ITLA CAPITAL CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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 June 30, 2003


( )		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

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-4596322

(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)


888 Prospect St., Suite 110, La Jolla, California			92037

(Address of Principal Executive Offices)			(Zip Code)

(858) 551-0511

(Registrant’s Telephone Number, Including Area Code)

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 Act). Yes [X] No [ ].

Number of shares of common stock of the Registrant: 6,081,591 outstanding as of August 8, 2003.

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TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

ITLA CAPITAL CORPORATION FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
TABLE OF CONTENTS


			Page

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Balance Sheets – June 30, 2003 (unaudited) and December 31, 2002		3
		Consolidated Statements of Income – Three and Six Months Ended June 30, 2003 and 2002 (unaudited)		4
		Consolidated Statements of Cash Flows – Six Months Ended June 30, 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			11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			24
Item 4.	Controls and Procedures			24
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings		25
Item 2.		Changes in Securities		25
Item 3.		Defaults Upon Senior Securities		25
Item 4.		Submission of Matters to a Vote of Security Holders		25
Item 5.		Other Information		25
Item 6.		Exhibits and Reports on Form 8-K		25
		Signatures		26
		Certifications		29

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.

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PART I - FINANCIAL INFORMATION

ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


					June 30,
					2003			December 31,
					(unaudited)			2002

					(in thousands except share amounts)
				Assets
Cash and cash equivalents					$	133,139		$	160,848
Investment securities available for sale, at fair value						41,135			54,677
Stock in Federal Home Loan Bank						12,392			16,934
Loans, net (net of allowance for loan losses of $31,590 and $31,081 as of June 30, 2003 and December 31, 2002, respectively)						1,217,150			1,316,298
Real estate loans held in trust (net of allowance for loan losses of $1,928 as of June 30, 2003 and December 31, 2002, respectively)						96,109			121,936
Interest receivable						7,796			9,158
Other real estate owned, net						16,885			12,593
Premises and equipment, net						5,189			4,197
Deferred income taxes						13,848			13,822
Goodwill						3,118			3,118
Other assets						16,735			8,384

			Total assets		$	1,563,496		$	1,721,965

				Liabilities and Shareholders’ Equity
Liabilities:
	Deposit accounts				$	973,039		$	1,065,911
	Federal Home Loan Bank advances					247,835			338,685
	Collateralized mortgage obligations					43,419			69,077
	Accounts payable and other liabilities					42,049			10,006

			Total liabilities			1,306,342			1,483,679

Commitments and contingencies




Guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures, net						81,731			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, 8,240,579 and 8,226,414 issued as of June 30, 2003 and December 31, 2002, respectively					59,261			58,841
	Retained earnings					154,284			135,773
	Accumulated other comprehensive income					236			435

						213,781			195,049
	Less treasury stock, at cost 2,447,656 shares as of June 30, 2003 and December 31, 2002, respectively					(38,358	)		(38,358	)

		Total shareholders’ equity				175,423			156,691

			Total liabilities and shareholders’ equity		$	1,563,496		$	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				For the Six Months Ended
					June 30,				June 30,

					2003		2002		2003			2002

							(in thousands except per share amounts)
Interest income:
	Loans, including fees				$	25,461	$	23,062	$	54,075		$	46,578
	Real estate loans held in trust					1,456		2,662		3,629			5,502
	Cash and investment securities					994		846		3,731			1,525

		Total interest income				27,911		26,570		61,435			53,605

Interest expense:
	Deposit accounts					6,289		7,095		13,137			15,388
	Federal Home Loan Bank advances					1,293		1,350		2,488			2,888
	Collateralized mortgage obligations					291		631		681			1,289

		Total interest expense				7,873		9,076		16,306			19,565

				Net interest income before provision for loan losses		20,038		17,494		45,129			34,040
Provision for loan losses						1,850		2,100		6,350			3,425

				Net interest income after provision for loan losses		18,188		15,394		38,779			30,615

Non-interest income:
	Premium on sale of loans, net					265		—		8,983			—
	Late and collection fees					64		47		131			119
	Other					912		55		4,664			108

		Total non-interest income				1,241		102		13,778			227

Non-interest expense:
	Compensation and benefits					4,773		3,159		10,125			6,478
	Occupancy and equipment					1,055		738		2,131			1,455
	FDIC assessment					42		42		80			84
	Other					3,047		2,373		6,701			4,613

		Total general and administrative				8,917		6,312		19,037			12,630

	Real estate owned expense, net					11		168		153			254
	Provision for losses on other real estate owned					40		283		370			796
	Loss (gain) on sale of other real estate owned, net					—		57		(329	)		(75	)

		Total real estate owned expense, net				51		508		194			975

			Total non-interest expense			8,968		6,820		19,231			13,605

Income before provision for income taxes and minority interest in income of subsidiary						10,461		8,676		33,326			17,237
Minority interest in income of subsidiary						1,446		797		2,966			1,596

Income before provision for income taxes						9,015		7,879		30,360			15,641
Provision for income taxes						3,525		3,074		11,849			6,117

	NET INCOME				$	5,490	$	4,805	$	18,511		$	9,524

	BASIC EARNINGS PER SHARE				$	0.91	$	0.80	$	3.08		$	1.59

	DILUTED EARNINGS PER SHARE				$	0.85	$	0.75	$	2.86		$	1.49

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 Six Months Ended
					June 30,

					2003			2002

					(in thousands)
Cash Flows From Operating Activities:
	Net Income				$	18,511		$	9,524
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of premises and equipment				742			444
		Amortization of premium on purchased loans				1,355			216
		Amortization of original issue discount and deferred debt issuance cost on CMOs				151			97
		Accretion of deferred loan origination fees, net of costs				(1,506	)		(418	)
		Provision for loan losses				6,350			3,425
		Provision for losses on other real estate owned				370			796
		Gain on sales of other real estate owned				(329	)		(75	)
		Decrease in interest receivable				1,362			2,217
		Increase in other assets				(8,351	)		(1,711	)
		Increase (decrease) in accounts payable and other liabilities				32,043			(976	)
		Other operating activities, net				250			(32	)

			Net cash provided by operating activities			50,948			13,507

Cash Flows From Investing Activities:
		Proceeds from securitization and sale of real estate loans				—			98,155
		Decrease (increase) in loans, net				88,022			(24,524	)
		Net cash paid to acquire Asahi Bank of California				—			(14,872	)
		Repayment of real estate loans held in trust				24,985			19,148
		Purchase of loans				(3,259	)		(15,791	)
		Purchases of investment securities available for sale				(20,210	)		(23,418	)
		Proceeds from the maturity and calls of investment securities available for sale				33,277			15,000
		Decrease (increase) in stock in Federal Home Loan Bank				4,542			(1,545	)
		Proceeds from sale of other real estate owned				4,695			2,730
		Other investing activities, net				(1,392	)		(749	)

			Net cash provided by investing activities			130,660			54,134

Cash Flows From Financing Activities:
		Decrease in deposit accounts				(92,872	)		(94,049	)
		Net (repayment of) proceeds from borrowings from the Federal Home Loan Bank				(90,850	)		30,900
		Repayment of Asahi repurchase agreement, net				—			(14,693	)
		Principal payments on collateralized mortgage obligations				(25,809	)		(20,371	)
		Cash paid to acquire treasury stock				—			(1,911	)
		Proceeds from exercise of employee stock options				214			132

			Net cash used in financing activities			(209,317	)		(99,992	)

				Net decrease in cash and cash equivalents		(27,709	)		(32,351	)
				Cash and cash equivalents at beginning of period		160,848			134,241

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