<PAGE> 1
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 March 31, 1999
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., Suite 110, La Jolla, California 92037
- ------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(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: 7,166,484
outstanding as of May 10, 1999
<PAGE> 2
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- -----------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 73,979 $ 125,602
Investment securities available for sale, at approximate fair value 10,629 329
Stock in Federal Home Loan Bank 12,806 12,633
Loans held for investment, net (net of allowance for credit losses of
$17,818 and $16,811 in 1999 and 1998, respectively) 882,979 862,089
Loans held for sale, at lower of cost or fair market value 12,207 12,188
Interest receivable 6,274 6,321
Other real estate owned, net 1,836 1,201
Premises and equipment, net 3,486 3,493
Deferred income taxes 6,314 6,270
Other assets 2,363 2,521
----------- -----------
Total assets $ 1,012,873 $ 1,032,647
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 844,949 $ 866,798
Federal Home Loan Bank advances 44,250 48,500
Accounts payable and other liabilities 13,936 11,467
----------- -----------
Total liabilities 903,135 926,765
----------- -----------
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, 8,151,916 issued in 1999 and 1998 55,917 55,917
Retained earnings 67,187 63,273
Accumulated other comprehensive loss (208) (150)
----------- -----------
122,896 119,040
Less treasury stock, at cost - 985,432 shares
in 1999 and 1998 (13,158) (13,158)
----------- -----------
Total shareholders' equity 109,738 105,882
----------- -----------
Total liabilities and shareholders' equity $ 1,012,873 $ 1,032,647
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
2
<PAGE> 3
ITLA CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Loans receivable, including fees $ 22,798 $ 22,091
Investment securities 1,337 2,327
Mortgage-backed securities -- 392
-------- --------
Total interest income 24,135 24,810
-------- --------
Interest expense:
Deposit accounts 10,952 12,143
Federal Home Loan Bank advances 513 901
-------- --------
Total interest expense 11,465 13,044
-------- --------
Net interest income before provision for estimated credit losses 12,670 11,766
Provision for estimated credit losses 1,200 1,400
-------- --------
Net interest income after provision for estimated credit losses 11,470 10,366
-------- --------
Noninterest income:
Fee income from mortgage banking activities 3 582
Other 275 277
-------- --------
Total noninterest income 278 859
-------- --------
Noninterest expense:
Compensation and benefits 2,492 2,491
Occupancy and equipment 725 694
FDIC assessment 44 23
Other 1,841 1,990
-------- --------
Total general and administrative 5,102 5,198
-------- --------
Real estate operations, net 2 80
Provision for estimated losses on other real estate owned 15 --
Gain on sale of other real estate owned, net (9) --
-------- --------
Total real estate operations, net 8 80
-------- --------
Total noninterest expense 5,110 5,278
-------- --------
Income before provision for income taxes 6,638 5,947
Provision for income taxes 2,724 2,438
-------- --------
NET INCOME $ 3,914 $ 3,509
======== ========
BASIC EARNINGS PER SHARE $ 0.55 $ 0.46
======== ========
DILUTED EARNINGS PER SHARE $ 0.53 $ 0.44
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE> 4
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,914 $ 3,509
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, accretion and amortization, net (608) (286)
Provisions for estimated credit losses and estimated losses on other real
estate owned 1,215 1,400
Decrease (increase) in interest receivable 47 (154)
Decrease in other assets 116 582
Increase (decrease) in accounts payable and other liabilities 2,469 (607)
--------- ---------
Net cash provided by operating activities 7,153 4,444
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans receivable, net (16,643) (27,359)
Purchases of loans (13,119) --
Purchases of investment securities available for sale (10,403) (5,000)
Proceeds from the maturity of investment securities available for sale -- 20,050
Increase in stock in Federal Home Loan Bank (173) (176)
Repayment of principal on mortgage-backed securities -- 1,679
Proceeds from sale of real estate loans 7,931 2,415
Cash paid for capital expenditures (291) (155)
Other, net 21 (1)
--------- ---------
Net cash used in investing activities (32,677) (8,547)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised -- 34
Net decrease in deposit accounts (21,849) (6,856)
Net decrease in Federal Home Loan Bank advances (4,250) (1,000)
--------- ---------
Net cash used in financing activities (26,099) (7,822)
--------- ---------
Net increase in cash and cash equivalents (51,623) (11,925)
Cash and cash equivalents at beginning of period 125,602 123,885
--------- ---------
Cash and cash equivalents at end of period $ 73,979 $ 111,960
========= =========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 11,382 $ 13,052
Cash paid during the period for income taxes $ 700 $ 1,250
Noncash Investing Transactions:
Loans transferred to other real estate owned $ 650 $ 308
Loans to facilitate the sale of other real estate owned $ -- $ --
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE> 5
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of ITLA Capital
Corporation ("ITLA Capital") 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 ITLA Capital and its
wholly-owned subsidiaries, Imperial Thrift and Loan Association ("Imperial
Thrift and Loan"), ITLA Funding Corporation ("ITLA Funding") and ITLA Commercial
Investment Corporation. All material intercompany transactions and balances have
been eliminated. 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 three months ended March 31, 1999 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 ITLA Capital's annual report on Form 10-K for the year ended
December 31, 1998.
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 earnings of ITLA Capital.
5
<PAGE> 6
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - EARNINGS PER SHARE (Continued)
The following is a reconciliation of the calculation of Basic and
Diluted EPS.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
--------------------------------------------
WEIGHTED-
AVERAGE PER
NET SHARES SHARE
INCOME OUTSTANDING AMOUNT
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
1999
Basic EPS $ 3,914 7,166,484 $ 0.55
Effect of Dilutive Stock Options -- 168,512 (0.02)
--------- --------- --------
Diluted EPS $ 3,914 7,334,996 $ 0.53
========= ========= ========
1998
Basic EPS $ 3,509 7,697,654 $ 0.46
Effect of Dilutive Stock Options -- 249,228 (0.02)
--------- --------- --------
Diluted EPS $ 3,509 7,946,882 $ 0.44
========= ========= ========
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income, which encompasses net income and unrealized gains
(losses) on investment securities available for sale, is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income $ 3,914 $ 3,509
Other comprehensive income-
unrealized loss on investment securities available for sale, net of tax
benefit of $44 and $1 for the three months ended March 31, 1999 and 1998,
respectively (58) (2)
------- -------
Comprehensive income $ 3,856 $ 3,507
======= =======
</TABLE>
6
<PAGE> 7
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - IMPAIRED LOANS RECEIVABLE
As of March 31, 1999 and December 31, 1998, the recorded investment in
loans receivable that were considered impaired under Statement of Financial
Accounting Standards No. 114 was $8.1 million and $6.0 million, respectively.
The average recorded investment in impaired loans was $6.6 million for the three
month period ended March 31, 1999 and $5.5 million for the year ended December
31, 1998. Interest income recognized on impaired loans was not material during
the three month periods ended March 31, 1999 and 1998.
7
<PAGE> 8
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
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
factors that influenced the financial condition and results of operations of
ITLA Capital as of and for the three month period ended March 31, 1999.
"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 ITLA Capital's market areas, changes in policies by regulatory
agencies, the impact of competitive loan products, loan demand risks,
fluctuations in interest rates and operating results and other risks detailed
from time to time in ITLA Capital's filings with the Securities and Exchange
Commission. ITLA Capital cautions readers not to place undue reliance on
forward-looking statements. ITLA Capital 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. These risks could cause ITLA Capital's actual results
for 1999 and beyond to differ materially from those expressed in any
forward-looking statements by, or on behalf of, ITLA Capital.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET INCOME
Net income totaled $3.9 million for the three months ended March 31,
1999 compared to $3.5 million for the corresponding period in 1998, an increase
of 11.5 percent. The increase in net income was primarily due to an increase in
net interest income and decreases in the provision for estimated credit losses
and noninterest expenses, partially offset by a decrease in noninterest income
and an increase in the provision for income taxes. Diluted EPS was $0.53 for the
three months ended March 31, 1999 compared to $0.44 for the corresponding period
in 1998, an increase of 20.5 percent.
NET INTEREST INCOME
The following table 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 of each.
8
<PAGE> 9
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999 VS. 1998
--------------------------------------------------
INCREASE (DECREASE) DUE TO:
---------------------------
VOLUME RATE TOTAL
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and fees earned from:
Loans receivable(1), net $ 1,593 $ (886) $ 707
Investment securities (641) (349) (990)
Mortgage-backed securities (392) -- (392)
------- ------- -------
Total increase (decrease) in
interest income 560 (1,235) (675)
------- ------- -------
Interest paid for:
Deposit accounts (107) (1,084) (1,191)
FHLB advances (311) (77) (388)
Total increase (decrease) in
interest expense
------- ------- -------
(418) (1,161) (1,579)
------- ------- -------
Increase in net interest income $ 978 $ (74) $ 904
======= ======= =======
</TABLE>
- ----------
(1) Loans receivable, net, consist of loans held for investment and loans held
for sale.
Total interest income decreased by $0.7 million in the 1999 first
quarter compared to the corresponding period in 1998 due primarily to declines
in the yields earned on loans and investment securities and declines in the
average outstanding balances of investment securities and mortgage backed
securities, partially offset by an increase in the average balance of loans
receivable. The weighted-average yield on loans receivable decreased to 10.51
percent for the 1999 first quarter compared to 10.93 percent for the
corresponding period in 1998, while the yield on investment securities declined
to 4.62 percent in the current year from 5.55 percent in the prior year.
Interest and fee income earned on loans receivable includes income recognized
from the early payoff of loans. Excluding this income from prepayments, the
yields on loans receivable would have been 10.19 percent and 10.55 percent for
the three months ended March 31, 1999 and 1998, respectively. The decline in the
yields on loans and investment securities was consistent with the general
declines in market interest rates during the 1999 first quarter compared to the
corresponding period in the prior year. The average balance of loans receivable
increased $60.6 million, or 7.4 percent, due primarily to growth in the real
estate loan portfolio. The increase in average loans receivable was funded
primarily from cash generated from maturities of investment securities and the
sale of mortgage backed securities in the fourth quarter of 1998.
Total interest expense decreased by $1.6 million in the 1999 first
quarter compared to the corresponding period in 1998 due primarily to a decline
in the cost of funds, as well as to declines in the average balances of deposit
accounts and FHLB advances. The average balance of deposit accounts decreased
$7.5 million during the first quarter of 1999 as compared to the 1998 first
quarter and the average balance of FHLB advances declined by $22.8 million. The
average rate paid for interest bearing liabilities decreased to 5.32 percent for
the 1999 first
9
<PAGE> 10
quarter from 5.85 percent during the corresponding period in 1998. This decline
in funding costs was consistent with the decline in market interest rates.
PROVISIONS FOR ESTIMATED CREDIT LOSSES AND VALUATION ALLOWANCE ON LOANS HELD FOR
SALE
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 and geographic 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 allowance for credit losses
as of March 31, 1999 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 ITLA Capital'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 Imperial'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 decreased to $1.2 million in
the 1999 first quarter from $1.4 million in the corresponding period in 1998. In
both periods, the provision for estimated credit losses was recorded to provide
for reserves due to the risks associated with increased concentrations in
construction lending and the geographic expansion of the commercial real estate
loan portfolio to loans outside of the state of California. In addition, the
acceptable loan to value ratios on new loan originations increased by five
percent during 1998 in response to competitive pressures in the marketplace, but
have not increased since that period. While the amount of the increase in the
loan portfolio was relatively consistent in the current year as compared to the
same period in the prior year, the provision for estimated credit losses
declined slightly due to a larger portion of the increase resulting from one-to
four family residential real estate loans in the current period. One-to four
family residential real estate loans are for smaller loan amounts, are more
geographically disbursed, and generally have a lower risk profile than
commercial real estate loans.
Nonperforming assets to total assets increased to 0.92 percent as of
March 31, 1999, compared to 0.64 percent at December 31, 1998, due to increases
in nonperforming loans and a small increase in other real estate owned ("OREO").
The aggregate amount of nonperforming assets increased to $9.3 million as of
March 31, 1999 from $6.6 million at December 31, 1998. At March 31, 1999, the
total allowance for credit losses was $17.8 million or 1.98 percent of total
loans held for investment. See also "Financial Condition - Nonperforming Assets
and Allowance for Credit Losses."
NONINTEREST INCOME
Noninterest income totaled $0.3 million for the three months ended
March 31, 1999 compared to $0.9 million for the corresponding period in 1998.
The decrease
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<PAGE> 11
in noninterest income was due to decreased fee income from mortgage banking
activities recognized by ITLA Funding. During the third quarter of 1998, ITLA
Funding experienced a significant decline in the demand for fixed rate
commercial real estate loans originated for sale to third party investors due to
a decline in the commercial real estate securities market. For the three month
period ended March 31, 1999, $3.0 million of commercial real estate loans for
third-party investors were funded and $30,000 of fee income was recognized from
these loans compared to $50.1 million of loans funded and $0.6 million of fee
income recognized during the corresponding period in the prior year.
NONINTEREST EXPENSE
Noninterest expense totaled $5.1 million for the three months ended
March 31, 1999 compared to $5.3 million for the corresponding period in 1998.
The decrease in noninterest expense was due primarily to decreases in the cost
of OREO operations and in general and administrative expenses resulting from the
decrease in loan originations by ITLA Funding.
For both the three months ended March 31, 1999 and 1998, ITLA Capital's
ratio of consolidated general and administrative expense to average assets, on
an annualized basis, was 2.0 percent. ITLA Capital's efficiency ratio excluding
real estate operations was 39.4 percent for the quarter ended March 31, 1999
compared to 41.2 percent during the corresponding period in the prior year.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
computer programs used by ITLA Capital that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations. Management anticipates that
the enhancements necessary to prepare its systems for the year 2000 will be
completed in a timely manner.
ITLA Capital's State of Readiness - During the first quarter of 1998,
ITLA Capital formulated its plan to address the Year 2000 issue. Since that
time, ITLA Capital has taken the following steps:
o Established a Year 2000 Project Team;
o Inventoried Company applications and system software;
o Built an internal tracking database for application and vendor software;
o Developed a time line for completion of Year 2000 project milestones;
o Surveyed major customers to assess the Year 2000 impact and their
ability to honor loan obligations;
o Commenced awareness and education activities for employees;
o Processed responses to customer inquiries and educated customers on the
Year 2000 issue;
o Tested the year 2000 compliant version of ITLA Capital's core banking
system;
o Commenced processing all daily activity on the upgraded, year 2000
compliant release of the core banking system; and
o Submitted to an examination by the FDIC to assess the adequacy of ITLA
Capital's plan for addressing the Year 2000 issue. The results of this
examination are confidential as a matter of law.
11
<PAGE> 12
Company Resources Invested in the Year 2000 Project - ITLA Capital's
Year 2000 project team is responsible for ensuring that all Company systems are
identified, analyzed for Year 2000 compliance, and corrected, if necessary, by
September 30, 1999. The Year 2000 project team members represent all functional
areas of ITLA Capital. ITLA Capital's Board of Directors oversees the Year 2000
plan and provides guidance and resources to, and receives quarterly updates
from, the Year 2000 project team.
ITLA Capital is expensing the cost of all required system changes and
such costs are funded through operating cash flows. The total estimated cost of
the Year 2000 conversion project is approximately $75,000, with approximately
$21,000 incurred and expensed by ITLA Capital through March 31, 1999. ITLA
Capital does not expect significant increases in future data processing costs
relating to Year 2000 compliance.
The Risks of ITLA Capital's Year 2000 Issues - Like most financial
service providers, ITLA Capital and its operations may be significantly affected
by the Year 2000 issue due to dependence on technology and date-sensitive data.
Computer software, hardware and other equipment, both within and outside ITLA
Capital's direct control, and third parties with whom ITLA Capital
electronically or operationally interfaces (including, without limitation, its
customers and third party vendors) are likely to be affected. If computer
systems are not modified to identify the year 2000, computer applications could
fail or create erroneous results. Many calculations reliant on date field
information, such as interest, payment or due dates and other operating
functions, could generate erroneous results, and ITLA Capital could experience
an inability to process transactions, prepare statements or engage in similar
normal business activities. A failure to adequately address the Year 2000 issue
could adversely affect the viability of ITLA Capital's suppliers and creditors
and the creditworthiness of its borrowers. Thus, if not adequately addressed,
the Year 2000 issue could result in a significant adverse impact on ITLA
Capital's operations and, in turn, its financial condition and results of
operations.
ITLA Capital's Contingency Plan - ITLA Capital has developed
contingency plans for each of its mission critical systems. These contingency
plans include selecting a new vendor or service provider or system conversions.
In the event a current vendor's system fails during Year 2000 compliance testing
and it is determined that the system failure cannot be corrected, ITLA Capital
anticipates it will convert to an alternative, Year 2000 compliant system.
ITLA Capital's core banking system is used by a number of other
financial institutions and has been examined for Year 2000 readiness by the
Federal Financial Institutions Examination Counsel and has been found to be Year
2000 compliant.
12
<PAGE> 13
FINANCIAL CONDITION
NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES
The following table sets forth ITLA Capital's nonperforming assets by
category as of the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------- ------
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual loans $7,477 $5,434
Other real estate owned, net 1,836 1,201
------ ------
Total nonperforming assets $9,313 $6,635
====== ======
Nonaccrual loans held for investment to total
gross loans held for investment 0.82% 0.62%
Nonperforming assets to total assets 0.92% 0.64%
</TABLE>
The following table provides certain information regarding ITLA
Capital's allowance for credit losses.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1999 1998
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $ 16,811 $ 12,178
Provision for estimated credit losses 1,200 4,550
Net recoveries (charge-offs) on real estate loans (193) 83
-------- --------
Balance at end of period $ 17,818 $ 16,811
======== ========
</TABLE>
LIQUIDITY AND DEPOSIT ACCOUNTS
Liquidity refers to ITLA Capital'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 loans receivable. ITLA Capital maintains a cash and investment
securities portfolio designed to satisfy operating and regulatory liquidity
requirements while preserving capital and maximizing yield. As of March 31,
1999, ITLA Capital held approximately $74.0 million of cash and cash equivalents
(consisting primarily of short-term investments with original maturities of 90
days or less) and $10.6 million
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<PAGE> 14
of investment securities classified as available for sale. Short-term
investments classified as cash equivalents consisted of government money market
funds, and short-term government agency securities, while investment securities
available for sale consisted primarily of fixed income instruments which were
rated "AAA" or equivalent by nationally recognized rating agencies. As of March
31, 1999 and December 31, 1997, Imperial Thrift and Loan's liquidity ratios were
8.5 percent and 12.5 percent, respectively, exceeding the regulatory requirement
of 1.5 percent. In addition, Imperial Thrift and Loan's liquidity position is
supported by a credit facility with the FHLB with an available borrowing
capacity of $28.1 million, and by federal funds lines of credit with two major
banks with an available borrowing capacity of $30.0 million.
Total deposit accounts decreased to $844.9 million at March 31, 1999
from $866.8 million at December 31, 1998. ITLA Capital retained a significant
amount of the funds which matured through rollover of maturing deposit accounts
during the three months ended March 31, 1999. Although ITLA Capital 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 ITLA Capital upon maturity on an ongoing basis.
CAPITAL RESOURCES
As of March 31, 1999, Imperial Thrift and Loan's Leverage (Core), Tier
I and Total Risk-Based capital ratios were 9.3 percent, 9.6 percent and 10.9
percent, respectively. These ratios were 8.7 percent, 9.3 percent and 10.6
percent, respectively, as of December 31, 1998. 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 March 31, 1999, Imperial Thrift
and Loan's capital position was designated as "well capitalized" for regulatory
purposes.
ITLA Capital's shareholders' equity increased $3.9 million from
December 31, 1998 to March 31, 1999 due to the accumulation of $3.9 million in
net income. There were no dividends declared or paid by ITLA Capital during the
first three months of 1999.
MARKET RISK
ITLA Capital's estimated sensitivity to interest rate risk, as measured
by the estimated interest earnings sensitivity profile and the interest
sensitivity gap analysis, has not materially changed from the information
disclosed in ITLA Capital's annual report on Form 10-K for the year ended
December 31, 1998.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
ITLA Capital is a 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 ITLA Capital's financial condition or
results of operations.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
15
<PAGE> 16
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: May 10, 1999 /s/ George W. Haligowski
-----------------------------------------
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
Date: May 10, 1999 /s/ Michael A. Sicuro
-----------------------------------------
Michael A. Sicuro
Managing Director and Chief
Financial Officer
16
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