<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1997
------------------
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
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4596322
-------- ----------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
888 Prospect St., La Jolla, California 92037
-------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(619) 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
----- -----
Number of shares of common stock of the registrant: 7,849,484 outstanding
as of October 31, 1997.
<PAGE>
ITLA CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
-------- --------
(in thousands except share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 26,785 $ 48,881
Investment securities available for sale, at approximate market value 68,223 50,292
Stock in Federal Home Loan Bank 11,730 8,349
Mortgage-backed securities held to maturity, at amortized cost
(market value $26,869 and $31,319 for 1997 and 1996, respectively) 27,031 31,870
Loans held for investment, net (net of allowance for credit losses of
$11,034 and $10,885 in 1997 and 1996, respectively) 749,098 649,836
Loans held for sale, at approximate market value - 1,130
Interest receivable 5,269 4,411
Other real estate owned, net 5,190 5,416
Income taxes receivable - 2,007
Premises and equipment, net 2,964 2,610
Deferred income taxes 3,794 3,613
Other assets 1,471 2,028
-------- --------
$901,555 $810,443
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $736,398 $670,336
Federal Home Loan Bank advances 61,500 43,500
Accounts payable and other liabilities 7,021 7,289
-------- --------
Total liabilities 804,919 721,125
-------- --------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued - -
Contributed capital - common stock, $.01 par value; 20,000,000 shares
authorized, 7,846,984 and 7,824,000 issued and outstanding in 1997
and 1996, respectively 53,635 53,345
Retained earnings 45,081 35,973
Unrealized gain on investment securities available for sale, net 10 -
-------- --------
98,726 89,318
Less 141,500 shares of treasury stock, at cost (2,090) -
-------- --------
Total shareholders' equity 96,636 89,318
-------- --------
$901,555 $810,443
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
2
<PAGE>
ITLA CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------ ------------ ------------ ------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees $19,897 $15,820 $55,874 $45,666
Investment securities 1,868 898 4,478 3,198
Mortgage-backed securities 458 529 1,385 1,721
------------ ------------ ------------ ------------
Total interest income 22,223 17,247 61,737 50,585
------------ ------------ ------------ ------------
Interest expense:
Deposit accounts 10,567 7,669 29,302 22,512
Federal Home Loan Bank advances 876 745 2,150 2,229
------------ ------------ ------------ ------------
Total interest expense 11,443 8,414 31,452 24,741
------------ ------------ ------------ ------------
Net interest income before provisions for valuation
allowance and estimated credit losses 10,780 8,833 30,285 25,844
Provision for valuation allowance on loans held for sale - - 350 -
Provision for estimated credit losses 1,050 950 1,900 3,771
------------ ------------ ------------ ------------
Net interest income after provisions for valuation
allowance and estimated credit losses 9,730 7,883 28,035 22,073
------------ ------------ ------------ ------------
Noninterest income:
Late and collection fees 62 116 229 441
Fee income from mortgage banking activities 154 - 556 -
Other 12 8 135 114
------------ ------------ ------------ ------------
Total noninterest income 228 124 920 555
------------ ------------ ------------ ------------
Noninterest expense:
Compensation and benefits 2,058 1,508 6,203 4,228
Occupancy and equipment 685 457 1,789 1,459
FDIC assessment 21 - 186 244
Other 1,740 1,656 5,235 3,926
------------ ------------ ------------ ------------
Total general and administrative 4,504 3,621 13,413 9,857
------------ ------------ ------------ ------------
Real estate operations, net 47 175 94 502
Provision for estimated losses on other real estate owned 25 - 25 888
Loss (gain) on sales of other real estate owned, net (27) (113) 4 (364)
------------ ------------ ------------ ------------
Total real estate operations, net 45 62 123 1,026
------------ ------------ ------------ ------------
Total noninterest expense 4,549 3,683 13,536 10,883
------------ ------------ ------------ ------------
Income before provision for income taxes 5,409 4,324 15,419 11,745
Provision for income taxes 2,221 1,729 6,311 4,541
------------ ------------ ------------ ------------
NET INCOME $ 3,188 $ 2,595 $ 9,108 $ 7,204
============ ============ ============ ============
EARNINGS PER SHARE $ 0.40 $ 0.33 $ 1.15 $ 1.00
============ ============ ============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
ITLA CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,108 $ 7,204
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 355 714
Provisions for estimated credit losses and loans held for sale 2,250 3,771
Provision for estimated losses on other real estate owned 25 888
Gain on sales of other real estate owned (27) (364)
Increase in interest receivable (858) (381)
Decrease (increase) in income taxes receivable 2,007 (56)
Provision (benefit) for deferred income taxes (188) 164
Decrease in other assets 389 260
(Decrease) increase in accounts payable and other liabilities (268) 1,574
-------- --------
Net cash provided by operating activities 12,793 13,774
-------- --------
Cash Flows From Investing Activities:
Increase in loans receivable, net (105,246) (170,610)
Purchases of investment securities available for sale (318,244) (167,395)
Proceeds from the maturity of investment securities available for sale 300,927 129,623
Purchases of investment securities held to maturity - (364,029)
Proceeds from the maturity of investment securities held to maturity - 381,789
(Increase) decrease in stock in Federal Home Loan Bank (3,381) 4,144
Repayment of principal on mortgage-backed securities 4,764 6,704
Proceeds from sale of other real estate owned 3,045 5,170
Proceeds from sale of real estate loans 2,047 1,051
Proceeds from sale of automobile finance contracts - 50,050
Cash paid for capital expenditures (1,072) (169)
Other, net 9 (29)
-------- --------
Net cash used in investing activities (117,151) (123,701)
-------- --------
Cash Flows From Financing Activities:
Common stock issued 290 22,566
Shares acquired under stock repurchase program (2,090) -
Increase in deposit accounts 66,062 93,489
Increase in Federal Home Loan Bank advances 18,000 -
-------- --------
Net cash provided by financing activities 82,262 116,055
-------- --------
Net increase (decrease) in cash and cash equivalents (22,096) 6,128
Cash and cash equivalents at beginning of period 48,881 22,106
-------- --------
Cash and cash equivalents at end of period $ 26,785 $ 28,234
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 30,707 $ 22,077
Cash paid during the period for income taxes $ 5,500 $ 4,432
Noncash Investing Transactions:
Loans transferred to other real estate owned $ 2,817 $ 6,045
Loans to facilitate the sale of other real estate owned $ 715 $ 2,312
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
ITLA CAPITAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
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 a fair statement of the
results for the interim periods indicated. The unaudited consolidated financial
statements include the accounts of the Company and its two wholly-owned
subsidiaries, Imperial Thrift and Loan Association ("Imperial" or "the
Association") and ITLA Funding Corporation ("ITLA Funding"). All material
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to the financial statements for 1996 to conform
to the 1997 presentation. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles 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 nine months ended September 30, 1997 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 financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is calculated on the basis of weighted-average number of
shares of common stock and common stock equivalents outstanding. The weighted-
average number of shares utilized in the determination of earnings per share was
7,918,679 and 7,923,440 for the three months ended September 30, 1997 and 1996,
respectively, and 7,922,663 and 7,175,215 for the nine months ended September
30, 1997 and 1996, respectively. Fully diluted earnings per share has not been
reported in these interim financial statements as the dilutive effect of common
stock equivalents for outstanding options is less than three percent.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
Per Share", which will supersede APB Opinion 15, becomes effective for periods
ending after December 15, 1997. Under SFAS 128, primary earnings per share will
be replaced with basic earnings per share. Basic earnings per share is computed
by dividing reported earnings available to common shareholders by weighted-
average shares outstanding. No dilution for any potentially dilutive securities
is included. The adoption of SFAS 128 is not expected to have a material impact
on the Company's earnings per share.
NOTE 3 - IMPAIRED LOANS RECEIVABLE
As of September 30, 1997, the recorded investment in loans receivable that
were considered impaired under Statement of Financial Accounting Standards No.
114 was $2.1 million. The average recorded investment in impaired loans during
the three and nine month
5
<PAGE>
ITLA CAPITAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
periods ended September 30, 1997 was $2.2 million and $4.0 million,
respectively. Interest income recognized on impaired loans on a cash basis was
$0 and $.1 million, respectively, during the three and nine month periods ended
September 30, 1997, and $.1 million and $.3 million, respectively, during the
three and nine month periods ended September 30, 1996.
NOTE 4 - STOCK REPURCHASE PROGRAM
In April 1997, the Company commenced a stock repurchase program under which
it may acquire up to 5 percent of its outstanding shares, not to exceed $10
million over an 18 month period. Under this program, the Company may acquire,
at its discretion, shares of its outstanding common stock through purchases in
the open market. The Company acquired 141,500 shares of stock for a total cost
of $2.1 million under this program through September 30, 1997.
6
<PAGE>
ITLA CAPITAL CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is intended to identify the major
components that influenced the financial condition and results of operations of
the Company as of and for the three and nine month periods ended September 30,
1997.
Certain statements may be used in this Form 10-Q or future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer. Such statements may
include "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "believe," or similar expressions. These
statements are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities, and
competitive and regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net Income
Net income totaled $3.2 million for the three months ended September 30,
1997 compared to $2.6 million for the same period in 1996, an increase of 22.9
percent. The increase in net income was primarily due to increases in net
interest income and noninterest income, partially offset by increases in general
and administrative expenses, the provision for estimated credit losses and the
provision for income taxes. Earnings per share was $.40 for the three months
ended September 30, 1997 compared to $.33 per share for the same period in 1996.
Net Interest Income
The table on the following page sets forth a summary of the changes in
interest income and interest expense resulting from changes in average interest-
earning asset and interest-bearing liability balances (volume) and changes in
average interest rates (rate). The change in interest due to both volume and
rate have been allocated to change due to volume and rate in proportion to the
relationship of absolute dollar amounts in each.
7
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
1997 Versus 1996
----------------------------------------------------------
Volume Rate/1/ Total
--------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Interest and fees earned on:
Loans receivable, net $3,946 $131 $4,077
Investment securities 943 27 970
Mortgage-backed securities (141) 70 (71)
-------------- -------------- -------------
Total increase (decrease) 4,748 228 4,976
-------------- -------------- -------------
Interest paid on:
Deposit accounts 2,624 274 2,898
FHLB advances 108 23 131
-------------- -------------- -------------
Total increase 2,732 297 3,029
-------------- -------------- -------------
Increase
(decrease) in net
interest income $2,016 $(69) $1,947
============== ============= ============
</TABLE>
Total interest income increased by $5.0 million in the 1997 third quarter
compared to the same period in 1996 due primarily to increases in the average
balances of loans and investment securities and increased yields on loans,
investment securities and mortgage-backed securities, partially offset by the
lower average balance of mortgage-backed securities compared to the third
quarter of 1996. The average balance of loans receivable increased $140.8
million, or 24.4 percent, due to growth in the Company's real estate loan
portfolio. The weighted-average yield on loans receivable increased to 11.01
percent for the 1997 third quarter compared to 10.92 percent/1/ for the same
period in 1996 primarily as a result of additional income received from
prepayments and the collection of interest on past due loans, some of which were
previously classified as nonaccrual. Excluding this additional income, the
yield on loans receivable declined to 10.78 percent due to the pricing of real
estate loans in response to competitive factors and the Company's emphasis on
attempting to manage credit risk. The origination of lower yielding real estate
loans is expected to result in the Company achieving lower average yields in
future operating periods.
Total interest expense increased by $3.0 million in the 1997 third quarter
compared to the same period in 1996 due primarily to an increase in the average
balance of deposit accounts and FHLB advances and, to a lesser extent, to an
increase in the cost of funds. The average balance of deposit accounts
increased $178.7 million during the third quarter of 1997 as compared to the
1996 third quarter. The average rate paid on these accounts increased to 5.80
percent in the 1997 third quarter from 5.61 percent during the same period in
1996. The increase in deposit rates was consistent with market conditions.
Provision For Estimated Credit Losses
Management periodically assesses the adequacy of the allowance for credit
losses by reference to many factors which may be weighted differently at various
times depending on
- ----------------------------
/1/ The yield on loans receivable differs from the amount disclosed in previous
periods due to reclassifications made in 1996 to conform to the 1997
presentation.
8
<PAGE>
prevailing conditions. These factors include, among other elements, general
portfolio trends relative to asset and portfolio size, asset categories,
potential credit concentrations, nonaccrual loan levels, historical loss
experience and risks associated with changes in economic, social and business
conditions. Accordingly, the calculation of the adequacy of the allowance for
credit losses is not based solely on the level of nonperforming assets.
Management believes that the Company's allowance for credit losses as of
September 30, 1997 was adequate to absorb the known and inherent risks of loss
in the loan portfolio at that date. While management believes the estimates and
assumptions used in its determination of the adequacy of the allowance are
reasonable, there can be no assurance that such estimates and assumptions will
not be proven incorrect in the future, or that the actual amount of future
provisions will not exceed the amount of past provisions or that any increased
provisions that may be required will not adversely impact the Company's
financial condition and results of operations. In addition, the determination
of the amount of the allowance for credit losses is subject to review by the
Association's regulators, as part of the routine examination process, which may
result in the establishment of additional reserves based upon their judgment of
information available to them at the time of their examination.
The provision for estimated credit losses increased to $1.1 million in the
1997 third quarter from $1.0 million in the same period in 1996, primarily due
to the establishment of reserves relating to growth in the loan portfolio.
Nonperforming assets to total assets declined to 1.4 percent as of September 30,
1997 from 1.6 percent as of December 31, 1996. The aggregate amount of
nonperforming assets decreased to $12.5 million as of September 30, 1997 from
$12.6 million at December 31, 1996. At September 30, 1997, the total allowance
for credit losses was $11.0 million or 1.5 percent of total loans receivable
held for investment. See also "Financial Condition - Nonperforming Assets and
Allowance for Credit Losses."
Noninterest Income
Noninterest income totaled $.2 million for the three months ended September
30, 1997 compared to $.1 million for the same period in 1996. The increase in
noninterest income was due primarily to mortgage banking fee income earned by
ITLA Funding, which commenced operations in 1997.
Noninterest Expense
Noninterest expense totaled $4.5 million for the three months ended
September 30, 1997 compared to $3.7 million for the same period in 1996. The
increase in noninterest expense was due primarily to increases in compensation
and benefits and occupancy and equipment expenses incurred at the Company's
mortgage banking subsidiary, ITLA Funding. Compensation and benefits expense
increased due to an increase in the number of full-time equivalent employees
("FTE's") to 149 at September 30, 1997 compared to 130 at September 30, 1996.
The increase in occupancy and equipment expense was due primarily to increases
from ITLA Funding's new offices in Seattle, Portland, Phoenix, Denver, Houston,
Chicago, New York, Tampa, and Palm Beach, Florida.
For the three months ended September 30, 1997, the Company's consolidated
ratio of general and administrative expense to average assets, on an annualized
basis, was 2.0 percent, compared to 2.1 percent for the same period in 1996.
The ratio excluding the costs of ITLA Funding was 1.8 percent in the third
quarter of 1997.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net Income
Net income totaled $9.1 million for the nine months ended September 30,
1997 compared to $7.2 million for the same period in 1996, an increase of 26.4
percent. The increase in net income was primarily due to an increase in net
interest income, a reduced provision for estimated credit losses, lower other
real estate owned ("OREO") expenses and an increase in noninterest income,
partially offset by increases in general and administrative expenses, the
provision for valuation allowance on loans held for sale and the provision for
income taxes. Earnings per share was $1.15 for the nine months ended September
30, 1997 compared to $1.00 per share for the same period in 1996.
Net Interest Income
The table below sets forth a summary of the changes in interest income and
interest expense resulting from changes in average interest-earning asset and
interest-bearing liability balances (volume) and changes in average interest
rates (rate). The change in interest due to both volume and rate have been
allocated to change due to volume and rate in proportion to the relationship of
absolute dollar amounts in each.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1997 Versus 1996
------------------------------------------------------------
Volume Rate/2/ Total
--------------- ----------------- ----------------
(in thousands)
<S> <C> <C> <C>
Interest and fees earned on:
Loans receivable, net $13,758 $(3,550) $10,208
Investment securities 1,012 268 1,280
Mortgage-backed securities (456) 120 (336)
--------------- ----------------- ----------------
Total increase (decrease) 14,314 (3,162) 11,152
--------------- ----------------- ----------------
Interest paid on:
Deposit accounts 6,352 438 6,790
FHLB advances (130) 51 (79)
--------------- ----------------- ----------------
Total increase
(decrease) 6,222 489 6,711
--------------- ----------------- ----------------
Increase
(decrease) in net
interest income $ 8,092 $(3,651) $ 4,441
=============== ================= ================
</TABLE>
Total interest income increased by $11.2 million for the nine month period
ended September 30, 1997 compared to the same period in 1996 due primarily to
increases in the average balances of loans and investment securities, offset by
lower overall yields on loans receivable and the lower average balance of
mortgage-backed securities compared to the same period in 1996. The average
balance of loans receivable increased $151.6 million, or 28.4 percent, due to
growth in the Company's real estate loan portfolio. The weighted-average yield
- ---------------------------------
/2/ The yield on loans receivable differs from the amount disclosed in previous
periods due to reclassifications made in 1996 to conform to the 1997
presentation.
10
<PAGE>
on loans receivable declined to 10.89 percent compared to 11.42 percent/3/ for
the same period in 1996 as a result of the sale of higher yielding automobile
loans in the first quarter of 1996 and the origination of lower yielding real
estate loans. The sale of the automobile loan portfolio and the origination of
lower yielding real estate loans is expected to result in the Company achieving
lower average yields in future operating periods.
Total interest expense increased by $6.7 million for the nine month period
ended September 30, 1997 compared to the same period in 1996 due primarily to an
increase in the average balance of deposit accounts and an increase in the
average rates paid for deposit accounts. The average balance of deposit
accounts increased $149.8 million during the nine month period ended September
30, 1997 compared to the prior period. The average rate paid on these accounts
increased to 5.76 percent in 1997 from 5.67 percent during the same period in
1996. The increase in deposit rates was consistent with market conditions.
Provisions For Estimated Credit Losses And Valuation Allowance On Loans Held For
Sale
The provision for estimated credit losses declined to $1.9 million during
the nine month period ended September 30, 1997 from $3.8 million in the same
period in 1996, reflecting both the decline in nonperforming loans and improved
economic conditions in the Company's market area as compared to previous
periods. The provision for valuation allowance on loans held for sale totaled
$.4 million for the nine month period ended September 30, 1997. No such
provision was recorded in the same period of 1996. See also "Financial
Condition -Nonperforming Assets and Allowance for Credit Losses."
Noninterest Income
Noninterest income totaled $.9 million for the nine months ended September
30, 1997 compared to $.6 million for the same period in 1996. The increase in
noninterest income was due primarily to mortgage banking fee income earned by
ITLA Funding, which commenced operations in 1997, partially offset by a
reduction in fee income from the automobile loan portfolio, which was
substantially disposed of in the first quarter of 1996.
Noninterest Expense
Noninterest expense totaled $13.5 million for the nine months ended
September 30, 1997 compared to $10.9 million for the same period in 1996. The
increase in noninterest expense in 1997 was due primarily to increases in
compensation and benefits expense, occupancy and equipment expense and other
expenses, incurred at ITLA Funding. These increases were partially offset by a
reduction in the costs associated with OREO. Compensation and benefits expense
increased in 1997 due to an increase in the number of FTE's to 149 at September
30, 1997 compared to 130 in the prior year, as well as due to a non-recurring
benefit in the prior year which reduced the amount of expense recognized by $.4
million. The increase in occupancy and equipment expense was due primarily to
increases from ITLA Funding's new offices in Seattle, Portland, Phoenix, Denver,
Houston, Chicago, New York, Tampa, and Palm Beach, Florida. The reduction in
OREO expense was commensurate
- -------------------------------
/3/ The yield on loans receivable differs from the amount disclosed in previous
periods due to reclassifications made in 1996 to conform to the 1997
presentation.
11
<PAGE>
with the reduction in the number of OREO properties held by the Company. At
September 30, 1997, the Company held 20 OREO properties, compared to 33 at
September 30, 1996.
For the nine months ended September 30, 1997, the Company's consolidated
ratio of general and administrative expense to average assets was 2.2 percent,
compared to 2.0 percent for the same period in 1996. The ratio excluding the
costs of ITLA Funding was 1.9 percent during the first nine months of 1997.
FINANCIAL CONDITION
Nonperforming Assets and Allowance for Credit Losses
The following table sets forth the Company's nonperforming assets by
category at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans: $ 7,276 $ 6,422
Loans secured by real estate, net - 783
Other --------- --------
7,276 7,205
Total nonaccrual loans 5,190 5,416
Real estate owned --------- --------
$ 12,466 $ 12,621
Total nonperforming assets ========= ========
Troubled debt restructurings $ 1,389 $ 2,106
Nonaccrual loans held for investment to
total gross loans held for investment 0.96% 0.96%
Nonperforming assets to total assets 1.38% 1.56%
</TABLE>
The following table provides certain information regarding the Company's
allowance for credit losses.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Allowance for credit losses:
Balance, beginning of period $ 10,885 $ 8,105
Provision for estimated credit losses 1,900 4,871
Less charge-offs on real estate loans, net (1,751) (2,091)
--------- --------
Balance, end of period $ 11,034 $ 10,885
========= ========
</TABLE>
12
<PAGE>
Liquidity and Deposit Accounts
Liquidity refers to the Company's ability to maintain cash flow adequate to
fund operations and meet obligations and other commitments on a timely basis,
including the payment of maturing deposits and the origination or purchase of
new loan receivables. The Company maintains an investment securities portfolio
designed to satisfy operating and regulatory liquidity requirements while
preserving capital and maximizing yield. As of September 30, 1997, the Company
held approximately $68.2 million of investment securities classified as
available for sale. All investment securities held by the Company were fixed
income instruments which were rated "AAA" or better by nationally recognized
rating agencies. As of September 30, 1997 and December 31, 1996, the
Association's liquidity ratios were 15.7 percent and 13.3 percent, respectively,
exceeding the regulatory requirement of 1.5 percent. In addition, the Company's
liquidity position is supported by a credit facility with the FHLB of San
Francisco with an available borrowing capacity of $45.6 million, and by federal
funds lines of credit with two major banks with an available borrowing capacity
of $30.0 million.
Total deposit accounts increased to $736.4 million at September 30, 1997
from $670.3 million at December 31, 1996. The Company retained a significant
amount of the funds which matured through rollover of the certificates in the
nine months ended September 30, 1997 and 1996, respectively. Although the
Company competes for deposits primarily on the basis of rates, based on its
historical experience regarding retention of deposits, management believes that
a significant portion of deposits will remain with the Company upon maturity on
an ongoing basis.
Capital Resources
At September 30, 1997, the Association's Leverage (Core), Tier I and Total
Risk-Based capital ratios were 10.4 percent, 11.8 percent and 13.0 percent,
respectively. At December 31, 1996, Leverage (Core), Tier I and Total Risk-
Based capital ratios were 10.6 percent, 12.0 percent and 13.3 percent,
respectively. The minimum regulatory requirement for Leverage (Core), Tier I
and Risk-Based capital are 4.0 percent, 4.0 percent and 8.0 percent,
respectively. As of September 30, 1997, the Association's capital position was
designated as "well capitalized" for regulatory purposes.
The Company's shareholders' equity increased $7.3 million from December 31,
1996 to September 30, 1997 due to the accumulation of $9.1 million in net income
as retained earnings and a $.3 million increase from the exercise of employee
stock options and issuance of Company stock as compensation to certain officers,
partially offset by a $2.1 million reduction due to the repurchase of 141,500
shares of the Company's stock currently held as treasury stock. There were no
dividends declared or paid during the first nine months of 1997.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The Company is party to certain legal proceedings incidental to its
business. Management believes that the outcome of such proceedings,
in the aggregate, will not have a material effect on the Company's
financial condition.
Item 2 Changes In Securities
Not applicable.
Item 3 Defaults Upon Senior Securities
Not applicable.
Item 4 Submission Of Matters Of Security Holders
(a) On July 24, 1997, the Company held its Annual Meeting of
Shareholders.
(b) Stockholders voted on the following matters:
(i) The election of Jeffrey L. Lipscomb as director for a term to
expire in 2000:
<TABLE>
<CAPTION>
Votes For Against Withheld
----- --- ------- --------
<S> <C> <C> <C>
6,776,735 0 3,200
</TABLE>
(ii) The ratification of Arthur Andersen L.L.P. as independent
auditors for the Company for the fiscal year ending December 31,
1997:
<TABLE>
<CAPTION>
Votes For Against Abstain
----- --- ------- -------
<S> <C> <C> <C>
6,770,435 6,800 2,700
</TABLE>
Item 5 Other Information
Not applicable.
Item 6 Exhibits And Reports On Form 8-K
Exhibit 27 - Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITLA CAPITAL CORPORATION
Date: November 12, 1997 /s/ George W. Haligowski
----------------- --------------------------
George W. Haligowski
Chairman of the Board, President
and Chief Executive Officer
Date: November 12, 1997 /s/ Michael A. Sicuro
----------------- --------------------------
Michael A. Sicuro
Managing Director and Chief
Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,223
<INVESTMENTS-CARRYING> 27,031
<INVESTMENTS-MARKET> 26,869
<LOANS> 760,132
<ALLOWANCE> 11,034
<TOTAL-ASSETS> 901,555
<DEPOSITS> 736,398
<SHORT-TERM> 55,500
<LIABILITIES-OTHER> 7,021
<LONG-TERM> 6,000
0
0
<COMMON> 53,635
<OTHER-SE> 43,001
<TOTAL-LIABILITIES-AND-EQUITY> 901,555
<INTEREST-LOAN> 55,874
<INTEREST-INVEST> 5,863
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 61,737
<INTEREST-DEPOSIT> 29,302
<INTEREST-EXPENSE> 31,452
<INTEREST-INCOME-NET> 30,285
<LOAN-LOSSES> 1,900
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,886
<INCOME-PRETAX> 15,419
<INCOME-PRE-EXTRAORDINARY> 9,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,108
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 10.04
<LOANS-NON> 7,276
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,389
<LOANS-PROBLEM> 10,346
<ALLOWANCE-OPEN> 10,885
<CHARGE-OFFS> 1,855
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 11,034
<ALLOWANCE-DOMESTIC> 11,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,913
</TABLE>
