<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 June 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)
<TABLE>
<S> <C>
Delaware 95-4596322
- ----------------------------------------------------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
888 Prospect St., La Jolla, California 92037
- ----------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(619) 551-0511
- -----------------------------------------------------
(Registrant's telephone number, including area code)
</TABLE>
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: 7,845,484 outstanding
as of July 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
ITLA CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
1997 December 31,
(Unaudited) 1996
--------------- ---------------
(in thousands except share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 56,332 $ 48,881
Investment securities available for sale, at approximate market value 38,226 50,292
Stock in Federal Home Loan Bank 11,582 8,349
Mortgage-backed securities held to maturity, at amortized cost
(market value $27,991 and $31,319 for 1997 and 1996, respectively) 28,446 31,870
Loans held for investment, net (net of allowance for credit losses of
$10,539 and $10,885 in 1997 and 1996, respectively) 694,074 649,836
Loans held for sale, at approximate market value 299 1,130
Interest receivable 4,886 4,411
Other real estate owned, net 4,813 5,416
Income taxes receivable 3,110 2,007
Premises and equipment, net 3,122 2,610
Deferred income taxes 3,813 3,613
Other assets 1,498 2,028
-------- --------
$850,201 $810,443
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $689,021 $670,336
Federal Home Loan Bank advances 61,500 43,500
Accounts payable and other liabilities 6,246 7,289
-------- --------
Total liabilities 756,767 721,125
-------- --------
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, 7,836,318 and 7,824,000 issued and outstanding in 1997
and 1996, respectively 53,496 53,345
Retained earnings 41,891 35,973
Unrealized loss on investment securities available for sale, net (18) -
-------- --------
95,369 89,318
Less 132,500 shares of treasury stock, at cost (1,935) -
-------- --------
Total shareholders' equity 93,434 89,318
-------- --------
$850,201 $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 Six Months Ended
------------------------------ -------------------------------
June 30, June 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------ ------------- ------------ ---------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 18,182 $ 14,603 $ 35,977 $ 29,845
Investment securities 1,106 1,354 2,610 2,300
Mortgage-backed securities 470 566 927 1,191
------------ ------------- ------------ ------------
Total interest income 19,758 16,523 39,514 33,336
------------ ------------- ------------ ------------
Interest expense:
Deposit accounts 9,255 7,371 18,735 14,843
Federal Home Loan Bank advances 685 737 1,274 1,482
------------ ------------- ------------ ------------
Total interest expense 9,940 8,108 20,009 16,325
------------ ------------- ------------ ------------
Net interest income before provisions for valuation
allowance and estimated credit losses 9,818 8,415 19,505 17,011
Provision for valuation allowance on loans held for sale 350 - 350 -
Provision for estimated credit losses 250 1,100 850 2,821
------------ ------------- ------------ -------------
Net interest income after provisions for valuation
allowance and estimated credit losses 9,218 7,315 18,305 14,190
------------ ------------- ------------ ------------
Noninterest income:
Late and collection fees 66 166 167 326
Fee income from mortgage banking activities 233 - 402 -
Other 45 162 123 105
------------ ------------- ------------ ------------
Total noninterest income 344 328 692 431
------------ ------------- ------------ ------------
Noninterest expense:
Compensation and benefits 2,065 1,585 4,145 2,719
Occupancy and equipment 541 528 1,104 1,001
FDIC assessment 21 123 165 244
Other 1,771 1,261 3,495 2,271
------------ ------------ ------------ ------------
Total general and administrative 4,398 3,497 8,909 6,235
------------ ------------ ------------ ------------
Real estate operations, net 39 240 47 327
Provision for estimated losses on other real
estate owned - 296 - 888
Loss (gain) on sales of other real estate owned, net 24 (186) 31 (250)
------------ ------------ ------------ ------------
Total real estate operations, net 63 350 78 965
------------ ------------ ------------ ------------
Total noninterest expense 4,461 3,847 8,987 7,200
------------ ------------ ------------ ------------
Income before provision for income taxes 5,101 3,796 10,010 7,421
Provision for income taxes 2,087 1,427 4,090 2,812
------------ ------------ ------------ ------------
NET INCOME $ 3,014 $ 2,369 $ 5,920 $ 4,609
============ ============ ============ ============
EARNINGS PER SHARE $ 0.38 $ 0.32 $ 0.74 $ 0.69
============ ============ ============ ============
</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 Six Months
Ended June 30,
---------------------------------
1997 1996
--------------- ---------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,920 $ 4,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 273 445
Provisions for estimated credit losses and valuation allowance on
loans held for sale 1,200 2,821
Provision for estimated losses on other real estate owned - 888
Loss (gain) on sales of other real estate owned 31 (251)
Increase in interest receivable (475) (116)
Increase in income taxes receivable (1,103) (529)
(Provision) benefit for deferred income taxes (188) 138
Decrease (increase) in other assets 496 (406)
Decrease in accounts payable and other liabilities (1,245) (556)
----------- ----------
Net cash provided by operating activities 4,909 7,043
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in net loans receivable (48,251) (109,075)
Purchases of investment securities available for sale (146,500) -
Proceeds from the maturity of investment securities available for sale 158,721 -
Purchases of investment securities held to maturity - (491,625)
Proceeds from the maturity of investment securities held to maturity - 476,292
(Increase) decrease in stock in Federal Home Loan Bank (3,233) 4,266
Repayment of principal on mortgage-backed securities 3,365 4,290
Proceeds from sale of other real estate owned 2,405 3,760
Proceeds from sale of real estate loans 1,812 -
Proceeds from sale of automobile finance contracts - 50,051
Cash paid for capital expenditures (686) (169)
Other, net 9 37
----------- ----------
Net cash used in investing activities (32,358) (62,173)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 151 22,566
Purchase of treasury stock (1,935) -
Increase in deposit accounts 18,685 32,242
Increase in Federal Home Loan Bank advances 18,000 -
----------- ----------
Net cash provided by financing activities 34,901 54,808
----------- ----------
Net increase (decrease) in cash and cash equivalents 7,452 (322)
Cash and cash equivalents at beginning of period 48,881 22,106
----------- -----------
Cash and cash equivalents at end of period $ 56,333 $ 21,784
=========== ===========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 20,144 $ 16,329
Cash paid during the period for income taxes $ 4,400 $ 3,202
Noncash Investing Transactions:
Loans transferred to other real estate owned $ 1,833 $ 4,517
Loans to facilitate the sale of other real estate owned $ 635 $ 1,835
</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 SIX MONTHS ENDED JUNE 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 six months ended June 30, 1997 are not necessarily
indicative of the results of operations to be expected for the remainder of the
year.
These unaudited 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, which was
7,886,081 and 7,518,663 and 7,936,751 and 6,688,071, respectively, during the
three and six month periods ended June 30, 1997 and 1996. 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 impact of SFAS 128 is not expected to be material
on the Company's earnings per share.
NOTE 3 - IMPAIRED LOANS RECEIVABLE
As of June 30, 1997, the recorded investment in loans receivable that were
considered impaired under Statement of Financial Accounting Standards No. 114
was $3.9 million. The average recorded investment in impaired loans during the
three and six month periods ended June 30, 1997 was $4.6 million and $4.9
million, respectively. Interest income recognized on impaired
5
<PAGE>
ITLA CAPITAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
loans on a cash basis was $.1 million and $.2 million, respectively, during the
three and six month periods ended June 30, 1997, and $.1 million and $.2
million, respectively, during the three and six month periods ended June 30,
1996.
NOTE 4 - STOCK REPURCHASE PROGRAM
In April 1997, the Company commenced a stock repurchase program under which
it may reacquire 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 132,500 shares of stock for a total cost
of $1.9 million under this program through June 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 six month periods ended June 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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
NET INCOME
Net income totaled $3.0 million for the three months ended June 30, 1997
compared to $2.4 million for the same period in 1996, an increase of 27
percent. The increase in net earnings was primarily due to an increase in net
interest income, a reduced provision for estimated credit losses and lower other
real estate owned expenses, 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 $.38 for the three months
ended June 30, 1997 compared to $.32 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 JUNE 30,
1997 VERSUS 1996
-------------------------------------------
VOLUME RATE TOTAL
------ ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans receivable, net $3,951 $ (372) $3,579
Cash and investment securities (294) 46 (248)
Mortgage-backed securities (156) 60 (96)
------ ------ ------
Total increase (decrease) 3,501 (266) 3,235
Interest paid on:
Deposit accounts 1,610 274 1,884
FHLB Advances (83) 31 (52)
------ ------ ------
Total increase (decrease) 1,527 305 1,832
Increase (decrease) in net
interest income $1,974 $ (571) $1,403
====== ====== ======
</TABLE>
Total interest income increased by $3.2 million in the 1997 second quarter
compared to the same period in 1996 due primarily to increases in the average
balances of loans, offset by lower overall yields on loans receivable and the
lower average balance of cash, investment securities and mortgage-backed
securities compared to the second quarter of 1996. The average balance of loans
receivable increased $159.5 million, or 31.0 percent, due to growth in the
Company's real estate loan portfolio. The weighted-average yield on loans
receivable declined to 10.82 percent for the 1997 second quarter compared to
11.41 percent for the same period in 1996 primarily as a result of a decline in
yields of real estate loans due to the pricing of loans in response to
competitive factors and the Company's emphasis on attempting to minimize 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 $1.8 million in the 1997 second quarter
compared to the same period in 1996 due primarily to an increase in the average
balance of deposit accounts and to an increase in the average rate paid for
deposit accounts, offset by a decline in the average balance of FHLB advances.
The average balance of deposit accounts increased $23.6 million during the
second quarter of 1997 as compared to the 1996 second quarter. The average rate
paid on these accounts increased to 5.76 percent in the 1997 second quarter from
5.57 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 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 June 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
8
<PAGE>
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 declined to $.3 million in the
1997 second quarter from $1.1 million in the same period in 1996, reflecting
both the decline in nonperforming loans and net charge-offs as compared to
previous periods. Nonperforming assets to total assets declined to 1.3 percent
as of June 30, 1997 from 1.6 percent as of December 31, 1996. The aggregate
amount of nonperforming assets declined to $11.1 million as of June 30, 1997
from $12.6 million at December 31, 1996. At June 30, 1997, the total allowance
for credit losses was $10.5 million or 1.5 percent of total loans receivable
held for investment. See also "Financial Condition - Nonperforming Assets and
Allowance for Credit Losses."
PROVISION FOR VALUATION ALLOWANCE ON LOANS HELD FOR SALE
During the second quarter of 1997, the Company recorded a $.4 million
provision for valuation allowance on loans held for sale. No such provision was
recorded during the second quarter of 1996. Loans held for sale consist of the
remaining unsold automobile finance contracts that the Company designated as
held for sale in the fourth quarter of 1995. After selling $54.0 million of
these automobile finance contracts in the first quarter of 1996, the Company has
continued to collect on the remaining unsold automobile finance contracts and
continues to account for these contracts at the lower of cost or fair market
value. At June 30, 1997, the carrying amount of the remaining unsold automobile
finance contracts, net of market valuation writedowns and unearned discount, was
$.3 million.
NONINTEREST EXPENSE
Noninterest expense totaled $4.5 million for the three months ended June
30, 1997 compared to $3.8 million for the same period in 1996. The increase in
noninterest expense in 1997 was due primarily to an increase in compensation and
benefits expense of $.5 million and an increase in other expenses of $.5
million, partially offset by reductions in the costs associated with other real
estate owned ("OREO") of $.3 million and in FDIC assessments of $.1 million.
Compensation and benefits expense increased in 1997 due to an increase in the
number of full time equivalent employees ("FTE's") to 141 at June 30, 1997
compared to 110 at June 30, 1996. The increase in FTE's in 1997 compared to 1996
was due primarily to the additional staffing at ITLA Funding. The increase in
other expense was due primarily to an increase in advertising expense totaling
approximately $.1 million, costs associated with the commencement of operations
of ITLA Funding of $.2 million, and increases in other miscellaneous general and
administrative costs of $.2 million. The reduction in OREO expense was
commensurate with the reduction in the number of OREO properties held by the
Company. At June 30, 1997, the Company held 22 OREO properties, compared to 33
at June 30, 1996.
For the quarter ended June 30, 1997, the Company's consolidated ratio of
general and administrative expense to average assets, on an annualized basis,
was 2.2 percent, compared to 2.1 percent in the prior year. The ratio
excluding the costs of ITLA Funding was 2.0 percent in the second quarter of
1997.
9
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
NET INCOME
Net income totaled $5.9 million for the six months ended June 30, 1997
compared to $4.6 million for the same period in 1996, an increase of 28
percent. The increase in net earnings was primarily due to an increase in net
interest income, a reduced provision for estimated credit losses, lower other
real estate owned expenses and an increase in noninterest income, offset by
increases in general and administrative expenses, provision for valuation
allowance on loans held for sale and the provision for income taxes. Earnings
per share was $.74 for the six months ended June 1997 compared to $.69 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 SIX MONTHS ENDED JUNE 30,
1997 VERSUS 1996
----------------------------------------
VOLUME RATE TOTAL
------- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans receivable, net $8,275 $(2,143) $6,132
Cash and investment securities 169 141 310
Mortgage-backed securities (330) 66 (264)
------ ------- ------
Total increase (decrease) 8,114 (1,936) 6,178
Interest paid on:
Deposit accounts 3,676 216 3,892
FHLB advances (237) 29 (208)
------ ------- ------
Total increase (decrease) 3,439 245 3,684
Increase (decrease) in net
interest income $4,675 $(2,181) $2,494
====== ======= ======
</TABLE>
Total interest income increased by $6.2 million for the six month period
ended June 30, 1997 compared to the same period in 1996 due primarily to
increases in the average balances of loans, offset by lower overall yields on
loans receivable and the lower average balance of mortgage-backed securities
compared to the prior year. The average balance of loans receivable increased
$157.0 million, or 30.6 percent, due to growth in the Company's real estate loan
portfolio. The weighted-average yield on loans receivable declined to 10.83
percent compared to 11.71 percent 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 due the pricing of loans in
response to competitive factors and the Company's emphasis on attempting to
minimize credit risk. 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.
10
<PAGE>
Total interest expense increased by $3.7 million for the six month period
ended June 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 $132.4 million during the six month period ended June 30,
1997 compared to the prior year. The average rate paid on these accounts
increased to 5.73 percent in the 1997 first quarter 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 $.9 million during
the six month period ended June 30, 1997 from $2.8 million in the same period in
1996, reflecting both the decline in nonperforming loans and net charge-offs as
compared to previous periods. The provision for valuation allowance on loans
held for sale totaled $.4 million for the six month period ended June 30, 1997.
No such provision was recorded in the same period in the prior year. See also
"Financial Condition - Nonperforming Assets and Allowance for Credit Losses."
NONINTEREST EXPENSE
Noninterest expense totaled $9.0 million for the six months ended June 30,
1997 compared to $7.2 million for the same period in 1996. The increase in
noninterest expense in 1997 was due primarily to an increase in compensation and
benefits expense of $1.4 million, an increase in occupancy and equipment expense
of $.1 million and an increase in other expenses of $1.2 million, partially
offset by a $.9 million 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 141 at June 30, 1997 compared to 110 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 FTE's in 1997
compared to 1996 was due primarily to the additional staffing at ITLA Funding.
The increase in other expense was due primarily to an increase in advertising
expense totaling approximately $.4 million, costs associated with the
commencement of operations of ITLA Funding of $.5 million, and increases in
other miscellaneous general and administrative costs of $.3 million. The
reduction in OREO expense was commensurate with the reduction in the number of
OREO properties held by the Company. At June 30, 1997, the Company held 22 OREO
properties, compared to 33 at June 30, 1996.
For the six months ended June 30, 1997, the Company's consolidated ratio of
general and administrative expense to average assets was 2.2 percent, compared
to 1.9 percent in the prior year. The ratio excluding the costs of ITLA Funding
was 1.9 percent during the first six months of 1997.
11
<PAGE>
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>
JUNE 30, DECEMBER 31,
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans:
Loans secured by real estate, net $ 6,026 $ 6,422
Other 276 783
------- -------
Total nonaccrual loans 6,302 7,205
Real estate owned 4,813 5,416
------- -------
Total nonperforming assets $11,115 $12,621
======= =======
Troubled debt restructurings $ 1,402 $ 2,106
Nonaccrual loans held for investment to
total gross loans held for investment 0.86% 0.96%
Nonperforming assets to total assets 1.31% 1.56%
</TABLE>
The following table provides certain information regarding the Company's
allowance for credit losses.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 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 850 4,871
Less net charge-offs on real estate loans (1,196) (2,091)
------- -------
Balance, end of period $10,539 $10,885
======= =======
</TABLE>
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 a cash and investment securities
portfolio designed to satisfy operating and regulatory liquidity requirements
while preserving capital and maximizing yield. As of June 30, 1997, the Company
held approximately $38.2 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 June 30, 1997 and December 31, 1996, the Association's
liquidity ratios were 13.4 percent and 13.3 percent, respectively, exceeding the
regulatory requirement of 1.5 percent. In addition, the Company's liquidity
position is
12
<PAGE>
supported by a credit facility with the FHLB of San Francisco. As of June 30,
1997, the Company had available borrowing capacity under this credit facility of
$61.9 million.
Total deposit accounts increased to $689.0 million at June 30, 1997 from
$670.3 million at December 31, 1996. The Company retained 74 percent and 70
percent of the funds from maturing investment certificates through rollover of
the certificates in the six months ended June 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 June 30, 1997, the Association's Leverage (Core), Tier I and Total Risk-
Based capital ratios were 10.6 percent, 12.2 percent and 13.4 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 June
30, 1997, the Association's capital position was designated as "well
capitalized" for regulatory purposes.
The Company's shareholders' equity increased $4.1 million from December 31,
1996 to June 30, 1997 due to the accumulation of $5.9 million in net income as
retained earnings and a $.1 million increase from the exercise of employee stock
options, offset by a $1.9 million reduction due to the repurchase of 132,500
shares of the Company's stock currently held as treasury stock. There were no
dividends declared or paid during the first six 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
business or 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
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) A report was filed on April 14, 1997 announcing that the Company had
approved a stock repurchase plan. No financial statements were filed
as part of this report.
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: August 13, 1997 /s/ George W. Haligowski
--------------- -----------------------------
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
Date: August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 56,332
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,226
<INVESTMENTS-CARRYING> 28,446
<INVESTMENTS-MARKET> 27,991
<LOANS> 704,613
<ALLOWANCE> 10,539
<TOTAL-ASSETS> 850,201
<DEPOSITS> 689,021
<SHORT-TERM> 39,500
<LIABILITIES-OTHER> 6,246
<LONG-TERM> 22,000
0
0
<COMMON> 53,496
<OTHER-SE> 39,938
<TOTAL-LIABILITIES-AND-EQUITY> 850,201
<INTEREST-LOAN> 35,977
<INTEREST-INVEST> 3,537
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 39,514
<INTEREST-DEPOSIT> 18,735
<INTEREST-EXPENSE> 20,009
<INTEREST-INCOME-NET> 19,505
<LOAN-LOSSES> 850
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,337<F1>
<INCOME-PRETAX> 10,010
<INCOME-PRE-EXTRAORDINARY> 5,920
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,920
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 10.00
<LOANS-NON> 6,302
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,402
<LOANS-PROBLEM> 9,561
<ALLOWANCE-OPEN> 10,885
<CHARGE-OFFS> 1,221
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 10,539
<ALLOWANCE-DOMESTIC> 10,539
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,500
<FN>
<F1> INCLUDED IN EXPENSE-OTHER IS $350,000 OF PROVISION FOR VALUATION ALLOWANCE
ON LOANS HELD FOR SALE.
</FN>
</TABLE>
