<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 September 30, 2000
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>
<CAPTION>
Delaware 95-4596322
-------------------------------------------- ----------
<S> <C>
(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>
(858) 551-0511
----------------------------- --------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock of the registrant: 6,787,080 outstanding
as of November 7, 2000.
<PAGE> 2
ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
Consolidated Balance Sheets - September 30, 2000 and December 31, 1999............ 3
Consolidated Statements of Income - Three and Nine Months
Ended September 30, 2000 and 1999............................................. 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999................................. 5
Notes to Unaudited Consolidated Financial Statements.............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................................... 8
ITEM 3. MARKET RISK........................................................................ 18
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................. 19
ITEM 2. Changes in Securities.............................................................. 19
ITEM 3. Defaults Upon Senior Securities.................................................... 19
ITEM 4. Submission of Matters to a Vote of Security Holders................................ 19
ITEM 5. Other Information.................................................................. 19
ITEM 6. Exhibits and Reports on Form 8-K................................................... 19
Signatures......................................................................... 20
</TABLE>
2
<PAGE> 3
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- ------------
(IN THOUSANDS
EXCEPT SHARE AMOUNTS)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 28,018 $ 72,242
Investment securities available for sale, at approximate fair value 48,141 59,247
Stock in Federal Home Loan Bank 3,322 8,894
Real estate loans, net (net of allowance for credit losses of
$22,213 and $19,895 in 2000 and 1999, respectively) 977,889 951,480
Real estate loans held in trust for collateralized mortgage obligations
(net of allowance for credit losses of $4,614 in 2000) 226,865 --
Interest receivable 9,852 7,383
Other real estate owned, net 2,397 1,041
Premises and equipment, net 2,767 3,253
Deferred income taxes 9,134 9,401
Other assets 8,128 2,882
---------- ----------
Total assets $1,316,513 $1,115,823
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 924,363 $ 913,613
Collateralized mortgage obligations 177,160 --
Federal Home Loan Bank advances 57,150 67,250
Accounts payable and other liabilities 13,279 11,265
--------- -------
Total liabilities 1,171,952 992,128
--------- -------
Commitments and contingencies
Guaranteed preferred beneficial interests in Company's junior
subordinated deferrable interest debentures 13,580 --
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued -- --
Contributed capital -- common stock, $.01 par value; 20,000,000
shares authorized, 8,205,916 and 8,202,916 issued and
outstanding in 2000 and 1999, respectively 57,114 57,184
Retained earnings 92,938 79,478
Accumulated other comprehensive (loss) income (22) 706
--------- -------
150,030 137,368
Less treasury stock, at cost -- 1,401,336 and 1,021,432 shares in
2000 and 1999, respectively (19,049) (13,673)
--------- -------
Total shareholders' equity 130,981 123,695
--------- -------
Total liabilities and shareholders' equity $1,316,513 $1,115,823
========== ==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE> 4
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income:
Real estate loans, including fees $ 25,964 $ 24,286 $ 75,343 $ 70,448
Real estate loans held in trust for collateralized
mortgage obligations 5,424 -- 11,342 --
Cash and investment securities 1,152 1,558 3,917 4,390
-------- -------- -------- --------
Total interest income 32,540 25,844 90,602 74,838
-------- -------- -------- --------
Interest expense:
Deposit accounts 14,353 12,047 40,742 33,997
Collateralized mortgage obligations 3,696 -- 7,678 --
Federal Home Loan Bank advances 411 479 1,305 1,582
-------- -------- -------- --------
Total interest expense 18,460 12,526 49,725 35,579
-------- -------- -------- --------
Net interest income before provision
for estimated credit losses 14,080 13,318 40,877 39,259
Provision for estimated credit losses 1,525 1,400 3,325 3,800
-------- -------- -------- --------
Net interest income after provision
for estimated credit losses 12,555 11,918 37,552 35,459
-------- -------- -------- --------
Noninterest income:
Gain on sale of investment securities
available for sale -- -- 1,412 --
Other 208 201 514 789
-------- -------- -------- --------
Total noninterest income 208 201 1,926 789
-------- -------- -------- --------
Noninterest expense:
Compensation and benefits 2,340 2,536 7,219 7,580
Occupancy and equipment 587 661 1,982 2,089
FDIC assessment 46 -- 141 73
Other 2,033 1,920 6,030 5,902
-------- -------- -------- --------
Total recurring general and administrative 5,006 5,117 15,372 15,644
Nonrecurring expense -- -- 1,400 --
-------- -------- -------- --------
Total general and administrative 5,006 5,117 16,772 15,644
-------- -------- -------- --------
Real estate operations, net 10 38 (38) 47
Provision for estimated losses on other
real estate owned 23 -- 167 155
(Gain) loss on sale of other real estate owned, net 3 (17) 12 (26)
-------- -------- -------- --------
Total real estate operations, net 36 21 141 176
-------- -------- -------- --------
Total noninterest expense 5,042 5,138 16,913 15,820
-------- -------- -------- --------
Income before provision for income taxes 7,721 6,981 22,565 20,428
Provision for income taxes 2,999 2,862 9,006 8,374
Minority interest expense of subsidiary 99 -- 99 --
-------- -------- -------- --------
NET INCOME $ 4,623 $ 4,119 $ 13,460 $ 12,054
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.66 $ 0.57 $ 1.89 $ 1.68
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.65 $ 0.55 $ 1.86 $ 1.63
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE> 5
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
2000 1999
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,460 $ 12,054
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 602 759
Amortization of premium on purchased loans 1,699 185
Accretion of net deferred loan origination fees (1,178) (2,248)
Amortization of original issue discount and deferred debt issuance costs on CMO's 773 --
Provision for estimated credit losses 3,325 3,800
Provision for estimated losses on other real estate owned 167 155
Gain on the sale of investment securities available for sale (1,412) --
Loss (gain) on the sale of other real estate owned 12 (26)
Increase in interest receivable (497) (715)
(Increase) decrease in other assets (4,122) 204
Increase (decrease) in accounts payable and other liabilities 1,951 (3,402)
--------- ---------
Net cash provided by operating activities 14,780 10,766
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (15,000) (57,946)
Proceeds from the maturity of investment securities available for sale 10,000 --
Proceeds from the sale of investment securities available for sale 16,176 --
Decrease in stock in Federal Home Loan Bank 5,572 4,832
Cash paid to acquire ICCMAC Multifamily and Commercial Trust 1999-1 (51,069) --
Purchases of real estate loans (99,177) (53,893)
Decrease (increase) in real estate loans, net 54,030 (43,012)
Decrease in loans held in trust for Collateralized Mortgage Obligations 26,814 --
Proceeds from sale of real estate loans held for sale 12,720 9,174
Proceeds from the sale of other real estate owned 1,334 252
Other, net (648) (473)
--------- ---------
Net cash used in investing activities (39,248) (141,066)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issued through exercise of employee stock options 30 386
Cash paid to acquire treasury stock (5,476) (111)
Net increase in deposit accounts 10,750 42,374
Principal repayments on collateralized mortgage obligations (28,540) --
Proceeds from issuance of Trust Preferred Securities 13,580 --
Amounts borrowed from the Federal Home Loan Bank 193,500 36,500
Repayment of amounts borrowed from the Federal Home Loan Bank (203,600) (50,750)
--------- ---------
Net cash (used in) provided by financing activities (19,756) 28,399
--------- ---------
Net decrease in cash and cash equivalents (44,224) (101,901)
Cash and cash equivalents at beginning of the period 72,242 125,602
--------- ---------
Cash and cash equivalents at end of period $ 28,018 $ 23,701
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 48,912 $ 34,283
Cash paid during the period for income taxes $ 8,950 $ 12,345
NONCASH INVESTING TRANSACTIONS:
Loans transferred to other real estate owned $ 2,869 $ 4,743
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE> 6
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 period indicated. The unaudited consolidated financial
statements include the accounts of ITLA Capital and its subsidiaries, Imperial
Capital Bank (the "Bank"), the ICCMAC Multifamily and Commercial Trust 1999-1
(the "ICCMAC Trust"), and the ITLA Capital Statutory Trust I (the "Trust"). All
intercompany transactions and balances have been eliminated. Certain information
and disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission. The results of operations for the three and
nine months ended September 30, 2000 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, 1999.
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.
The following is a reconciliation of the calculation of Basic and Diluted
EPS.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE PER AVERAGE PER
NET SHARES SHARE NET SHARES SHARE
INCOME OUTSTANDING AMOUNT INCOME OUTSTANDING AMOUNT
------- ----------- ------ ------ ----------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
2000
----
Basic EPS $ 4,623 6,976 $ 0.66 $13,460 7,126 $ 1.89
Effect of Dilutive Stock Options -- 134 (0.01) -- 124 (0.03)
------- ----- ------- ------- ----- -------
Diluted EPS $ 4,623 7,110 $ 0.65 $13,460 7,250 $ 1.86
======= ===== ======= ======= ===== =======
1999
----
Basic EPS $ 4,119 7,194 $ 0.57 $12,054 7,176 $ 1.68
Effect of Dilutive Stock Options -- 230 (0.02) -- 211 (0.05)
------- ----- ------- ------- ----- -------
Diluted EPS $ 4,119 7,424 $ 0.55 $12,054 7,387 $ 1.63
======= ===== ======= ======= ===== =======
</TABLE>
6
<PAGE> 7
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 -- COMPREHENSIVE INCOME
Comprehensive income, which encompasses net income and the net change in
unrealized gains (losses) on investment securities available for sale, is
presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income $ 4,623 $ 4,119 $ 13,460 $ 12,054
Other comprehensive income--
Unrealized gain on investment securities
available for sale, net of tax expense of $71,000 and
$112,000 for the three months ended September 30, 2000
and 1999, and net of tax expense of $70,000 and $349,000
for the nine months ended September 30, 2000
and 1999, respectively 107 161 105 502
Less reclassification adjustment for gains included in
net income, net of tax benefit of $579 in 2000 -- -- (833) --
-------- -------- -------- --------
Comprehensive income $ 4,730 $ 4,280 $ 12,732 $ 12,556
======== ======== ======== ========
</TABLE>
NOTE 4 -- IMPAIRED LOANS RECEIVABLE
As of September 30, 2000 and December 31, 1999, the recorded investment in
loans receivable that were considered impaired as defined by Statement of
Financial Accounting Standards No. 114 was $9.6 million and $20.3 million,
respectively. The average recorded investment in impaired loans was $9.5 million
and $13.7 million, respectively, for the three and nine months ended September
30, 2000 and $8.7 million for the year ended December 31, 1999. Interest income
recognized on impaired loans totaled $0.4 million for the nine months ended
September 30, 2000. There was no interest income recognized on impaired loans
during the three months ended September 30, 2000 or the corresponding periods in
the prior year.
During the quarter ended September 30, 2000, one impaired loan, with an
outstanding principal balance of $1.3 million and a net book value of $1.1
million was transferred to other real estate owned ("OREO"). For the nine months
ended September 30, 2000, ITLA Capital sold one impaired loan, with an
outstanding principal balance of $13.2 million and a net book value of $12.7
million at no gain or loss.
NOTE 5 -- GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES
In September 2000, the Company formed a wholly-owned trust subsidiary, ITLA
Capital Statutory Trust I (the "Trust"). Effective September 7, 2000, the Trust
sold $14.0 million of 10.60% cumulative trust preferred securities which are
reflected on the Consolidated Statement of Financial Condition as Guaranteed
Preferred Beneficial Interests in the Company's Junior Subordinated Deferrable
Interest Debentures (the "Trust Preferred securities"). The Trust used the
proceeds from the sale of the Trust Preferred securities to purchase 10.60%
junior subordinated deferrable interest debentures issued by ITLA Capital. The
sole assets of the Trust are $14.0 million of junior subordinated deferrable
interest debentures, which mature on
7
<PAGE> 8
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 7, 2030 and are redeemable at any time after ten years. The
obligations of the Company related to the Trust constitute a full and
unconditional guarantee by the Company of the Trust Issuer's obligations under
the Trust Preferred securities. The Company used the proceeds from the junior
subordinated debentures for general corporate purposes, including a $13.5
million capital contribution to the Bank to support future growth. The dividends
payable on the Trust Preferred Securities are reflected as minority interest
expense of subsidiary in the consolidated financial statements.
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 and nine month periods ended September 30,
2000.
"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 2000 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
NET INCOME
Net income totaled $4.6 million for the three months ended September 30,
2000 compared to $4.1 million for the corresponding period in 1999, an increase
of 12.2 percent. The increase in net income was primarily due to an increase in
net interest income and a decrease in noninterest expense, partially offset by
increases in the provision for estimated credit losses and the provision for
income taxes. Diluted EPS was $0.65 for the three months ended September 30,
2000 compared to $0.55 for the corresponding period in 1999, an increase of 18.2
percent.
8
<PAGE> 9
NET INTEREST INCOME AND MARGIN
The following table presents, for the three months ended September 30, 2000
and 1999, condensed average balance sheet information for ITLA Capital, together
with interest income and yields earned on average interest earning assets and
interest expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
-----------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and investments $ 74,613 1,152 6.14% $ 115,169 1,558 5.37%
Loans receivable
Real estate loans 955,909 25,964 10.81% 952,970 24,286 10.11%
Real estate loans held in trust for
collateralized mortgage obligations 240,597 5,424 8.97% -- --
----------- --------- ----------- ------
Total loans receivable 1,196,506 31,388 10.44% 952,970 24,286 10.11%
Interest earning assets 1,271,119 32,540 10.18% 1,068,139 25,844 9.60%
Noninterest earning assets 30,156 22,504
Allowance for credit losses (25,762) (18,534)
----------- -----------
Total $ 1,275,513 $ 1,072,109
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Savings and passbook accounts $ 112,877 1,643 5.79% $ 134,275 1,672 4.94%
Time certificates 799,559 12,710 6.32% 773,976 10,375 5.32%
----------- --------- ----------- ------
Total deposit accounts 912,436 14,353 6.26% 908,251 12,047 5.26%
Collateralized Mortgage Obligations 186,354 3,696 7.89% -- --
FHLB advances 26,966 411 6.06% 35,217 479 5.40%
----------- --------- ----------- ------
Total interest-bearing liabilities 1,125,756 18,460 6.52% 943,468 12,526 5.27%
Noninterest bearing liabilities 15,190 12,692
Trust preferred securities 3,470 --
Shareholders' equity 131,097 115,949
----------- -----------
Total $ 1,275,513 $ 1,072,109
=========== ===========
Net interest spread 3.66% 4.33%
Net interest income before provision
for estimated credit losses $ 14,080 $13,318
=========== =======
Net interest margin 4.41% 4.95%
</TABLE>
9
<PAGE> 10
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.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. 1999
------------------------------------------------------
INCREASE (DECREASE) DUE TO:
---------------------------
VOLUME RATE TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and fees earned from:
Real estate loans $ 76 $ 1,602 $ 1,678
Real estate loans held in trust for
collateralized mortgage obligations 5,424 -- 5,424
Cash and investment securities (625) 219 (406)
------- ------- -------
Total increase in interest income 4,875 1,821 6,696
------- ------- -------
Interest paid for:
Deposit accounts 65 2,241 2,306
Collateralized mortgage obligations 3,696 -- 3,696
FHLB advances (125) 57 (68)
------- ------- -------
Total increase in interest expense 3,636 2,298 5,934
------- ------- -------
Increase (decrease) in net interest income $ 1,239 $ (477) $ 762
======= ======= =======
</TABLE>
Total interest income increased $6.7 million to $32.5 million in the third
quarter of 2000 compared to $25.8 million for the corresponding period in 1999
as a result of the ICCMAC Trust acquisition in the first quarter of 2000, and to
a lesser extent, due to the increase in the average balance of and yield on real
estate loans and to an increase in the yield on cash and investment securities.
These increases in interest income were partially offset by a decline in the
average balance of cash and investment securities.
The average balance of real estate loans held in the ICCMAC Trust was
$240.6 million for the three months ended September 30, 2000. The average
balance of real estate loans increased to $955.9 million in the third quarter of
2000 from $953.0 million in the corresponding period of the prior year. This
increase was primarily due to purchases of single family residential mortgages,
partially offset by a net decrease in loans secured by income producing
properties and construction loans. The average balance of purchased single
family residential mortgages was $123.9 million during the quarter ended
September 30, 2000, compared to $39.8 million in the same period in the prior
year. Purchased single family residential mortgages are not expected to
materially increase as a percentage of the Company's current total assets. Loans
secured by income producing properties and construction loans reflected an
average balance of $832.0 million during the quarter ended September 30, 2000
compared to $913.2 million in the same period in the prior year.
The average yield earned on real estate loans increased 70 basis points to
10.81 percent in the quarter ended September 30, 2000 as compared to 10.11
percent in the same period in the prior year. The increase in the yield on real
estate loans was primarily due to the repricing of variable rate loans at higher
interest rates due to the general market increases in the LIBOR and Prime rates
that the loans are indexed to. The increase in loan yields due to repricing was
partially offset by the increased balance of purchased single family residential
mortgages, which generally have lower effective yields than the Company's income
producing property and construction loans.
10
<PAGE> 11
The yield on cash and investment securities increased to 6.14 percent for
the quarter ended September 30, 2000 compared to 5.37 percent in the
corresponding period of the prior year. The increase in yield on cash and
investment securities was due to the general increase in market interest rates.
Total interest expense increased by $6.0 million to $18.5 million in the
third quarter of 2000, compared to $12.5 million in the corresponding period in
1999. This increase was primarily attributable to the collateralized mortgage
obligations ("CMO's") of the ICCMAC Trust and an increase in the cost of funds,
and to a lesser extent, to an increase in the average balance of deposit
accounts. These increases were partially offset by a decline in the average
balance of Federal Home Loan Bank ("FHLB") advances.
The average balance of the CMO's was $186.4 million during the third quarter of
2000. The average rate paid on the CMO's was 7.89 percent. The average balance
of deposit accounts increased slightly to $912.4 million for the three months
ended September 30, 2000 compared to $908.3 million in the corresponding period
of the prior year. The average rate paid on deposit accounts increased to 6.26
percent during the three month period ended September 30, 2000, compared to 5.26
percent during the corresponding period in the prior year. The cost of funds
increased to 6.52 percent for the 2000 third quarter from 5.27 percent during
the corresponding period in 1999. This increase in funding costs was due
primarily to the general increase in market interest rates, and to a lesser
extent, due to the addition of the CMO's, which have a weighted average interest
rate higher than the weighted average interest rate on the Bank's deposits. FHLB
advances averaged $27.0 million in the current quarter, compared to $35.2
million in the corresponding period of the prior year, a decline of $8.2
million, or 23.3 percent.
Net interest margin decreased to 4.41 percent for the three months ended
September 30, 2000 as compared to 4.95 percent for the corresponding period of
the prior year primarily due to the 125 basis point increase in the cost of
interest bearing liabilities as compared to the 58 basis point increase in the
yield on interest bearing assets.
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, 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 September
30, 2000 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 the Bank'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 totaled $1.5 million in the third
quarter of 2000, compared to $1.4 million for the same period in the prior year.
The provision for estimated credit losses was recorded to provide for reserves
due to loan portfolio growth. The allowance for estimated credit losses was 2.22
percent of total real estate loans at September 30, 2000 as compared to 2.05
percent at December 31, 1999.
11
<PAGE> 12
Nonperforming assets as a percentage of total assets increased slightly to
0.83 percent as of September 30, 2000, compared to 0.81 percent at December 31,
1999. The aggregate amount of nonperforming assets totaled $11.0 million as of
September 30, 2000 ($10.2 million of loans held by the Bank and $0.8 million of
loans held by the ICCMAC Trust) as compared to $9.0 million of loans held at the
Bank at December 31, 1999. See also "Financial Condition - Nonperforming Assets
and Allowance for Credit Losses."
NONINTEREST EXPENSE
Noninterest expense totaled $5.0 million for the three months ended
September 30, 2000, compared to $5.1 million for the corresponding period in the
prior year. The decrease in noninterest expense during the period was primarily
attributable to decreases in compensation and benefits expense and occupancy and
equipment expense. Compensation and benefits expense totaled $2.3 million during
the current year's third quarter, compared to $2.5 million in the same period of
the prior year. The decrease in compensation and benefits expense was due to
reduction in staffing, as average full time equivalent associates totaled 117 in
the current period, compared to 133 in the corresponding period of the prior
year. The reduction in staffing was due to general cost savings initiatives.
Occupancy and equipment expense decreased to $0.6 million in the current year's
third quarter, compared to $0.7 million in the corresponding period of the prior
year, as a result of the cost savings realized from the consolidation in the
first quarter of 2000 of the Bank's headquarters with ITLA Capital's La Jolla,
California headquarters.
For the three months ended September 30, 2000, ITLA Capital's ratio of
consolidated general and administrative expense to average assets, on an
annualized basis, decreased to 1.57 percent compared from 1.91 percent in the
1999 third quarter. ITLA Capital's efficiency ratio (excluding real estate
operations) which is defined as general and administrative expenses as a
percentage of net interest income and recurring noninterest income was 35.0
percent for the quarter ended September 30, 2000 compared to 37.9 percent during
the corresponding period in the prior year.
MINORITY INTEREST EXPENSE OF SUBSIDIARY
Minority interest expense of subsidiary, which consists entirely of the
10.60 percent cumulative dividends payable on the Trust Preferred securities,
totaled $0.1 million during the three month period ended September 30, 2000, as
the Trust Preferred securities were issued by the Company during the current
quarter.
12
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
NET INCOME
Net income totaled $13.5 million for the nine months ended September 30,
2000 compared to $12.1 million for the corresponding period in 1999, an increase
of 11.6 percent. The increase in net income was due primarily to increases in
net interest income and decreases in the provision for estimated credit losses
and recurring general and administrative expense. These items were partially
offset by an increase in the provision for income taxes. Diluted EPS was $1.86
for the nine months ended September 30, 2000 compared to $1.63 for the
corresponding period in 1999, an increase of 14.1 percent.
NET INTEREST INCOME AND MARGIN
The following table presents, for the nine months ended September 30, 2000
and 1999, condensed average balance sheet information for ITLA Capital, together
with interest income and yields earned on average interest earning assets and
interest expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
------------------------------------------- ---------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and investments $ 84,994 3,917 6.16% $ 110,713 4,390 5.30%
Loans receivable
Secured by real estate 955,669 75,343 10.53% 914,588 70,448 10.30%
Held in Trust for CMO's 169,368 11,342 8.95% -- --
----------- ------ ----------- ------
Total loans receivable 1,125,037 86,685 10.29% 914,588 70,448 10.30%
Interest earning assets 1,210,031 90,602 10.00% 1,025,301 74,838 9.76%
Noninterest earning assets 25,908 19,759
Allowance for credit losses (23,561) (17,908)
----------- -----------
Total $ 1,212,378 $ 1,027,152
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Savings and passbook accounts $ 117,989 4,903 5.55% $ 131,835 4,773 4.84%
Time certificates 787,454 35,839 6.08% 730,648 29,224 5.35%
----------- ------ --------- ------
Total deposit accounts 905,443 40,742 6.01% 862,483 33,997 5.27%
Collateralized Mortgage Obligations 132,527 7,678 7.74% -- --
FHLB advances 30,731 1,305 5.67% 39,128 1,582 5.41%
----------- ------ --------- ------
Total interest-bearing liabilities 1,068,701 49,725 6.22% 901,611 35,579 5.28%
Noninterest bearing liabilities 13,657 13,790
Trust preferred securities 1,165 --
Shareholders' equity 128,855 111,751
----------- -----------
Total $ 1,212,378 $ 1,027,152
=========== ===========
Net interest spread 3.78% 4.48%
Net interest income before provision
for estimated credit losses $ 40,877 $ 39,259
=========== ========
Net interest margin 4.51% 5.12%
</TABLE>
13
<PAGE> 14
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.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. 1999
-----------------------------------------------------
INCREASE (DECREASE) DUE TO:
--------------------------------------
VOLUME RATE TOTAL
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and fees earned from:
Real estate loans $ 3,293 $ 1,602 $ 4,895
Real estate loans held in trust for
collateralized mortgage obligations 11,342 -- 11,342
Cash and investment securities (884) 411 (473)
-------- -------- --------
Total increase in interest income 13,751 2,013 15,764
-------- -------- --------
Interest paid for:
Deposit accounts 1,943 4,802 6,745
Collateralized mortgage obligations 7,678 -- 7,678
FHLB advances (311) 34 (277)
-------- -------- --------
Total increase in interest expense 9,310 4,836 14,146
-------- -------- --------
Increase (decrease) in net interest income $ 4,441 $ (2,823) $ 1,618
======== ======== ========
</TABLE>
Total interest income increased $15.8 million to $90.6 million during the
nine months ended September 30, 2000 compared to $74.8 million in the
corresponding period in 1999. The increase was a result of the ICCMAC Trust
acquisition in the first quarter of 2000, an increase in the average balance of
and yield on real estate loans and the increase in the yield on cash and
investment securities. These increases in interest income were partially offset
by a decrease in the average balance of cash and investment securities.
The average balance of real estate loans increased to $955.7 million in the
current year-to-date period compared to $914.6 million in the corresponding
period of the prior year, due primarily to purchases of single family
residential mortgages, partially offset by a decline in the average balance of
loans secured by income producing properties and construction loans. The average
balance on purchased single family residential mortgages was $107.6 million
during the nine months ended September 30, 2000, compared to $18.2 million in
the same period in the prior year. Loans secured by income producing properties
and construction loans reflected an average balance of $848.1 million during the
nine months ended September 30, 2000 compared to $896.4 million in the same
period of the prior year.
The average yield of real estate loans increased 23 basis points to 10.53
percent in the current year-to-date period, compared to 10.30 percent in the
prior year. The increase in the yield on real estate loans was primarily due to
the repricing of variable rate loans at higher interest rates, partially offset
by the increased average balance of single family residential mortgages, which
generally have lower effective yields.
The weighted-average yield on cash and investment securities increased to
6.16 percent in the current year-to-date period, compared to 5.30 percent in the
corresponding period in the prior year, reflecting the general increase in
market interest rates.
14
<PAGE> 15
Total interest expense increased by $14.1 million to $49.7 million for the
nine months ended September 30, 2000 compared to $35.6 million for the
corresponding period in the prior year. This increase was due primarily to the
interest expense on the CMO's and to increases in the rates paid on and average
balance of deposit accounts. These increases were partially offset by a decline
in the interest expense on FHLB advances due to a decline in their average
balance.
The average balance of CMO's was $132.5 million for the nine months ended
September 30, 2000. The average rate paid on the CMO's was 7.74 percent for the
nine months ended September 30, 2000. The average balance of deposit accounts
was $905.4 million in the nine months ended September 30, 2000, compared to
$862.5 million in the prior year-to-date period. The increase in deposits was
used to fund the increase in real estate loans and to finance the acquisition of
the ICCMAC Trust. The average rate paid on deposit accounts increased 74 basis
points to 6.01 percent in the nine months ended September 30, 2000 compared to
5.27 percent in the corresponding period in the prior year. The increase in the
average interest rate on deposit accounts was consistent with the general
increase in market interest rates.
Net interest margin decreased to 4.51 percent for the nine months ended
September 30, 2000 as compared to 5.12 percent for the corresponding period of
the prior year primarily due to the 94 basis point increase in the cost of
interest bearing liabilities as compared to the 24 basis point increase in the
yield on interest bearing assets.
PROVISION FOR ESTIMATED CREDIT LOSSES
The provision for estimated credit losses decreased to $3.3 million in the
nine months ended September 30, 2000 from $3.8 million in the corresponding
period in 1999. The provision for estimated credit losses was recorded to
provide for reserves due to loan portfolio growth, particularly the increase in
the purchased residential loan portfolio.
NONINTEREST INCOME
Noninterest income totaled $1.9 million for the nine months ended September
30, 2000 compared to $0.8 million for the corresponding period in 1999. The
increase in noninterest income was due primarily to the $1.4 million gain
realized on the sale of investment securities available for sale.
NONINTEREST EXPENSE
Noninterest expense increased to $16.9 million for the nine-months ended
September 30, 2000 as compared to $15.8 million for the corresponding period
last year. The increase in noninterest expense was due primarily to $1.4 million
of nonrecurring general and administrative expenses recorded in the first
quarter of 2000 related to the consolidation of the Bank and ITLA Capital's
headquarters in La Jolla, California. For the nine months ended September 30,
2000, ITLA Capital's ratio of consolidated recurring general and administrative
expense to average assets, on an annualized basis, was 1.69 percent compared to
2.03 percent in the corresponding period in the prior year. ITLA Capital's
efficiency ratio excluding nonrecurring expenses and real estate operations was
35.9 percent for the nine months ended September 30, 2000 compared to 39.1
percent during the corresponding period in the prior year.
MINORITY INTEREST EXPENSE OF SUBSIDIARY
Minority interest expense of subsidiary totaled $0.1 million during the
nine month period ended September 30, 2000, as the Trust Preferred securities
were issued by the Company during September of the current year.
15
<PAGE> 16
FINANCIAL CONDITION
NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES
The following table sets forth ITLA Capital's nonperforming assets by
category and troubled debt restructurings as of the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-performing real estate loans $ 7,771 $ 7,977
Non-performing real estate loans held in trust for
collateralized mortgage obligations 816 --
Other real estate owned, net 2,397 1,041
------- -------
Total nonperforming assets 10,984 9,018
Troubled debt restructurings 4,442 13,996
------- -------
$15,426 $23,014
======= =======
Non-performing real estate loans to total
gross real estate loans 0.71% 0.82%
Nonperforming assets to total assets 0.83% 0.81%
</TABLE>
At September 30, 2000, the Company had one loan, with an outstanding
principal balance of $3.6 million, that was more than 90 days past due and still
accruing interest, as it was well secured and in the process of collection.
Subsequent to September 30, 2000, this loan's delinquent payments had been
brought current.
16
<PAGE> 17
The following table provides certain information regarding ITLA Capital's
allowance for credit losses on its portfolios of real estate loans and real
estate loans held in the ICCMAC Trust.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REAL ESTATE LOANS:
Balance at beginning of period $ 19,895 $ 16,811
Provision for estimated credit losses 3,325 4,950
Net charge-offs on real estate loans (1,007) (1,866)
-------- --------
Balance at end of period $ 22,213 $ 19,895
======== ========
Allowance for credit losses as a percentage of real estate
loans, net 2.22% 2.05%
REAL ESTATE LOANS HELD IN TRUST FOR COLLATERALIZED
MORTGAGE OBLIGATIONS:
Balance at beginning of period $ -- $ --
Additions due to purchase 4,614 --
-------- --------
Balance at end of period $ 4,614 $ --
======== ========
Allowance for credit losses as a percentage of real estate
loans held in trust for the collateralized mortgage
obligations, net 1.99% --
</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 September 30, 2000, ITLA
Capital held approximately $28.0 million of cash and cash equivalents
(consisting primarily of short-term investments with original maturities of 90
days or less) and $48.1 million of investment securities classified as available
for sale. Short-term fixed income investments classified as cash equivalents
consisted of interest-bearing deposits at financial institutions, 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 September 30, 2000 and December 31, 1999, the Bank's liquidity ratios
were 7.7 percent and 11.8 percent, respectively, exceeding the regulatory
requirement of 1.5 percent. In addition, the Bank's liquidity position is
supported by a credit facility with the FHLB that had an available borrowing
capacity of $154.9 million based on available collateral, and by federal funds
lines of credit with two major banks with an available borrowing capacity of
$30.0 million.
17
<PAGE> 18
Total deposit accounts increased to $924.4 million at September 30, 2000
from $913.6 million at December 31, 1999. ITLA Capital retained a significant
amount of the funds which matured through rollover of maturing deposit accounts
during the three and nine months ended September 30, 2000. Although ITLA Capital
competes for deposits primarily on the basis of rates, management believes that
a significant portion of deposits will remain with ITLA Capital upon maturity on
an ongoing basis based on its historical experience regarding retention of
deposits.
CAPITAL RESOURCES
As of September 30, 2000, the Bank's Leverage (Core), Tier I and Total
Risk-Based capital ratios were 9.7 percent, 10.8 percent and 12.1 percent,
respectively. These ratios were 9.0 percent, 10.1 percent and 11.4 percent,
respectively, as of December 31, 1999. The increase in capital ratios from
December 31, 1999 to September 30, 2000 was due primarily to the year-to-date
earnings of the Bank, totaling $11.6 million, and a $13.5 million capital
contribution to the Bank from ITLA Capital, partially offset by the payment of a
$14.3 million dividend to ITLA Capital from the Bank and an increase in assets
due to balance sheet growth. The minimum regulatory requirement for Leverage
(Core), Tier I and Total Risk-Based capital are 4.0 percent, 4.0 percent and 8.0
percent, respectively. As of September 30, 2000, the Bank's capital position was
designated as "well capitalized" for regulatory purposes.
At September 30, 2000 ITLA Capital's shareholders' equity increased $7.3
million to $131.0 million from $123.7 million at December 31, 1999. The increase
was primarily due to the accumulation of $13.5 million in net income, partially
offset by purchases of treasury stock of $5.5 million and the net change in
unrealized gain (loss) on investment securities available for sale of $0.7
million. There were no dividends declared or paid by ITLA Capital during the
first nine months of 2000.
ITEM 3: 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, 1999.
18
<PAGE> 19
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
(a) On July 27, 2000, the Company held its Annual Meeting of Shareholders.
(b) Shareholders voted on the following matters:
(i) The election of Norval L. Bruce as director for a term to expire
in 2003:
<TABLE>
<CAPTION>
Votes For Against Withheld
----- --- ------- --------
<S> <C> <C> <C>
6,099,485 0 560,905
</TABLE>
(ii) The election of Jeffrey L. Lipscomb as director for a term to
expire in 2003:
<TABLE>
<CAPTION>
Votes For Against Withheld
----- --- ------- --------
<S> <C> <C> <C>
6,429,635 0 230,755
</TABLE>
(iii) The ratification of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000:
<TABLE>
<CAPTION>
Votes For Against Withheld
----- --- ------- --------
<S> <C> <C> <C>
6,654,280 4,110 2,000
</TABLE>
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None
19
<PAGE> 20
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 14, 2000 /s/ George W. Haligowski
----------------------------------------
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
Date: November 14, 2000 /s/ Timothy M. Doyle
----------------------------------------
Timothy M. Doyle
Managing Director and Chief
Financial Officer
20
