UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-26960
ITLA CAPITAL CORPORATION
| Delaware | 95-4596322 | |
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| (State or Other Jurisdiction of Incorporation | (IRS Employer Identification No.) | |
| or Organization) |
| 888 Prospect St., Suite 110, La Jolla, California | 92037 | ||||
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| (Address of Principal Executive Offices) | (Zip Code) | ||||
(858) 551-0511
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ].
Number of shares of common stock of the registrant: 6,060,927 outstanding as of May 9, 2003.
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ITLA CAPITAL CORPORATION FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2003
TABLE OF CONTENTS
| Page | ||||||||
PART I — FINANCIAL INFORMATION |
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Item 1. |
Financial Statements | |||||||
| Consolidated Balance Sheets – March 31, 2003 (Unaudited) and December 31, 2002 | 3 | |||||||
| Consolidated Statements of Income - Three months Ended March 31, 2003 and 2002 (Unaudited) | 4 | |||||||
| Consolidated Statements of Cash Flows – Three Months Ended March 31, 2003 and 2002 (Unaudited) | 5 | |||||||
| Notes to Unaudited Consolidated Financial Statements | 6 | |||||||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 19 | ||||||
Item 4. |
Controls and Procedures | 19 | ||||||
PART II — OTHER INFORMATION |
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Item 1. |
Legal Proceedings | 20 | ||||||
Item 2. |
Changes in Securities | 20 | ||||||
Item 3. |
Defaults Upon Senior Securities | 20 | ||||||
Item 4. |
Submission of Matters to a Vote of Security Holders | 20 | ||||||
Item 5. |
Other Information | 20 | ||||||
Item 6. |
Exhibits and Reports on Form 8-K | 20 | ||||||
| Signatures | 21 | |||||||
| Cerifications | 22 | |||||||
Forward Looking Statements
“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This Form 10-Q contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, changes in economic conditions in our market areas, changes in policies by regulatory agencies, the impact of competitive loan products, loan demand risks, the quality or composition of our loan or investment portfolios, fluctuations in interest rates and changes in the relative differences between short and long term interest rates, levels of nonperforming assets and operating results, the impact of terrorist actions and other risks detailed from time to time in our filings with the Securities and Exchange Commission. We caution readers not to place undue reliance on forward-looking statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2003 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us.
As used throughout this report, the terms “we”, “our”, “ITLA Capital” or the “Company” refer to ITLA Capital Corporation and its consolidated subsidiaries.
- 2 -
PART 1- FINANCIAL INFORMATION
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, | ||||||||||||
| 2003 | December 31, | |||||||||||
| (unaudited) | 2002 | |||||||||||
| (in thousands except share amounts) | ||||||||||||
Assets |
||||||||||||
Cash and cash equivalents |
$ | 92,402 | $ | 160,848 | ||||||||
Investment securities available for sale, at fair value |
59,439 | 54,677 | ||||||||||
Stock in Federal Home Loan Bank |
17,156 | 16,934 | ||||||||||
Loans, net (net of allowance for loan losses of $30,550 and
$31,081 in 2003 and 2002, respectively) |
1,264,692 | 1,316,298 | ||||||||||
Real estate loans held in trust (net of allowance for loan
losses of $1,928 in 2003 and 2002, respectively) |
114,781 | 121,936 | ||||||||||
Loans held for sale |
4,723 | — | ||||||||||
Interest receivable |
9,153 | 9,158 | ||||||||||
Other real estate owned, net |
10,862 | 12,593 | ||||||||||
Premises and equipment, net |
4,549 | 4,197 | ||||||||||
Deferred income taxes |
13,898 | 13,822 | ||||||||||
Goodwill |
3,118 | 3,118 | ||||||||||
Other assets |
17,950 | 8,384 | ||||||||||
Total assets |
$ | 1,612,723 | $ | 1,721,965 | ||||||||
Liabilities and Shareholders’ Equity |
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Liabilities: |
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Deposit accounts |
$ | 1,069,514 | $ | 1,065,911 | ||||||||
Federal Home Loan Bank advances |
165,985 | 338,685 | ||||||||||
Collateralized mortgage obligations |
61,841 | 69,077 | ||||||||||
Accounts payable and other liabilities |
64,017 | 10,006 | ||||||||||
Total liabilities |
1,361,357 | 1,483,679 | ||||||||||
Commitments and contingencies |
||||||||||||
Guaranteed preferred beneficial interests in the Company’s
junior subordinated deferrable interest debentures, net |
81,662 | 81,595 | ||||||||||
Shareholders’ equity: |
||||||||||||
Preferred stock, 5,000,000 shares authorized, none issued |
— | — | ||||||||||
Contributed capital-common stock, $.01 par value;
20,000,000 shares authorized, 8,226,747 and 8,226,414
issued in 2003 and 2002, respectively |
58,953 | 58,841 | ||||||||||
Retained earnings |
148,794 | 135,773 | ||||||||||
Accumulated other comprehensive income |
315 | 435 | ||||||||||
| 208,062 | 195,049 | |||||||||||
Less treasury stock, at cost 2,447,656 shares in 2003 and
2002, respectively |
(38,358 | ) | (38,358 | ) | ||||||||
Total shareholders’ equity |
169,704 | 156,691 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 1,612,723 | $ | 1,721,965 | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| For the Three Months Ended | |||||||||||
| March 31, | |||||||||||
| (in thousands except per share amounts) | |||||||||||
| 2003 | 2002 | ||||||||||
Interest income: |
|||||||||||
Loans, including fees |
$ | 28,614 | $ | 23,516 | |||||||
Real estate loans held in trust |
2,173 | 2,840 | |||||||||
Cash and investment securities |
2,737 | 679 | |||||||||
Total interest income |
33,524 | 27,035 | |||||||||
Interest expense: |
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Deposit accounts |
6,848 | 8,293 | |||||||||
Federal Home Loan Bank advances |
1,195 | 1,538 | |||||||||
Collateralized mortgage obligations |
390 | 658 | |||||||||
Total interest expense |
8,433 | 10,489 | |||||||||
Net interest income before provision
for loan losses |
25,091 | 16,546 | |||||||||
Provision for loan losses |
4,500 | 1,325 | |||||||||
Net interest income after provision
for loan losses |
20,591 | 15,221 | |||||||||
Non-interest income: |
|||||||||||
Premium
on sale of RAL loans, net |
8,718 | — | |||||||||
Late and collection fees |
67 | 72 | |||||||||
Other |
3,751 | 53 | |||||||||
Total non-interest income |
12,536 | 125 | |||||||||
Non-interest expense: |
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Compensation and benefits |
5,352 | 3,319 | |||||||||
Occupancy and equipment |
1,076 | 717 | |||||||||
FDIC assessment |
37 | 42 | |||||||||
Other |
3,652 | 2,240 | |||||||||
Total general and administrative |
10,117 | 6,318 | |||||||||
Real estate owned expense, net |
142 | 86 | |||||||||
Provision for losses on other real estate owned |
330 | 513 | |||||||||
Gain on sale of other real estate owned, net |
(329 | ) | (132 | ) | |||||||
Total real estate owned expense, net |
143 | 467 | |||||||||
Total non-interest expense |
10,260 | 6,785 | |||||||||
Income before provision for income taxes and
minority interest in income of subsidiary |
22,867 | 8,561 | |||||||||
Minority interest in income of subsidiary |
1,520 | 799 | |||||||||
Income before provision for income taxes |
21,347 | 7,762 | |||||||||
Provision for income taxes |
8,326 | 3,043 | |||||||||
NET INCOME |
$ | 13,021 | $ | 4,719 | |||||||
BASIC EARNINGS PER SHARE |
$ | 2.17 | $ | 0.79 | |||||||
DILUTED EARNINGS PER SHARE |
$ | 2.02 | $ | 0.74 | |||||||
See accompanying notes to the unaudited consolidated financial statements.
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (in thousands) | ||||||||||||
Cash Flows From Operating Activities: |
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Net Income |
$ | 13,021 | $ | 4,719 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization of premises and equipment |
388 | 220 | ||||||||||
Amortization of premium on purchased loans |
505 | 53 | ||||||||||
Amortization of original issue discount and deferred debt issuance cost on CMOs |
80 | 52 | ||||||||||
Accretion of deferred loan origination fees, net of costs |
(839 | ) | (283 | ) | ||||||||
Impairment
of investments available for sale |
250 | — | ||||||||||
Provision for loan losses |
4,500 | 1,325 | ||||||||||
Provision for losses on other real estate owned |
330 | 513 | ||||||||||
Premium
on sale of RAL loans, net |
(8,718 | ) | — | |||||||||
Gain on sale of real estate loans, net |
— | (32 | ) | |||||||||
Gain on sales of other real estate owned |
(329 | ) | (132 | ) | ||||||||
Decrease in interest receivable |
5 | 1,812 | ||||||||||
(Increase) decrease in other assets |
(9,566 | ) | 1,233 | |||||||||
Decrease in accounts payable and other liabilities |
54,011 | (2,598 | ) | |||||||||
Net cash provided by operating activities |
53,638 | 6,882 | ||||||||||
Cash Flows From Investing Activities: |
||||||||||||
Proceeds from securitization and sale of real estate loans |
— | 98,155 | ||||||||||
Decrease in loans, net |
50,740 | 27,635 | ||||||||||
Origination
of RAL loans, net |
(11,580,324 | ) | — | |||||||||
Proceeds
from the sale of participation in RAL loans, net |
11,584,877 | — | ||||||||||
Increase in loans held for sale |
(4,723 | ) | — | |||||||||
Net cash paid to acquire Asahi Bank of California |
— | (14,758 | ) | |||||||||
Repayment of real estate loans held in trust |
6,922 | 10,017 | ||||||||||
Purchase
of loans, net |
(1,914 | ) | (9,791 | ) | ||||||||
Purchases of investment securities available for sale |
(18,149 | ) | (14,092 | ) | ||||||||
Proceeds from the maturity of investment securities available for sale |
12,941 | 7,000 | ||||||||||
Increase in stock in Federal Home Loan Bank |
(222 | ) | — | |||||||||
Proceeds from the sale of other real estate owned |
4,742 | 738 | ||||||||||
Other, net |
(569 | ) | (784 | ) | ||||||||
Net cash provided by investing activities |
54,321 | 104,120 | ||||||||||
Cash Flows From Financing Activities: |
||||||||||||
Increase (decrease) in deposit accounts |
3,603 | (60,404 | ) | |||||||||
Net proceeds from (repayment of borrowings) borrowings from
the Federal Home Loan Bank |
(172,700 | ) | (41,100 | ) | ||||||||
Repayment of Asahi repurchase agreement, net |
— | (14,724 | ) | |||||||||
Principal payments on collateralized mortgage obligations |
(7,316 | ) | (10,859 | ) | ||||||||
Cash paid to acquire treasury stock |
— | (1,399 | ) | |||||||||
Proceeds from exercise of employee stock options
|
8 | 105 | ||||||||||
Net cash used in financing activities |
(176,405 | ) | (128,381 | ) | ||||||||
Net decrease in cash and cash equivalents |
(68,446 | ) | (17,379 | ) | ||||||||
Cash and cash equivalents at beginning of period |
160,848 | 134,241 | ||||||||||
Cash and cash equivalents at ending of period |
$ | 92,402 | $ | 116,862 | ||||||||
Supplemental Cash Flow Information: |
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Cash paid during the period for interest |
$ | 8,028 | $ | 10,866 | ||||||||
Cash paid during the period for income taxes |
$ | 5,010 | $ | 1,700 | ||||||||
Non-cash Investing Transactions: |
||||||||||||
Loans transferred to other real estate owned |
$ | 3,012 | $ | 548 | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
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ITLA CAPIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of ITLA Capital Corporation (the “Company”) included herein reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the results of operations and financial position of the Company, as of and for the interim period indicated. The unaudited consolidated financial statements include the accounts of ITLA Capital and its wholly-owned subsidiaries, Imperial Capital Bank (the “Bank”), Imperial Capital Real Estate Investment Trust (“Imperial Capital REIT”), ITLA Capital Statutory Trust I (“Trust I”), ITLA Capital Statutory Trust II (“Trust II”), ITLA Capital Statutory Trust III (“Trust III”), ITLA Capital Statutory Trust IV (“Trust IV”), and ITLA Capital Statutory Trust V (“Trust V”). All intercompany transactions and balances have been eliminated. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results of operations for the remainder of the year.
These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2002.
NOTE 2 - EARNINGS PER SHARE
Basic Earnings Per Share (“Basic EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted Earnings Per Share (“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 in the issuance of common stock which shared in the Company’s earnings.
The following is a reconciliation of the calculation of Basic EPS and Diluted EPS:
| For the Three Months Ended March 31, | ||||||||||||
| Weighted- | ||||||||||||
| Average | Per | |||||||||||
| Net | Shares | Share | ||||||||||
| Income | Outstanding | Amount | ||||||||||
| (in thousands, except per share data) | ||||||||||||
2003 |
||||||||||||
Basic EPS |
$ | 13,021 | 6,011 | $ | 2.17 | |||||||
Effect of dilutive
stock options |
— | 437 | (0.15 | ) | ||||||||
Diluted EPS |
$ | 13,021 | 6,448 | $ | 2.02 | |||||||
2002 |
||||||||||||
Basic EPS |
$ | 4,719 | 6,007 | $ | 0.79 | |||||||
Effect of dilutive
stock options |
— | 331 | (0.05 | ) | ||||||||
Diluted EPS |
$ | 4,719 | 6,338 | $ | 0.74 | |||||||
&n | ||||||||||||