, or 28 percent, over the year-
earlier period. Increases of $40.5 million and $39.2 million in trading
instruments and Federal funds sold, respectively, for the three months ended
March 31, 1999, more than offset a $29.8 million decrease in the balance of
securities available for sale compared with the same period of 1998. The
increase in net interest income due to growth in earning asset balances for the
current quarter compared with the year-earlier quarter exceeded the impact of a
decline in the overall yield on earning assets to 7.30 percent from 8.64
percent.
3
=================================================================================================================================
Three months ended March 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(Dollars in thousands) Balance Expense Rate(1) Balance Expense Rate(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans-net of unearned income
and deferred loan fees (2) $ 3,817,300 $ 74,587 (3) 7.92% $ 2,977,204 $ 70,230 (3) 9.57%
Trading instruments 66,672 889 5.41% 26,140 350 5.43%
Securities available for sale 611,295 7,394 4.91% 641,085 9,343 5.91%
Securities held to maturity 3,874 72 7.54% 4,021 70 7.06%
Federal funds sold and securities
purchased under resale agreements 339,495 4,055 4.84% 300,251 4,121 5.57%
Loans held for sale 18,597 435 9.49% 5,245 144 11.13%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 4,857,233 $ 87,432 7.30% $ 3,953,946 $ 84,258 8.64%
=================================================================================================================================
Allowance for loan losses (63,628) (52,101)
Cash 357,792 310,793
Other assets 235,210 195,837
----------- -----------
Total assets $ 5,386,607 $ 4,408,475
=========== ===========
Interest-bearing liabilities:
Savings $ 36,653 $ 151 1.67% $ 25,346 $ 159 2.54%
Money market 1,067,070 7,455 2.83% 778,893 7,483 3.90%
Time-under $100,000 121,571 1,769 5.90% 149,822 2,233 6.04%
Time-$100,000 and over 1,055,980 12,393 4.76% 782,012 10,482 5.44%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $ 2,281,274 $ 21,768 3.87% $ 1,736,073 $ 20,357 4.76%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 105,978 1,259 4.82% 101,743 1,375 5.48%
Long-term borrowings 2,989 49 6.65% 3,643 65 7.24%
Capital securities 73,379 1,529 8.45% 73,320 1,637 9.05%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,463,620 $ 24,605 4.05% $ 1,914,779 $ 23,434 4.96%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits 2,449,958 2,068,907
Other liabilities 85,630 65,478
Shareholders' equity 387,399 359,311
----------- ------------
$ 5,386,607 $ 4,408,475
=========== ============
Net interest income/Net interest margin $ 62,827 5.25% $ 60,824 6.24%
======== ==== ======== =====
- ---------------------------------------------------------------------------------------------------------------------------------
(1) The yields are not presented on a tax equivalent basis as the effects are
not material.
(2) Average loan balance includes nonaccrual loans.
(3) Includes net loan fee income and amortization of $4.9 million and $6.1
million for the three months ended March 31, 1999 and 1998, respectively.
The Company's net interest margin decreased to 5.25 percent for the three months
ended March 31, 1999, from 6.24 percent for the year-earlier period. The
decrease in the net interest margin is largely due to a decline in the yield on
4
loans. The average yield on loans decreased to 7.92 percent for the first
quarter of 1999 from 9.57 percent for the same period of 1998. The Company's
loans are generally tied to a rate index, with the majority tied to the prime
rate. Some loans, including entertainment loans and purchased loan
participations, are tied to the London Interbank Offered Rate ("LIBOR"). The
prime rate averaged 7.75 percent for the first quarter of 1999 compared with an
average of 8.50 percent for the first quarter of 1998. The yield on loans for
the current quarter was also impacted by the level of nonaccrual loans compared
with the prior year. Interest income for the three months ended March 31, 1999,
was reduced by approximately $441,000 due to interest reversals on nonaccrual
loans. Average demand deposits increased to $2.4 billion, or 52 percent of total
average deposits, for the first quarter of 1999 from $2.1 billion, or 54 percent
of total average deposits, for the year-earlier quarter. The Company benefited
from a decrease in the overall cost of funds to 4.05 percent for the three
months ended March 31, 1999, from 4.96 percent for the same period of 1998. This
decrease is largely due to a reduction in the cost of deposits.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
Changes in the Company's net interest income are a function of both changes in
rates and changes in volumes of interest-earning assets and interest-bearing
liabilities. The following table sets forth information regarding changes in
interest income and interest expense for the three months ended March 31, 1999
and 1998. The total change is segmented into the change attributable to
variations in volume (changes in volume multiplied by old rate) and the change
attributable to variations in interest rates (changes in rates multiplied by old
volume). The change in interest due to both rate and volume (changes in rate
multiplied by changes in volume) is classified as rate/volume. Nonaccrual loans
are included in average loans for these computations. The tables are not
presented on a tax equivalent basis as the effects are not material.
- ---------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 over 1998
(Dollars in thousands) Volume Rate Rate/Volume Total
- ---------------------------------------------------------------------------------------------------------------------
Loans $ 19,817 $ (12,058) $ (3,402) $ 4,357
Trading instruments 542 (1) (2) 539
Securities available for sale (434) (1,589) 74 (1,949)
Securities held to maturity (3) 5 - 2
Federal funds sold and securities
purchased under resale agreements 539 (535) (70) (66)
Loans held for sale 366 (21) (54) 291
- ---------------------------------------------------------------------------------------------------------------------
Total interest income $ 20,827 $ (14,199) $ (3,454) $ 3,174
- ---------------------------------------------------------------------------------------------------------------------
Savings $ 71 $ (55) $ (24) $ (8)
Money market 2,768 (2,041) (755) (28)
Time-under $100,000 (421) (53) 10 (464)
Time-$100,000 and over 3,672 (1,304) (457) (1,911)
- ---------------------------------------------------------------------------------------------------------------------
Time deposits $ 6,090 $ (3,453) $ (1,226) $ 1,411
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings 57 (166) (7) (166)
Long-term borrowings (12) (5) 1 (16)
Capital securities 1 (109) 0 (108)
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense $ 6,136 $ (3,733) $ (1,232) $ 1,171
- ---------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 14,691 $ (10,466) $ (2,222) $ 2,003
- ---------------------------------------------------------------------------------------------------------------------
5
In conformity with banking industry practice, payments for accounting, courier
and other deposit-related services provided to the Company's real estate
services customers are recorded as noninterest expense. If these deposits were
treated as interest-bearing and the payments reclassified as interest expense,
the Company's reported net interest income and noninterest expense would have
been reduced by $6.4 million and $5.9 million, respectively, for the three
months ended March 31, 1999 and 1998. The net interest margin for the three
months ended March 31, 1999 and 1998, would have been 4.72 percent and 5.63
percent, respectively.
Noninterest Income:
Noninterest income increased to $22.0 million for the three months ended March
31, 1999, from $17.9 million for the year-earlier period. Excluding equity in
the net income of Imperial Credit Industries, Inc. ("ICII"), noninterest income
increased 31 percent to $19.7 million for the first quarter of 1999 from $15.0
million a year earlier.
The following table provides the components of noninterest income for the
periods indicated:
- ----------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 1,843 $ 1,432
Trust fees 2,215 2,091
Gain on origination and sale of loans 1,221 1,084
Equity in net income of Imperial Credit Industries, Inc. 2,240 2,884
Other service charges and fees 4,448 2,727
Merchant and credit card fees 2,236 1,475
International income and fees 2,800 2,940
Gain on securities available for sale - 4
Gain on trading instruments 19 208
Gain on exercise and sale of equity warrants 3,952 423
Other income 1,014 2,648
- ----------------------------------------------------------------------------------------------------------------
Total $ 21,988 $ 17,916
- ----------------------------------------------------------------------------------------------------------------
Noninterest income excluding equity in net income of ICII $ 19,748 $ 15,032
================================================================================================================
The Company experienced growth in most noninterest income categories including,
gains on the exercise and sale of equity warrants ($3.5 million), other service
charges and fees ($1.7 million), merchant card processing fees ($761,000) and
service charges on deposits ($411,000). These increases were offset in part by
a $1.6 million reduction in other miscellaneous income.
Noninterest Expense:
Noninterest expense increased approximately 13 percent to $56.5 million for the
three months ended March 31, 1999, from $50.1 million for the year-earlier
period. The increase in noninterest expense for the first quarter of 1999
compared with the same period of 1998 occurred primarily in salaries and
benefits expense, occupancy and equipment expense, telephone expense,
professional fees and customer services expense.
The table below provides detail of noninterest expense by category for the
periods indicated:
6
===========================================================================================================
Three months ended
March 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
Salary and employee benefits $30,715 $28,711
Net occupancy expense 2,695 2,323
Furniture and equipment 2,904 2,218
Data processing 2,526 2,200
Customer services 6,351 5,906
Professional and legal fees 2,843 2,299
Business development 1,385 1,126
Other expense 7,036 5,300
- -----------------------------------------------------------------------------------------------------------
Total $56,455 $50,083
- -----------------------------------------------------------------------------------------------------------
The increase in salary and benefits expense, occupancy and equipment expense and
telephone expense is the result of growth in the Company's lending and deposit
businesses and support operations. Along with expanded operations within
California, the addition of out-of-state offices contributed to the increase in
noninterest expense for the current quarter compared with the year-earlier
quarter. New out-of-state locations include a loan production office in Reston,
Virginia (opened July 1998); Altair Corporation located in Houston, Texas
(acquired in September 1998) and a regional banking office in Denver, Colorado
(opened November 1998). The average number of full-time equivalent staff
increased to 1,255 for the first quarter of 1999 from 1,048 for the first
quarter of 1998. Salary and employee benefits expense for the three months ended
March 31, 1999, includes commissions totaling $1.2 million associated with the
exercise and sale of equity warrants compared with $8,000 for the year-earlier
period.
The increase in professional fees for the current quarter compared with the
prior year is due to costs related to the Company's Year 2000 project (see-"Year
2000") and to the implementation of a new wire transfer system. Customer
services expense increased to $6.4 million for the three months ended March 31,
1999, from $5.9 million for the year-earlier period. Customer services expense
includes accounting and courier expenses that the Company pays on behalf of its
depositors in the real estate services industry. Customer services expense is a
function of the volume of these deposits and interest rates. The average
balance of these demand deposits increased to $1.5 billion for the three months
ended March 31, 1999, from $1.1 billion for the comparable period of 1998.
Other noninterest expense for the three months ended March 31, 1999, increased
to $7.0 million from $5.3 million for the year-earlier period. The increase for
the current period is due to expenses associated with the Company's factoring
business ($388,400), expense related to the Company's investment in qualified
low income housing tax credits ($318,700), broker commissions paid on the
origination and purchase of government-insured Small Business Administration
("SBA") loans ($270,000) and expense associated with the writedown of certain
equity investments to fair value ($179,000). The remaining increases occurred
in a number of smaller categories. The Company's gross investment in low income
housing tax credits increased to $9.5 million at March 31, 1999, from $4.2
million at March 31, 1998. This investment generates tax credits and deductible
operating expenses that reduce the Company's effective tax rate.
Income Taxes:
The Company recorded income tax expense of $9.3 million and $9.4 million, for
the quarters ended March 31, 1999 and 1998, respectively. Tax expense for the
first quarter of 1999 includes estimated tax credits totaling $480,000 related
to the Company's investment in low income housing projects.
LOANS
The following table provides a summary of loans by category for the periods
indicated:
7
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) March 31, 1999 December 31, 1998 March 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
Balance Percent Balance Percent Balance Percent
Commercial $3,027,969 86.15% $3,010,555 87.32% $2,594,336 85.21%
Loan secured by real estate: -
Real estate term loans 140,138 3.99 142,866 4.14 218,929 7.19
Interim construction loans 312,041 8.88 258,763 7.51 201,956 6.64
Consumer loans 34,560 0.98 35,354 1.03 29,334 0.96
- ----------------------------------------------------------------------------------------------------------------------------
Gross loans 3,514,708 100.00% 3,447,538 100.00% 3,044,555 100.00%
Less allowance for loan losses (63,732) (62,649) (55,635)
- ----------------------------------------------------------------------------------------------------------------------------
Total loans $3,450,976 $3,384,889 $2,988,920
- ----------------------------------------------------------------------------------------------------------------------------
The Company continued to experience increased loan demand although the rate of
growth has moderated from that experienced in 1998. Total loans increased by
$67.2 million, or 2 percent, to $3.5 billion at March 31, 1999, from $3.4
billion at December 31, 1998, and by $470.2 million, or 15 percent, from March
31, 1998. The commercial loan portfolio remains broadly diversified among many
industries including manufacturing, entertainment, real estate services, high
technology, healthcare, retail trade and professional services. The increase in
construction loans compared with December 31, 1998, and March 31, 1998, occurred
primarily in the affordable housing segment of the market.
ASSET QUALITY
Nonaccrual Loans, Restructured Loans and Real Estate Owned:
Nonaccrual loans, which include loans 90 days or more past due, totaled $43.0
million, or 1.22 percent of total loans, at March 31, 1999, compared with $30.6
million, or 0.89 percent of total loans, at December 31, 1998, and $12.3
million, or 0.40 percent of total loans, at March 31, 1998. The increase in
nonaccrual loans at March 31, 1999, compared with December 31, 1998, includes a
$10.0 commercial real estate loan. The remaining increase from March 31, 1998,
is primarily due to loans in the entertainment and healthcare industries. Loans
totaling $23.0 million were placed on nonaccrual status during the three months
ended March 31, 1999. The increase in nonaccrual loans for the current quarter
was partially offset by gross charge-offs totaling $3.9 million, receipt of
payments totaling $3.0 million, loans brought current totaling $3.5 million and
loans transferred to OREO totaling $283,800.
Restructured loans, loans that have had their original terms modified, totaled
$7.3 million, $9.8 million and $23.1 million at March 31, 1999, December 31,
1998, and March 31, 1998, respectively. The decrease in restructured loans
since December 31, 1998, is due to payments received.
Real estate and other assets owned includes properties acquired through
foreclosure or through full or partial satisfaction of loans. The difference
between the fair value of the collateral, less the estimated costs of disposal,
and the loan balance at the time of transfer to OREO is reflected in the
allowance for loan losses as a charge-off. Any subsequent declines in the fair
value of the property after the date of transfer are recorded through a
provision for writedowns on OREO. OREO, net of valuation allowances, totaled
$2.0 million, $2.3 million and $3.0 million at March 31, 1999, December 31,
1998, and March 31, 1998, respectively. For the three months ended March 31,
1999, one property with a book value of $132,000 was added to OREO, two
properties with total book value of $315,000 were sold and payments totaling
$103,900 were applied to OREO. A net gain of $1,100 was recognized on the sale.
The following table provides information on nonaccrual loans, restructured loans
and real estate and other assets owned for the periods indicated:
8
- --------------------------------------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands) 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------
Nonaccrual loans:
Commercial $31,348 $29,853 $33,720 $25,039 $ 9,802
Real estate 11,604 692 788 831 2,353
Consumer - 70 - 49 99
- --------------------------------------------------------------------------------------------------------------
Total nonaccrual loans $42,952 $30,615 $34,508 $25,919 $12,254
- --------------------------------------------------------------------------------------------------------------
Restructured loans $ 7,287 $ 9,770 $27,591 $23,652 $23,129
- --------------------------------------------------------------------------------------------------------------
Real estate and other assets owned:
Real estate and other assets owned, gross $ 2,023 $ 2,309 $ 2,700 $ 4,343 $ 4,073
Less valuation allowance - - - (1,089) (1,089)
- --------------------------------------------------------------------------------------------------------------
Real estate and other assets owned, net $ 2,023 $ 2,309 $ 2,700 $ 3,254 $ 2,984
- --------------------------------------------------------------------------------------------------------------
Total $52,262 $42,694 $64,799 $52,825 $38,367
- --------------------------------------------------------------------------------------------------------------
All loans on nonaccrual status are considered to be impaired; however, not all
impaired loans are on nonaccrual status. Impaired loans on accrual status must
meet the following criteria: all payments must be current and the loan
underwriting must support the debt service requirements. Factors that contribute
to a performing loan being classified as impaired include: a below market
interest rate, delinquent taxes and debts to other lenders that cannot be
serviced out of existing cash flow.
The following table contains information for loans deemed impaired:
- -----------------------------------------------------------------------------------------------------------------
Net
Carrying Specific Net
(Dollars in thousands) Value Allowance Balance
- -----------------------------------------------------------------------------------------------------------------
March 31, 1999
Loans with specific allowances $68,456 $(13,387) $55,069
Loans without specific allowances 3,930 - 3,930
- -----------------------------------------------------------------------------------------------------------------
Total $72,386 $(13,387) $58,999
- -----------------------------------------------------------------------------------------------------------------
December 31, 1998
Loans with specific allowances $56,746 $(12,775) $43,971
Loans without specific allowances 4,847 - 4,847
- -----------------------------------------------------------------------------------------------------------------
Total $61,593 $(12,775) $48,818
- -----------------------------------------------------------------------------------------------------------------
Impaired loans were classified as follows:
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Current $27,874 $27,414
Past due 1,560 3,564
Nonaccrual 42,952 30,615
- ---------------------------------------------------------------------------------------------------------------
Total $72,386 $61,593
- ---------------------------------------------------------------------------------------------------------------
Loans classified as impaired totaled $72.4 million at March 31, 1999, compared
with $61.6 million at December 31, 1998. During the first three months of 1999,
$23.0 million of loans were newly classified as impaired. The additions to
impaired loans were partially offset by the receipt of payments on impaired
loans totaling $4.5 million, charge-offs totaling $3.9 million, loans removed
from impaired status totaling $3.5 million and loans transferred to OREO of
$283,800. The Company's average recorded investment in impaired loans for the
three months ended March 31, 1999, was $59.1 million. Interest income totaling
approximately $815,000 was collected on impaired loans during the three months
ended March 31, 1999.
9
Allowance and Provision for Loan Losses:
The allowance for loan losses is maintained at a level considered appropriate by
management and is based on an ongoing assessment of the risks inherent in the
loan portfolio. The allowance for loan losses is increased by the provision for
loan losses which is charged against current period operating results, and is
decreased by the amount of net charge-offs during the period. The Company's
determination of the level of the allowance for loan losses, and
correspondingly, the provision for loan losses is based upon various judgments
and assumptions, including general economic conditions in California and out-of-
state markets served, loan growth, loan portfolio composition and
concentrations, prior loan loss experience, collateral value, identification of
problem and potential problem loans and other relevant data to identify the
risks in the loan portfolio. While management believes that the allowance for
loan losses is adequate at March 31, 1999, future additions to the allowance
will be subject to continuing evaluation of inherent risk in the loan portfolio.
At March 31, 1999, the allowance for loan losses equaled $63.7 million, or 1.81
percent of total loans, compared with $62.6 million, or 1.82 percent of total
loans, at December 31, 1998, and $55.6 million, or 1.83 percent of total loans,
at March 31, 1998. The following table summarizes changes in the allowance for
loan losses:
- -------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, (Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 62,649 $ 51,143
- -------------------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial (4,160) (1,545)
Real estate (21) (169)
Consumer - (24)
- -------------------------------------------------------------------------------------------------------------------------
Total charge-offs $ (4,181) $ (1,738)
- -------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 405 390
Real estate 63 -
Consumer 2 1
- -------------------------------------------------------------------------------------------------------------------------
Total recoveries $ 470 $ 391
=========================================================================================================================
Net loans charged off (3,711) (1,347)
Provision for loan losses 4,794 5,839
- -------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 63,732 $ 55,635
=========================================================================================================================
Loans outstanding, end of period $3,514,708 $3,044,555
=========================================================================================================================
Average loans outstanding $3,817,300 $2,977,204
=========================================================================================================================
Ratio of net charge-offs to average loans (1) 0.39% 0.18%
Ratio of allowance for loan losses to loans outstanding at March 31 1.81% 1.83%
Ratio of allowance for loan losses to nonaccrual loans 148% 454%
Ratio of provision for loan losses to net charge-offs 129% 433%
- -------------------------------------------------------------------------------------------------------------------------
(1) Annualized
10
The provision for loan losses for the three months ended March 31, 1999 and
1998, totaled $4.8 million and $5.8 million, respectively. Net charge-offs were
$3.7 million, or 0.39 percent of average loans on an annualized basis, for the
first quarter of 1999 compared with $1.3 million, or 0.18 percent of average
loans on an annualized basis, for the year-earlier quarter. Net charge-offs for
the first quarter of 1999 include $1.4 million on a commercial loan to a company
in the healthcare industry that was placed on nonaccrual status in June 1998.
Excluding this loan, net charge-offs were $2.3 million, or 0.25 percent of
average loans on an annualized basis.
Securities:
Securities available for sale decreased to $670.6 million at March 31, 1999,
from $694.8 million at December 31, 1998. A $51.5 million increase in U.S.
Treasury and federal agency securities at March 31, 1999, was offset by a $74.2
million reduction in mutual funds. Federal funds sold and securities purchased
under resale agreements decreased to $757.5 million at March 31, 1999, from $1.4
billion at December 31, 1998. The Company generally invests short-term liquidity
in mutual funds and Federal funds sold and securities purchased under resale
agreements. The fluctuation in these balances is largely a function of changes
in the level of demand deposits. Demand deposits increased to $3.5 billion at
March 31, 1999, from $3.3 billion at December 31, 1998. The amount of short-term
investments decreased at March 31, 1999, compared with year end despite growth
in demand deposits because a portion of the excess liquidity was held as cash
with the Federal Reserve. The balance of cash and due from increased to $1.2
billion at March 31, 1999, from $355.3 million at December 31, 1998.
A summary of securities held to maturity as of March 31, 1999, and December 31,
1998, is provided below:
=============================================================================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
March 31, 1999
Industrial development bonds $3,860 $ - $ - $3,860
- ----------------------------------------------------------------------------------------------------------------------------
Total $3,860 $ - $ - $3,860
============================================================================================================================
December 31, 1998
Industrial development bonds $3,898 $ - $ - $3,898
- ----------------------------------------------------------------------------------------------------------------------------
Total $3,898 $ - $ - $3,898
============================================================================================================================
A summary of the amortized cost and estimated fair value of securities available
for sale as of March 31, 1999, and December 31, 1998, is provided below:
=============================================================================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
March 31, 1999
U.S. Treasury and federal agencies $613,933 $ 872 $ - $614,805
Mutual funds 38,407 - - 38,407
Other securities 22,986 - (5,585) 17,401
- -----------------------------------------------------------------------------------------------------------------------------
Total $675,326 $ 872 $(5,585) $670,613
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1998
U.S. Treasury and federal agencies $560,332 $3,024 $ (1) $563,355
Mutual funds 112,579 - - 112,579
Other securities 22,792 - (3,912) 18,880
- -----------------------------------------------------------------------------------------------------------------------------
Total $695,703 $3,024 $(3,913) $694,814
- -----------------------------------------------------------------------------------------------------------------------------
There were no gains or losses realized on the sale of securities available for
sale during the three months ended March 31, 1999. Gross gains and losses
realized on the sale of securities available for sale during the three months
ended March 31, 1998, were $8,300 and $4,300, respectively.
11
Deferred Tax Asset
The Company reported a net deferred tax asset of $17.4 million at March 31,
1999, compared with $21.8 million at December 31, 1998. The deferred tax asset
is reported net of deferred tax liabilities. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management believes that it is more likely than not the
Company will realize the benefits of these deductible differences. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
Other Assets
The balance of other assets increased to $101.9 million at March 31, 1999, from
$91.1 million at December 31, 1998. The increase in other assets at March 31,
1999, compared with year-end 1998 reflects the following: a $7.0 million
increase in prepaid insurance due to the purchase of additional life insurance
to fund the Company's deferred compensation plan, a $3.2 million increase in
foreign exchange settlement accounts and a $2.9 million increase in
miscellaneous assets primarily due to the increase in the cash surrender value
of life insurance funding the deferred compensation plan. These increases were
offset in part by a $1.7 million decrease in accounts receivable. The remaining
change in other assets occurred in a number of smaller categories.
Other Borrowings:
Short-term borrowings decreased to $50.9 million at March 31, 1999, from $60.6
million at December 31, 1998. Decreases of $8.3 million in commercial paper and
$4.8 million in borrowed funds backed by Treasury, Tax and Loan deposits
("T,T&L") were offset in part by a $3.4 million increase in Federal funds
purchased and reverse repurchase balances.
ASSET/LIABILITY MANAGEMENT
Liquidity:
Liquidity management involves the Company's ability to meet the cash flow
requirements of its lending and deposit businesses. For the Company, as with
most commercial banking institutions, this involves an ongoing process of
managing the cash inflows and outflows associated with a commercial deposit
base. The Company's ability to acquire new deposits at pricing levels consistent
with management's targets is largely based upon its financial condition and
capital base.
The Company's liquid assets consist of cash, Federal funds sold, securities
purchased under resale agreements and investment securities, excluding those
pledged as collateral. The majority of the Company's securities portfolio is
held as available for sale. Available for sale securities can be sold in
response to liquidity needs or used as collateral under reverse repurchase
agreements. It is the Company's policy to maintain a minimum liquidity ratio
(liquid assets to deposits) of 20 percent and to limit gross loans to no more
than 80 percent of deposits. At March 31, 1999, the Company's liquidity ratio
was 38 percent and the loan to deposit ratio was 60 percent.
The overall liquidity position of the Company has been enhanced by a sizable
base of demand deposits resulting from the Company's longstanding relationships
with the real estate services industry which have provided a relatively stable
and low cost funding base. Total demand deposits averaged $2.4 billion for the
quarter ended March 31, 1999, compared with $2.1 billion for the year-earlier
quarter. For the three months ended March 31, 1999, approximately 37 percent of
average total deposits were from the real estate services industry compared with
35 percent of average total deposits for the year-earlier period. The Company's
average demand deposits and average shareholders' equity funded approximately 53
percent and 55 percent, of average total assets for the three months ended March
31, 1999 and 1998, respectively.
These funding sources are augmented by payments of principal and interest on
loans, the routine liquidation of securities from the trading and available for
sale portfolios, Federal funds sold and securities purchased under resale
agreements.
12
For the three months ended March 31, 1999, the Company experienced a
net cash inflow from its investing activities of approximately $642.9 million.
The net inflow related to investing activities is largely due to a $688.5
million decrease in Federal funds sold and securities purchased under resale
agreements offset in part by a $66.2 million increase in loans. Net cash
provided by financing activities totaled approximately $247.4 million for the
three months ended March 31, 1999. Net cash provided by financing activities
for the current quarter includes a $257.0 million increase in deposits offset in
part by a $6.0 million purchase of stock for the Company's ESOP plan and a net
$3.7 million reduction in borrowed funds.
Interest Rate Sensitivity Management:
The primary objective of the asset liability management process is to manage the
Company's exposure to interest rate fluctuations while maintaining adequate
levels of liquidity and capital. In order to manage its interest rate
sensitivity, the Company has adopted policies that attempt to limit the change
in pretax net interest income assuming various interest rate scenarios. This is
accomplished by adjusting the repricing characteristics of the Company's assets
and liabilities as interest rates change. The Company's Asset Liability
Committee ("ALCO") chooses strategies in conformance with its policies to
achieve an appropriate trade off between interest rate sensitivity and the
volatility of pretax net interest income and net interest margin.
Each month, the Company assesses its overall exposure to potential changes in
interest rates and the impact such changes may have on net interest income and
the net interest margin by simulating various interest rate scenarios over
future time periods. Through the use of these simulations, the Company can
approximate the impact these projected rate changes may have on its entire on-
and off-balance sheet positions, on any particular segment of the balance sheet,
and overall profitability.
Cumulative interest sensitivity gap represents the difference between interest-
earning assets and interest-bearing liabilities maturing or repricing, whichever
is earlier, at a given point in time. At March 31, 1999, the Company maintained
a positive one-year gap of approximately $2.4 billion; meaning its interest rate
sensitive assets exceeded its interest rate sensitive liabilities. This positive
cumulative gap position indicates that the Company is asset sensitive and
positioned for increased net interest income during a period of rising interest
rates but also exposed to an adverse impact on net interest income in a falling
rate environment. At March 31, 1998, the Company maintained a positive one-year
gap of approximately $2.4 billion.
The Company's net interest margin is sensitive to sudden changes in interest
rates. In addition, the Company's interest-earning assets, primarily its loans,
are generally tied to the prime rate, an index which tends to react more slowly
to changes in market rates than other money market indices such as LIBOR (London
Interbank Offered Rate). The rates paid for the Company's interest-bearing
liabilities, however, do correlate with LIBOR. This mismatch creates a spread
relationship risk between the Company's prime based assets and LIBOR correlated
liabilities.
The Company has developed strategies to protect both net interest income and net
interest margin from significant movements in interest rates. These strategies
involve purchasing interest rate floors and caps with strike prices that
generally adjust quarterly and are priced approximately 100-250 basis points
below or above (depending on the instrument) current market rates at the time
the floors and caps were purchased. At March 31, 1999, the Company owned
exchange-traded floors totaling $6.5 billion that expire as follows: $1.75
billion in the second quarter of 1999, $1.75 billion in the third quarter of
1999, $2.0 billion in the fourth quarter of 1999 and $1.0 billion in the first
quarter of 2000. The floors provide the Company protection in the event that the
three-month LIBOR rate drops below their respective strike prices. The floors
have an average strike price of approximately 4.1 percent. The unrealized gain
on the floors approximated $214,000 at March 31, 1999. The unamortized premium
relating to the floors was $1.3 million at March 31, 1999.
In October 1998, following a decline in the LIBOR rate, the Company sold
exchange-traded floors with a notional amount totaling $4.5 billion in order to
reset the strike price on the floors from 4.75 percent to approximately 4.00
percent. The gain on the sale of the floors is being amortized over the term of
the original floors and will be fully amortized by the end of the third quarter
of 1999. The balance of this deferred gain was $1.2 million at March 31, 1999.
In March 1998, the Company purchased an over-the-counter interest rate cap with
a notional value of $1.0 billion. The cap provides protection in the event that
the three-month LIBOR increases above the 8.33 percent strike price of the cap
13
and expires during the first quarter of 2001. The unrealized gain on this cap
approximated $243,800 at March 31, 1999. The unamortized premium paid for the
cap approximated $308,200 at March 31, 1999.
In April 1997, the Company issued $75.0 million of 9.98 percent Capital
Securities (the "Capital Securities") and entered into three fixed for floating
interest rate swaps with a total notional value of $75.0 million in order to
convert the Capital Securities to a floating rate. The swaps require the Company
to pay three-month LIBOR and receive a fixed rate of 7.18 percent on $25.0
million, 7.186 percent on $25.0 million and 7.187 percent on the remaining $25.0
million. The maturity and fixed payment due dates on the swaps coincide with the
call date and payment dates of the Capital Securities. The unrealized gain on
the swaps approximated $6.9 million at March 31, 1999.
In June 1998, the Company entered into two fixed for floating interest rate
swaps with a total notional value of $5.0 million. The swaps require the
Company to pay three-month LIBOR and receive a fixed rate of 5.95 percent. The
swaps mature in June 1999. Concurrently, the Company entered into interest rate
swaps with its subsidiary, Crown American Bank. The notional amount, maturity
and payment due dates on the swaps coincide with the original swaps, however,
the payment terms require the Company to pay a fixed rate of 5.95 percent and
receive three-month LIBOR. The purpose of the swaps is to convert to a floating
rate a similar amount of one-year fixed rate time certificates of deposit
acquired on behalf of Crown American Bank as part of a time deposit acquisition
program. The unrealized gain on the swaps approximated $6,900 at March 31, 1999.
From time to time, the Company purchases over-the-counter option contracts or
enters into interest rate swap contracts that are matched against specific
lending transactions. The term and notional amount of the contracts are
consistent with the underlying customer transaction. The contracts generally
require the Company to pay a fixed rate and receive a floating rate. At March
31, 1999, the Company had matched purchased options totaling $17.6 million and
matched swap contracts totaling $9.3 million. There were unrealized losses on
the options and swaps of approximately $19,400 and $102,100, respectively, at
March 31, 1999.
CAPITAL SECURITIES
On April 23, 1997, Imperial Capital Trust I (the "Trust"), a statutory business
trust and wholly owned subsidiary of the Company, issued in a private placement
transaction $75.0 million of 9.98 percent Capital Securities which represent
undivided preferred beneficial interests in the assets of the Trust. The Company
is the owner of all the beneficial interests represented by the common
securities of the Trust (the "Common Securities"), together with the Capital
Securities. The Trust exists for the sole purpose of issuing the Capital
Securities and investing the proceeds thereof in 9.98 percent Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") issued by the Company and engaging in certain other limited
activities. The Junior Subordinated Debentures held by the Trust will mature on
December 31, 2026.
The Indenture for the Capital Securities includes provisions that restrict the
payment of dividends under certain conditions and changes in ownership of the
Trust. The Indenture also includes provisions relating to the payment of
expenses associated with the issuance of the Capital Securities. The Company was
in compliance with the provisions of the Indenture at March 31, 1999.
The Company used $67.2 million of the net proceeds from the sale of the Junior
Subordinated Debentures to make additional investments in Imperial Bank. The
remainder of the proceeds was used to implement the Company's stock repurchase
plan. The Capital Securities qualify as Tier I capital under the capital
guidelines of the Federal Reserve. The net principal balance of the Capital
Securities was $73.4 million at March 31, 1999.
CAPITAL
At March 31, 1999, shareholders' equity totaled $388.1 million compared with
$381.8 million at December 31, 1998. For the first three months of 1999,
shareholders' equity was reduced by $6.0 million due to the purchase of common
stock for the Company's ESOP plan. Shareholders' equity increased by $166,000
during the quarter due to exercises of employee stock options. The tax benefit
associated with options exercised, which is recorded as a component of
shareholders' equity, approximated $135,000 for the first three months of 1999.
14
Management is committed to maintaining capital at a level sufficient to assure
shareholders, customers and regulators that the Company and its bank
subsidiaries are financially sound. The Company and its bank subsidiaries are
subject to risk-based capital regulations adopted by the federal banking
regulators in January 1990. These guidelines are used to evaluate capital
adequacy and are based on an institution's asset risk profile and off-balance
sheet exposures. The risk-based capital guidelines assign risk weightings to
assets both on- and off-balance sheet and place increased emphasis on common
equity. Federal law requires each federal banking agency to take prompt
corrective action to resolve problems of insured depository institutions
including, but not limited to, those that fall below one or more prescribed
capital ratios.
According to the regulations, institutions whose Tier I and total capital ratios
meet or exceed 6 percent and 10 percent, respectively, are deemed to be "well
capitalized". Tier I capital basically consists of common shareholders' equity
and noncumulative perpetual preferred stock and minority interest of
consolidated subsidiaries minus intangible assets. Based on the guidelines, the
Company's Tier I and total capital ratios at March 31, 1999, were 9.73 percent
and 11.02 percent, respectively, compared with 10.56 percent and 11.89 percent,
respectively, at March 31, 1998.
Capital Ratios for Imperial Bancorp and Imperial Bank(1)
- ---------------------------------------------------------------------------------------------------------------------------
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
To be Well Capitalized
For Capital Adequacy Under Prompt Corrective
(Dollars in thousands) Actual Purposes Action Provisions
- ------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk-weighted assets):
Company $516,326 11.02% $374,771 8.00% $468,464 10.00%
Bank 480,348 10.40% 369,336 8.00% 461,670 10.00%
Tier I Capital (to risk-weighted assets):
Company $455,599 9.73% $187,385 4.00% $281,078 6.00%
Bank 422,567 9.15% 184,668 4.00% 277,002 6.00%
Leverage (to average assets):
Company $455,599 8.45% $161,828 3.00% $269,713 5.00%
Bank 422,567 7.94% 159,590 3.00% 265,984 5.00%
- ------------------------------------------------------------------------------------------------------------------------------
(1) Includes common shareholders' equity (excluding unrealized gains on securities available for sale) less goodwill and
other disallowed intangibles.
Risk-weighted assets for the Company and Imperial Bank ("the Bank") were
$4,684.6 million and $4,616.7 million, respectively, at March 31, 1999. Average
assets for the Company and the Bank were $5,394.3 million and $5,319.7 million,
respectively, at March 31, 1999.
In addition to the risk-weighted ratios, all banks are required to maintain
leverage ratios, to be determined on an individual basis, but not below a
minimum of 3 percent. The ratio is defined as Tier I capital to average total
assets for the most recent quarter. The Company's leverage ratio was 8.45
percent at March 31, 1999, compared with 9.85 percent at March 31, 1998, well in
excess of minimum regulatory requirements.
YEAR 2000
To fulfill the Company's business responsibility and ensure compliance with
regulatory requirements, the Company has established a Year 2000 Readiness
Program ("Y2K") with the objective of having the Company Year 2000 compliant by
mid-1999. The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computers that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than year 2000. The Company's Y2K Readiness Program
is managed by an enterprise-wide Program Office ("Office") under the guidance of
the Company's Management Committee. The Office is staffed with representatives
from each of the Company's primary business units. Within some business units,
the Office representative is supported by a business unit Year 2000 project
team.
15
The Company has adopted the approach set forth by the Federal Financial
Institutions Examination Council ("FFIEC"). This approach is based on five
crucial phases: awareness, assessment, remediation, validation, and
implementation. The Company's approach considers the FFIEC guidelines a minimum
set of prudent business practices needed to become Y2K ready.
Awareness:
As of the end of March 1999, the Company has completed extensive internal and
external communication related to the Y2K issue. The communication has been in
the form of customer statement enclosures, Web site disclosures, monthly and
quarterly reports to the Company's Management Committee, internal mailings, and
periodic meetings.
Assessment:
The Company has conducted a comprehensive review of its information technology
("IT") and non-IT computer systems. All systems have been evaluated and
classified as critical, important or ordinary. Systems requiring upgrades or
replacement have been identified.
The Company utilizes the services of third-party service providers and software
vendors for substantially all of its data processing functions. As such, the
Company has focused on monitoring the Y2K compliance progress of its primary
vendors and providers. The Company has identified its significant customers,
i.e., fund providers, fund takers, and counterparties. The initial evaluation
and assignment of risk for the Company's fund takers, fund providers, and
counterparties has been completed. Follow-up was performed for some customers
and completed March 31, 1999.
The Company is making progress on the overall Y2K contingency effort.
Contingency plans are being designed to mitigate the risks associated with (1)
the failure to successfully complete renovation, validation, or implementation
of its Y2K readiness plan (Remediation Contingency Plan), and (2) the failure of
systems at critical dates (Business Resumption Contingency Planning) ("BRCP").
The Company has completed the Remediation Contingency Plans and anticipates
completing the Business Resumption Contingency Plans by June 30, 1999. This
milestone date adheres to the FFIEC statement requiring the four phases of the
BRCP effort be substantially complete. 100% of the BRCPs have been submitted to
the Office for review.
Remediation/Validation/Implementation:
The Company does not employ a programming staff, nor does it customize
application code that affects the books of record or customer accounting. The
Company's vendors and service providers are committed to delivering Y2K ready
capabilities.
At March 31, 1999, system testing is approximately 85% complete for critical
systems, 89% complete for important systems, and 60% complete for ordinary
systems. Testing is scheduled for completion by June 1999. Systems requiring
remediation are placed into production after testing has been completed and
authorization from the business unit has been obtained.
Non-IT systems, such as security systems, vault alarms and elevators, have been
identified and the Company is in the process of evaluating readiness. Most of
the Company's facilities are leased; therefore, the Company's efforts to
determine the status of Y2K readiness and contingency plans is focused on the
vendors and property managers. The anticipated date of completion for this
evaluation and resolution is June 1999.
Costs:
Through March 31, 1999, the Company had incurred $2.0 million of the total $2.5
million of operating expenses budgeted for the Y2K project. It is currently
anticipated that total expense for the Project will be within $100,000 of the
estimated budget. Y2K capital expenditures total $1.2 million through March 31,
1999. At present, the Company expects to complete the project with capital
expenditures at or slightly under the estimated budget of $1.9 million.
The Office presently believes that with updates and upgrades to existing
software and minimal conversions to new software, the Company's computer systems
will be Y2K compliant. However, the potential impact of the Y2K issue on the
financial services industry could be significant due to the interdependent
nature of banking transactions. Despite its efforts towards achieving Y2K
readiness, the Company could be adversely impacted if the entities with which it
transacts business do not address this issue successfully.
16
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. It specifies necessary conditions to be met to
designate a derivative as a hedge. SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. Early
implementation is permitted under this statement. The Company does not believe
that the adoption of SFAS No. 133 will have a material impact on its operations
and financial position.
17
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries March 31, December 31,
(Dollars in thousands, except share data) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $1,206,206 $ 355,317
Trading instruments 77,025 52,971
Securities available for sale 670,613 694,814
Securities held to maturity (market value of $3,860 and $3,898 for 1999 and 1998, respectively) 3,860 3,898
Federal funds sold and securities purchased under resale agreements 757,500 1,446,000
Loans held for sale (market value of $15,427 and $19,416 for 1999 and 1998, respectively) 14,708 18,287
Loans:
Loans, net of unearned income and deferred loan fees 3,514,708 3,447,538
Less allowance for loan losses (63,732) (62,649)
- ------------------------------------------------------------------------------------------------------------------------------
Total net loans $3,450,976 $3,384,889
- ------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 32,292 30,938
Accrued interest receivable 27,096 25,505
Real estate and other assets owned, net 2,023 2,309
Deferred tax asset 17,442 21,809
Investment in Imperial Credit Industries, Inc. 59,036 56,796
Other assets 101,945 91,070
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $6,420,722 $6,184,603
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $3,500,891 $3,298,070
Savings 22,503 25,135
Money market 1,072,470 1,086,959
Time - under $100,000 155,973 171,224
Time - $100,000 and over 1,074,765 988,259
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits $5,826,602 $5,569,647
- ------------------------------------------------------------------------------------------------------------------------------
Accrued interest payable 6,855 5,428
Income taxes payable 756 1,504
Short-term borrowings 50,914 60,601
Long-term borrowings:
Floating rate notes and fixed rate debentures 2,105 2,105
Other borrowed funds 6,256 290
Capital securities of subsidiary trust:
Company-obligated mandatorily redeemable capital securities of subsidiary trust holding
solely junior subordinated deferrable interest debentures of the Company, net 73,386 73,372
Other liabilities 65,722 89,834
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities $6,032,596 $5,802,781
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common Stock - no par, 50,000,000 shares authorized; 41,899,886
shares at March 31, 1999, and 41,863,935 shares at
December 31, 1998, issued and outstanding 271,462 224,433
Accumulated other comprehensive loss, net of tax (2,732) (515)
Retained earnings 119,396 157,904
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 388,126 $ 381,822
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,420,722 $6,184,603
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- ------------------------------------------------------------------------------------------------------------------------------
18
CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries Three months ended
March 31,
(Dollars in thousands, except per share data) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $74,587 $70,230
Trading instruments 889 350
Securities available for sale 7,394 9,343
Securities held to maturity 72 70
Federal funds sold and securities purchased under resale agreements 4,055 4,121
Loans held for sale 435 144
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income $87,432 $84,258
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 21,768 20,357
Short-term borrowings 1,259 1,375
Long-term borrowings 1,578 1,702
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense $24,605 $23,434
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 62,827 60,824
Provision for loan losses 4,794 5,839
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $58,033 $54,985
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 1,843 1,432
Trust fees 2,215 2,091
Gain on origination and sale of loans 1,221 1,084
Equity in net income of Imperial Credit Industries, Inc. 2,240 2,884
Other service charges and fees 4,448 2,727
Merchant and credit card fees 2,236 1,475
International income and fees 2,800 2,940
Gain on securities available for sale - 4
Gain on trading instruments 19 208
Gain on exercise and sale of equity warrants 3,952 423
Other income 1,014 2,648
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $21,988 $17,916
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits 30,715 28,711
Net occupancy expense 2,695 2,323
Furniture and equipment 2,904 2,218
Data processing 2,526 2,200
Customer services 6,351 5,906
Professional and legal fees 2,843 2,299
Business development 1,385 1,126
Other expense 7,036 5,300
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $56,455 $50,083
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,566 22,818
Income tax provision 9,343 9,443
- --------------------------------------------------------------------------------------------------------------------------------
Net income $14,223 $13,375
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $0.34 $0.31
Diluted earnings per share $0.33 $0.30
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------------------
Earnings per share for first quarter 1998 has been adjusted to reflect an 8
percent stock dividend paid on March 5, 1999.
19
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries
Three months ended March 31, (Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 14,223 $ 13,375
Adjustments for noncash charges (credits):
Depreciation and amortization (1,648) (6,169)
Provision for loan losses 4,794 5,839
Equity in net income of Imperial Credit Industries, Inc. (2,240) (2,884)
Gain on exercise and sale of stock warrants (3,952) (423)
(Gain) loss on sale of real estate and other assets owned (1) 2
Gain on sale of premises and equipment (3) -
Provsion (benefit) for deferred taxes 6,110 (936)
Gain on securities available for sale - (4)
Net change in trading instruments (24,054) 18,755
Net change in loans held for sale 3,579 31
Net change in accrued interest receivable (1,591) (1,442)
Net change in accrued interest payable 1,427 2,600
Net change in income taxes receivable (748) 6,086
Net change in other liabilities (24,112) 3,383
Net change in other assets (11,166) (8,504)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities $ (39,382) $ 29,709
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from securities held to maturity 38 19
Proceeds from sale of securities available for sale - 795,548
Proceeds from maturities of securities available for sale 1,143,480 261,623
Purchase of securities available for sale (1,123,627) (1,065,390)
Proceeds from exercise and sale of equity warrants 3,952 325
Net change in Federal funds sold and securities
purchased under resale agreements 688,500 (361,000)
Net change in loans (66,194) (247,359)
Capital expenditures (3,713) (2,348)
Proceeds from sale of real estate and other assets owned 413 300
Proceeds from sale of premises and equipment 25 -
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities $ 642,874 $ (618,282)
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits, savings, and
money market accounts 185,700 721,785
Net change in time deposits 71,255 170,031
Net change in short-term borrowings (9,687) 69,078
Net change in long-term borrowings 5,966 -
Repurchase of common stock for ESOP (5,985) -
Proceeds from exercise of employee stock options 166 1,491
Other (18) (9)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 247,397 $ 962,376
- -------------------------------------------------------------------------------------------------------------------------------
Net change in cash and due from banks $ 850,889 $ 373,803
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, beginning of year $ 355,317 $ 316,600
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 1,206,206 $ 690,403
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------------------------------------------------------
20
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries Three months ended
March 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $14,223 $13,375
Other comprehensive income, net of tax:
Unrealized (loss) gain on securities available for sale, net
of tax effect of ($1,608) and $497 (2,217) 685
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $12,006 $14,060
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPERIAL BANCORP AND SUBSIDIARIES
NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all footnotes as would be necessary for a fair presentation of financial
position, results of operations, and changes in cash flows in conformity with
generally accepted accounting principles. However, these interim financial
statements reflect all normal recurring adjustments, which are, in the opinion
of the management, necessary for a fair presentation of the results for the
interim periods presented. All such adjustments were of a normal recurring
nature. The Consolidated Balance Sheet, Consolidated Statement of Income and
Consolidated Statement of Cash Flows are presented in the same format as that
used in the Company's most recently filed Report on Form 10-K. A Consolidated
Statement of Comprehensive Income has been added to the Company's interim
financial statements. The consolidated financial statements include the accounts
of the Company and its wholly and majority-owned subsidiaries.
NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC.
At March 31, 1999, the Company owned 8.9 million shares, or approximately 24% of
the common stock of ICII. The Company does not exercise significant control over
the operations of ICII, therefore, the results of operations are accounted for
in the Company's financial statements as an equity investment. The equity
investment in ICII is carried at cost adjusted for equity in undistributed
income and is evaluated for impairment on a regular basis. Transactions between
ICII and the Company occur during the normal course of business. All
transactions are carried out at substantially the same terms as those prevailing
at the time for comparable transactions with others.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows:
March 31, (Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Interest paid $23,178 $20,834
Taxes paid 3,153 72
Significant noncash transactions:
Loans transferred to OREO 132 -
Net change in accumulated other comprehensive income, net of tax 2,217 685
- ----------------------------------------------------------------------------------------------------------------------------------
21
NOTE (4) EARNINGS PER SHARE
The Company reports earnings per share ("EPS") in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128").
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted from issuance of common stock that then shared in
earnings. Reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation is
presented in the following table:
- --------------------------------------------------------------------------------------------------------------------
For the three months ended March 31, 1999 1998
---------------------------------- ------------------------------
Per Per
Share Share
(Dollars in thousands, except per share data) Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to shareholders:
Net income $14,223 41,885,555 $0.34 $13,375 42,506,857 $0.31
Effect of dilutive securities
Incremental shares from outstanding
common stock options 1,522,555 2,118,531
------------- -------------
Diluted EPS
Income available to shareholders:
Net income $14,223 43,408,110 $0.33 $13,375 44,625,388 $0.30
- --------------------------------------------------------------------------------------------------------------------
The weighted average number of shares used for calculating EPS for the periods
reported reflect an 8 percent stock dividend paid on March 5, 1999.
NOTE (5) OPERATING SEGMENT RESULTS
The Company has identified seven principal operating segments for purposes of
management reporting. Information related to the Company's remaining businesses
and centralized functions has been aggregated and is included in either "Other
Segments" or "Unallocated" as appropriate. The Company's management reporting
is structured to support management's strategic focus on mid-sized companies,
high-growth and niche markets, and new enterprises that exhibit solid growth
potential.
The following table presents the operating results and other key financial
measures for the individual operating segments for the three months ended March
31, 1999 and 1998. Operating segment results are based on the Company's internal
management reporting process, which reflects assignments and allocations of
capital, certain operating and administrative costs and the loan loss provision.
Any future changes in the Company's management structure or reporting
methodologies may result in changes in the measurement of operating segment
results. In that case, results for prior periods would be restated for
comparability.
22
- -----------------------------------------------------------------------------------------------
For the three months ended Entertainment and
March 31, 1999 Commercial Special Real Independent Film Syndicated
(Dollars in thousands) Banking Markets Estate Production Finance
- -----------------------------------------------------------------------------------------------
Net interest income $ 21,591 $ 9,579 $ 7,051 $ 6,861 $ 3,962
Provision for loan losses 1,752 1,779 - 83 -
Noninterest income 3,136 4,929 227 424 486
Noninterest expense 15,163 7,135 1,676 3,006 751
- ------------------------------------------------------------------------------------------------
Income before taxes 7,812 5,594 5,602 4,196 3,697
Taxes 3,284 2,352 2,355 1,765 1,555
- ------------------------------------------------------------------------------------------------
Net income $ 4,528 $ 3,242 $ 3,247 $ 2,431 $ 2,142
- ------------------------------------------------------------------------------------------------
Average net loans $1,333,943 $ 541,957 $ 440,873 $ 442,398 $458,257
Average assets 1,343,050 545,707 447,625 445,018 461,648
Average deposits 1,235,413 604,666 15,061 84,426 -
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
For the three months ended
March 31, 1999 Financial Other
(Dollars in thousands) Services ICII Segments Unallocated Consolidated
- -----------------------------------------------------------------------------------------------
Net interest income $ 14,035 $ - $ 2,925 $ (3,177) $ 62,827
Provision for loan losses 33 - 163 984 4,794
Noninterest income 480 2,240 9,723 343 21,988
Noninterest expense 11,860 - 11,865 4,999 56,455
- ------------------------------------------------------------------------------------------------
Income before taxes 2,622 2,240 620 (8,817) 23,566
Taxes 1,102 942 261 (4,273) 9,343
- ------------------------------------------------------------------------------------------------
Net income $ 1,520 $ 1,298 $ 359 $ (4,544) $ 14,223
- ------------------------------------------------------------------------------------------------
Average net loans $ 509,981 $ - $ 102,934 $ (76,671) $3,753,672
Average assets 517,379 56,796 1,141,674 427,710 5,386,607
Average deposits 2,064,697 - 690,806 36,163 4,731,232
- ------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
For the three months ended Entertainment and
March 31, 1999 Commercial Special Real Independent Film Syndicated
(Dollars in thousands) Banking Markets Estate Production Finance
- -----------------------------------------------------------------------------------------------
Net interest income $ 21,718 $ 8,981 $ 6,886 $ 7,312 $ 3,216
Provision for loan losses (25) 1,063 169 (292) -
Noninterest income 3,075 728 222 585 426
Noninterest expense 14,394 5,179 1,691 2,751 451
- ------------------------------------------------------------------------------------------------
Income before taxes 10,424 3,467 5,248 5,438 3,191
Taxes 4,383 1,457 2,207 2,286 1,342
- ------------------------------------------------------------------------------------------------
Net income $ 6,041 $ 2,010 $ 3,041 $ 3,152 $ 1,849
- ------------------------------------------------------------------------------------------------
Average net loans $1,150,523 $ 440,681 $ 439,406 $ 351,061 $358,703
Average assets 1,183,399 443,747 448,347 353,950 360,744
Average deposits 1,127,598 452,804 10,740 82,311 -
- ------------------------------------------------------------------------------------------------
23
- -----------------------------------------------------------------------------------------------
For the three months ended
March 31, 1999 Financial Other
(Dollars in thousands) Services ICII Segments Unallocated Consolidated
- -----------------------------------------------------------------------------------------------
Net interest income $ 13,714 $ - $ 2,127 $ (3,130) $ 60,824
Provision for loan losses 341 - 36 4,547 5,839
Noninterest income 77 2,884 7,146 2,773 17,916
Noninterest expense 10,204 - 9,891 5,522 50,083
- -------------------------------------------------------------------------------------------------
Income before taxes 3,246 2,884 (654) (10,426) 22,818
Taxes 1,365 1,213 (275) (4,535) 9,443
- -------------------------------------------------------------------------------------------------
Net income $ 1,881 $ 1,671 $ (379) $ (5,891) $ 13,375
- -------------------------------------------------------------------------------------------------
Average net loans $ 179,292 $ - $ 64,369 $ (58,932) $2,925,103
Average assets 179,634 74,541 1,004,504 359,609 4,408,475
Average deposits 1,474,391 - 633,838 23,298 3,804,980
- -------------------------------------------------------------------------------------------------
Detail of amounts included in unallocated is provided below:
- ------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
Net interest income:
Internal funding $(1,838) $(1,705)
Deferred loan fees (1,482) (1,192)
Other 143 (233)
- ------------------------------------------------------------------------------------------------------------
$(3,177) $(3,130)
- ------------------------------------------------------------------------------------------------------------
Loan loss provision:
Unallocated reserve $ 1,026 $ 4,620
Mortgage loans (41) -
Other (1) (73)
- ------------------------------------------------------------------------------------------------------------
$ 984 $ 4,547
- ------------------------------------------------------------------------------------------------------------
Noninterest income:
Item processing revenue $ 1,061 $ 947
Other (718) 1,826
- ------------------------------------------------------------------------------------------------------------
$ 343 $ 2,773
- ------------------------------------------------------------------------------------------------------------
Noninterest expense:
Unallocated admin and operations $ 5,418 $ 5,193
Deferred loan costs (1,507) (151)
Other 1,088 480
- ------------------------------------------------------------------------------------------------------------
$ 4,999 $ 5,522
- ------------------------------------------------------------------------------------------------------------
Balance Sheet:
Unallocated average assets include the Company's cash and due from
accounts with correspondent banks and the Federal Reserve, the unallocated
portion of the loan loss reserve and the balance of deferred fees.
Unallocated deposit balances include official checks and Treasury, Tax and
Loan accounts.
- -------------------------------------------------------------------------------
24
TABLE 1 - FINANCIAL RATIOS
- -------------------------------------------------------------------------------------------------
Three months ended
March 31,
1999 1998
- -------------------------------------------------------------------------------------------------
Net income as a percentage of:(1)
Average shareholders' equity 14.89% 15.10%
Average total assets 1.07% 1.23%
Average earning assets 1.19% 1.37%
Normalized income as a percentage of (1)(2)
Average shareholders' equity 13.53% 13.21%
Average total assets 0.98% 1.10%
Average earning assets 1.08% 1.20%
Average shareholder's equity as a
percentage of:
Average assets 7.19% 8.15%
Average loans 10.15% 12.07%
Average deposits 8.19% 9.44%
Shareholders' equity at period end as a
percentage of:
Total assets at period end 6.04% 6.47%
Total loans at period end 11.04% 12.14%
Total deposits at period end 6.66% 7.29%
- -------------------------------------------------------------------------------------------------
(1) Annualized
(2) Adjusted net income for 1999 and 1998 excludes equity in the net income of
ICII.
EXHIBITS
PART I
None
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
Due to the nature of the businesses, the Company and its subsidiaries
are subject to numerous legal actions, threatened or filed, arising in
the normal course of business. Certain of the actions currently
pending seek punitive damages, in addition to other relief. The
Company is of the opinion that the eventual outcome of all currently
pending legal proceedings will not be materially adverse to the
Company, nor has the resolution of any proceeding since the Company's
last filing with the Commission materially adversely affected the
registrant or any subsidiary thereof.
ITEM 2. Changes in Securities
No events have transpired which would make response to this item
appropriate.
25
ITEM 3. Defaults upon Senior Securities
No events have transpired which would make response to this item
appropriate.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No events have transpired which would make response to this item
appropriate.
ITEM 5. Other Information
No events have transpired which would make response to this item
appropriate.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
All other material referenced in this report which is required to be filed as
an exhibit hereto has previously been submitted.
(b) The Company filed a Form 8-K on March 30, 1999, to record fourth
quarter 1998 earnings as a matter of public record.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
IMPERIAL BANCORP
Dated: May 14, 1999 By: /s/ Christine M. McCarthy
-------------------------
Christine M. McCarthy
Executive Vice President and
Chief Financial Officer
26