Imperial Bancorp, which has enjoyed solid success by taking more risks than the average bank, finally got bit by some entrepreneurial bravado. So it’s shifting its focus into a tamer line of business, at least for now.

Imperial’s strategy had been to focus on niches such as entertainment, finance, high-tech and health care and in some cases, spin operations in these specialties off as separate public companies.

But the recent stock market volatility, which gave Imperial its first quarterly net loss in five years, has shown that risk has a way of blowing up in your face.

“It was a bull-market strategy, but it may not work so well in the future,” said Charlotte Chamberlain, an analyst at Jefferies & Co. She said the increased volatility will make it that much harder for Imperial to spin off divisions or to sell its stake in those spin-offs.

“We get a sense that they will be pulling in their horns a bit, slowing down growth a bit,” said Joe Morford, an analyst at Van Kasper & Co. in San Francisco.

While the bank has no plans to pull out of its non-bank enterprises, the emphasis has clearly shifted to core banking operations.

“Our focus will be on middle-market banking,” said Imperial Chairman George L. Graziadio. “That is where the greatest opportunities are.”

Middle-market banking, which focuses on companies with annual revenues ranging from $1 million to $600 million, accounts for more than 50 percent of the bank’s revenue, and that portion is expected to increase.

The emphasis on middle-market lending is evidenced by the rapid increase in Imperial’s outstanding loans. As of Sept. 30, loans totaled $3.35 billion, up from $2.49 billion a year earlier.

Fueling that growth is Imperial’s widespread hiring of loan specialists, many of them from other local banks that have merged or been bought. Imperial’s full-time staff increased 25 percent to 1,168 in the year ended Sept. 30.

The focus on core banking follows the worst financial quarter since 1993.

Imperial Bank spent more than a year preparing to take public its Imperial Financial Group, which is made up of its small-business lending division, trust operations and the Lewis Horwitz Organization, which specializes in financing low-budget films.

To bolster the group’s balance sheet, Imperial Bancorp had planned to transfer to the new company its 24 percent stake in Imperial Credit Industries Inc., which it had spun off as a separate public company in 1992.

Those plans came to a halt in September, when stock market declines sent the share price of Imperial Credit’s investments plunging.

As a result, Imperial Credit posted a net loss for the third quarter ended Sept. 30 of $109.4 million, which in turn led to Imperial Bancorp posting a net loss of $3.1 million, compared with net income of $14.9 million for the like period a year earlier.

It was a painful loss for an institution that had steadily posted solid earnings gains in recent years. It also has had a punishing effect on Imperial’s share price. After trading as high as $31 per share in July, Imperial Bancorp’s stock stood at around $16 as of last week.

“They have been trying to move away from cyclical sectors,” said Morford. “But the last couple of quarters have shown that the risk is still there.”

In the early 1990s, the bank was almost driven to the wall by losses in the commercial real estate sector. Ironically, analysts credited money raised from the IPO of Imperial Credit with keeping the bank afloat back then.

Imperial executives say they have learned their lesson. Despite their rapidly expanding loan portfolio, there are no plans to get back into commercial real estate.

“We decided to get out of the commercial market and never get back into it,” said Imperial Vice Chairman Norman Creighton. “We got burned by that business three times. That was enough.”

Now there are concerns that with the strong loan growth this year, asset quality has declined.

Its non-performing assets have increased more than 60 percent over the last two quarters, to $65 million. Much of that was due to weakness at Imperial Entertainment Group, which is a major lender to independent film producers, many of whom have been hurt by the economic slowdown in Asia.

The bank also remains an active lender in other higher-risk areas. In 1997, Imperial was ranked as the nation’s fifth most active working capital lender in the export industry, according to Eximbank. It also expanded its residential construction loan portfolio by 125 percent last year.

Graziadio downplays the higher level of non-performing loans. “I don’t believe (Imperial is riskier than its competitors),” he said. “Just 1.1 percent of our total loan portfolio is non-performing. That’s pretty good for the industry, especially considering that we’ve seen 35 percent loan growth from a year ago.”

He pointed out that the bank has not increased its loan-loss provisions because management believes its level of non-performers will decline during the remainder of this year and in 1999.

Despite Imperial’s increased emphasis on middle-market banking, few industry observers believe the bank will give up its taste for developing non-banking operations with strong spin-off potential.

Imperial’s latest brainchild is the Receivable Payment Manager, a software and hardware system developed by Imperial Technology Solutions, which allows doctors and dentists to electronically verify and automate the collection of patient receivables.

“There is a vast potential,” said Jeff Album, spokesman for Delta Dental Plan of California, which is among the first local medical groups to use the system under a statewide pilot program. Album estimated the system can boost by up to 30 percent the value of accounts receivables that dentists and doctors are able to collect.

RPM is still in the developmental stage, however, and not expected to start generating revenues until the second half of next year.

“They are one of the most entrepreneurial and creative banks out there,” said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods. “Whenever they see an opportunity, I think they will go with it. The challenge will be to limit exposure to any one effort.”