<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 June 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)
Delaware 95-4596322
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
888 Prospect St., Suite 110, La Jolla, California 92037
(Address of Principal Executive Offices) (Zip Code)
(858) 551-0511
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Number of shares of common stock of the registrant: 6,903,580
outstanding as of August 7, 2000.
1
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
----------- ------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 43,814 $ 72,242
Investment securities available for sale, at approximate fair value 48,062 59,247
Stock in Federal Home Loan Bank 3,233 8,894
Real estate loans, net (net of allowance for credit losses of
$20,901 and $19,895 in 2000 and 1999, respectively) 929,293 951,480
Real estate loans held in trust for collateralized mortgage obligations
(net of allowance for credit losses of $4,614 in 2000) 244,489 --
Interest receivable 9,462 7,383
Other real estate owned, net 1,160 1,041
Premises and equipment, net 2,788 3,253
Deferred income taxes 9,105 9,401
Other assets 10,924 2,882
----------- -----------
Total assets $ 1,302,330 $ 1,115,823
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 924,586 $ 913,613
Collateralized mortgage obligations 195,051 --
Federal Home Loan Bank advances 39,250 67,250
Accounts payable and other liabilities 14,496 11,265
----------- -----------
Total liabilities 1,173,383 992,128
----------- -----------
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, 8,205,916 and 8,202,916 issued and
outstanding in 2000 and 1999, respectively 57,114 57,184
Retained earnings 88,315 79,478
Accumulated other comprehensive (loss) income (129) 706
----------- -----------
145,300 137,368
Less treasury stock, at cost - 1,215,836 and 1,021,432 shares in
2000 and 1999, respectively (16,353) (13,673)
----------- -----------
Total shareholders' equity 128,947 123,695
----------- -----------
Total liabilities and shareholders' equity $ 1,302,330 $ 1,115,823
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
2
<PAGE> 3
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income:
Real estate loans, including fees $ 24,778 $ 23,364 $ 49,379 $ 46,162
Real estate loans held in trust for collateralized
mortgage obligations 5,672 -- 5,918 --
Cash and investment securities 1,093 1,495 2,765 2,832
-------- -------- -------- --------
Total interest income 31,543 24,859 58,062 48,994
-------- -------- -------- --------
Interest expense:
Deposit accounts 13,389 10,998 26,390 21,950
Collateralized mortgage obligations 3,830 -- 3,981 --
Federal Home Loan Bank advances 444 590 894 1,103
-------- -------- -------- --------
Total interest expense 17,663 11,588 31,265 23,053
-------- -------- -------- --------
Net interest income before provision for
estimated credit losses 13,880 13,271 26,797 25,941
Provision for estimated credit losses 1,200 1,200 1,800 2,400
-------- -------- -------- --------
Net interest income after provision for
estimated credit losses 12,680 12,071 24,997 23,541
-------- -------- -------- --------
Noninterest income:
Gain on sale of investment securities available for sale -- -- 1,412 --
Fee income from mortgage banking activities 33 46 33 78
Other 111 264 273 510
-------- -------- -------- --------
Total noninterest income 144 310 1,718 588
-------- -------- -------- --------
Noninterest expense:
Compensation and benefits 2,439 2,663 4,879 5,369
Occupancy and equipment 696 703 1,395 1,428
FDIC assessment 47 29 95 73
Other 1,919 2,030 3,997 3,657
-------- -------- -------- --------
Total recurring general and administrative 5,101 5,425 10,366 10,527
Nonrecurring expense -- -- 1,400 --
-------- -------- -------- --------
Total general and administrative 5,101 5,425 11,766 10,527
-------- -------- -------- --------
Real estate operations, net 6 7 (48) 9
Provision for estimated losses on other real estate owned -- 140 144 155
(Gain) loss on sale of other real estate owned, net (60) -- 9 (9)
-------- -------- -------- --------
Total real estate operations, net (54) 147 105 155
-------- -------- -------- --------
Total noninterest expense 5,047 5,572 11,871 10,682
-------- -------- -------- --------
Income before provision for income taxes 7,777 6,809 14,844 13,447
Provision for income taxes 3,184 2,788 6,007 5,512
-------- -------- -------- --------
NET INCOME $ 4,593 $ 4,021 $ 8,837 $ 7,935
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.64 $ 0.56 $ 1.23 $ 1.11
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.63 $ 0.54 $ 1.21 $ 1.08
======== ======== ======== ========
</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 SIX MONTHS
ENDED JUNE 30,
---------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,837 $ 7,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 415 564
Amortization of premium on purchased loans 949 --
Accretion of net deferred loan origination fees (780) (1,730)
Amortization of original issue discount and deferred debt issuance costs on CMO's 392 --
Provision for estimated credit losses 1,800 2,400
Provision for estimated losses on other real estate owned 144 155
Gain on the sale of investment securities available for sale (1,412) --
Loss (gain) on the sale of other real estate owned 9 (9)
Increase in interest receivable (107) (188)
Increase in other assets (7,522) (2,342)
Increase (decrease) in accounts payable and other liabilities 4,049 (2,157)
--------- ---------
Net cash provided by operating activities 6,774 4,628
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (15,000) (45,157)
Proceeds from the maturity of investment securities available for sale 10,000 194
Proceeds from the sale of investment securities available for sale 16,176 --
Decrease in stock in Federal Home Loan Bank 5,661 6,951
Cash paid to acquire ICCMAC Multifamily and Commercial Trust 1999-1 (51,069) --
Purchases of real estate loans (53,539) (39,026)
Decrease (increase) in real estate loans, net 60,075 (29,722)
Decrease in loans held in trust for Collateralized Mortgage Obligations 9,559 --
Proceeds from sale of real estate loans held for sale 12,720 283
Proceeds from the sale of other real estate owned 1,018 --
Other, net (498) (176)
--------- ---------
Net cash used in investing activities (4,897) (106,653)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issued through exercise of employee stock options 30 120
Cash paid to acquire treasury stock (2,780) (29)
Net increase in deposit accounts 10,973 33,718
Principal repayments on Collateralized Mortgage Obligations (10,528) --
Amounts borrowed from the Federal Home Loan Bank 63,000 20,500
Repayment of amounts borrowed from the Federal Home Loan Bank (91,000) (23,750)
--------- ---------
Net cash used in financing activities (30,305) 30,559
--------- ---------
Net decrease in cash and cash equivalents (28,428) (71,466)
Cash and cash equivalents at beginning of the period 72,242 125,602
--------- ---------
Cash and cash equivalents at end of period $ 43,814 $ 54,136
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 31,746 $ 21,728
Cash paid during the period for income taxes $ 7,850 $ 7,650
NONCASH INVESTING TRANSACTIONS:
Loans transferred to other real estate owned $ 1,290 $ 4,732
</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
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
wholly-owned subsidiaries, Imperial Capital Bank (the "Bank"), ITLA Commercial
Securitization Corporation ("ITLA CSC"), ICCMAC Multifamily and Commercial Trust
1999-1 (the "Trust"), ITLA Commercial Investment Corporation, and ITLA Funding
Corporation. 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 six months ended June 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 JUNE 30, FOR THE SIX MONTHS ENDED JUNE 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 $ 4,593 7,190 $ 0.64 $ 8,837 7,206 $ 1.23
Effect of Dilutive
Stock Options -- 114 (0.01) -- 112 (0.02)
--------- --------- --------- --------- --------- ---------
Diluted EPS $ 4,593 7,304 $ 0.63 $ 8,837 7,318 $ 1.21
========= ========= ========= ========= ========= =========
1999
Basic EPS $ 4,021 7,167 $ 0.56 $ 7,935 7,167 $ 1.11
Effect of Dilutive
Stock Options -- 213 (0.02) -- 212 (0.03)
--------- --------- --------- --------- --------- ---------
Diluted EPS $ 4,021 7,380 $ 0.54 $ 7,935 7,379 $ 1.08
========= ========= ========= ========= ========= =========
</TABLE>
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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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income $ 4,593 $ 4,021 $ 8,837 $ 7,935
Other comprehensive income-
Unrealized gain (loss) on investment securities
available for sale, net of tax expense of
$28,000 and $277,000 for the three months ended
June 30, 2000 and 1999, and net of tax (benefit)
expense of ($1,000) and $237,000 for the six
months ended June 30, 2000, respectively 70 399 (1) 341
Less reclassification adjustment for gains included in
net income, net of tax benefit of $578 in 2000 -- -- (834) --
------- ------- ------- -------
Comprehensive income $ 4,663 $ 4,420 $ 8,002 $ 8,276
======= ======= ======= =======
</TABLE>
NOTE 4 - IMPAIRED LOANS RECEIVABLE
As of June 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 $10.5 million and $20.3 million,
respectively. The average recorded investment in impaired loans was $13.3
million and $16.0 million, respectively, for the three and six month periods
ended June 30, 2000 and $8.7 million for the year ended December 31, 1999.
Interest income recognized on impaired loans totaled $0.3 million for the six
month period ended June 30, 2000. There was no interest income recognized on
impaired loans during the three months ended June 30, 2000 or the corresponding
periods in the prior year.
During the quarter ended June 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.
6
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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 and six month periods ended June 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 JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET INCOME
Net income totaled $4.6 million for the three months ended June 30, 2000
compared to $4.0 million for the corresponding period in 1999, an increase of
14.2 percent. The increase in net income was primarily due to an increase in net
interest income and a decrease in noninterest expense. Diluted EPS was $0.63 for
the three months ended June 30, 2000 compared to $0.54 for the corresponding
period in 1999, an increase of 16.7 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.
7
<PAGE> 8
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 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 $ 896 $ 518 $ 1,414
Real estate loans held in trust for
collateralized mortgage obligations 5,672 -- 5,672
Cash and investment securities (547) 145 (402)
------- ------- -------
Total increase in interest income 6,021 663 6,684
------- ------- -------
Interest paid for:
Deposit accounts 792 1,599 2,391
Collateralized mortgage obligations 3,830 -- 3,830
FHLB advances (165) 19 (146)
------- ------- -------
Total increase in interest expense 4,457 1,618 6,075
------- ------- -------
Increase (decrease) in net interest income $ 1,564 $ (955) $ 609
======= ======= =======
</TABLE>
Total interest income increased by $6.7 million in the second quarter of
2000 compared to the corresponding period in 1999 due primarily to the addition
of real estate loans as a result of the Trust acquisition in the first quarter
of 2000, and to a lesser extent, due to increases in the yields earned on real
estate loans and cash and investment securities. These increases were partially
offset by a decline in the average balance of cash and investment securities.
The average balance of loans held in the Trust was $255.3 million during
the three months ended June 30, 2000. The average balance of real estate loans
increased to $947.2 million in the second quarter of 2000 from $911.2 million in
the corresponding period of the prior year, an increase of $36.0 million, or 3.9
percent. This increase was due to purchases of single family residential
mortgages, partially offset by a decrease in loans secured by income producing
properties. Purchased single family residential loans had an average balance of
$107.8 million during the quarter ended June 30, 2000, compared to $13.4 million
in the same period in the prior year, while loans secured by income producing
real estate properties had an average balance of $839.4 million during the
current year compared to $897.9 million in the same period in the prior year.
The average yield earned on real estate loans increased to 10.52 percent in the
current quarterly period from 10.28 percent in the same period in the prior
year, due to 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 single family residential mortgages, which generally
have lower effective yields than the Company's commercial real estate loans.
The yield on cash and investment securities increased to 6.59 percent
for the quarter ended June 30, 2000 compared to 6.00 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.
The average balance of cash and investment securities decreased to $66.7 million
in the 2000 second quarter from $99.9 million in the corresponding period in the
prior year, as the Company reduced its excess liquidity due to lower loan
production.
Total interest expense increased by $6.1 million in the first quarter of
2000 compared to the corresponding period in 1999 due primarily to the
collateralized mortgage obligations
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<PAGE> 9
("CMO"s) issued by the Trust and an increase in the average balance of deposit
accounts, and to a lesser extent, an increase in the cost of funds, partially
offset by a decline in the average balance of FHLB advances.
The CMOs had an average balance of $201.8 million during the second
quarter of 2000. The average balance of deposit accounts increased $53.6 million
to $897.1 million for the three months ended June 30, 2000 compared to $843.5
million in the corresponding period of the prior year. The increase in deposits
was used to fund the growth in the loan portfolio and the acquisition of certain
CMO's of the Trust. The cost of funds increased to 6.28 percent for the 2000
second quarter from 5.24 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 CMOs, which
have a weighted average interest rate higher than the weighted average interest
rate on the Bank's deposits. FHLB advances averaged $31.9 million in the current
period, compared to $43.7 million in the prior year, a decline of $11.8 million,
or 27.0 percent. FHLB advances are used primarily for short-term borrowings, and
the decline in FHLB advances was consistent with the decline in liquidity.
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 June 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 $1.2 million in the
second quarter of 2000, the same as in the prior year. The provision for
estimated credit losses was recorded to provide for reserves due to increases in
purchased residential loans and commercial real estate loan originations. The
allowance for estimated credit losses was 2.20 percent of total real estate
loans at June 30, 2000 as compared to 2.05 percent at December 31, 1999.
Nonperforming assets as a percentage of total assets increased slightly
to 0.84 percent as of June 30, 2000, compared to 0.81 percent at December 31,
1999. The aggregate amount of nonperforming assets totaled $10.9 million as of
June 30, 2000 ($9.3 million of loans held by the Bank and $1.6 million of loans
held by the Trust) as compared to $9.0 million at December 31, 1999. See also
"Financial Condition - Nonperforming Assets and Allowance for Credit Losses."
9
<PAGE> 10
NONINTEREST INCOME
Noninterest income totaled $0.1 million for the three months ended June
30, 2000 compared to $0.3 million for the corresponding period in the prior
year. The decline in noninterest income was due primarily to a decline in loan
processing fees.
NONINTEREST EXPENSE
Noninterest expense totaled $5.0 million for the three months ended June
30, 2000, compared to $5.6 million for the corresponding period in the prior
year. The decline in noninterest expense was due primarily to decreases in
compensation and benefits, which totaled $2.4 million in the quarter ending June
30, 2000 compared to $2.7 million in the corresponding period of the prior year
and in real estate operations, net, which resulted in $54,000 of income in the
current quarter, compared to $147,000 of expense in the second quarter of the
prior year. Compensation and benefits expense decreased due to a reduction in
staffing, as average full time equivalent associates decreased to 112 during the
quarter ended June 30, 2000 compared to 132 during the corresponding period in
the prior year. The decrease in headcount was due to the reduction of
approximately 15 percent of the workforce during the third quarter of 1999 as a
result of a decrease in loan production and general cost savings initiatives.
Real estate operations, net decreased primarily due to the gain realized on sale
of a foreclosed property during the second quarter of this year.
For the three months ended June 30, 2000, ITLA Capital's ratio of
consolidated general and administrative expense to average assets, on an
annualized basis, decreased to 1.60 percent compared from 2.15 percent in the
1999 second quarter. ITLA Capital's efficiency ratio (excluding real estate
operations) was 36.4 percent for the quarter ended June 30, 2000 compared to
40.0 percent during the corresponding period in the prior year.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET INCOME
Net income totaled $8.8 million for the six months ended June 30, 2000
compared to $7.9 million for the corresponding period in 1999, an increase of
11.4 percent. The increase in net income was due primarily to an increase in net
interest income and a decrease in the provision for estimated credit losses,
partially offset by a decrease in the provision for income taxes. Diluted EPS
was $1.21 for the six months ended June 30, 2000 compared to $1.08 for the
corresponding period in 1999, an increase of 12.0 percent.
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<PAGE> 11
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.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 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 $ 2,892 $ 325 $ 3,217
Real estate loans held in trust for
collateralized mortgage obligations 5,918 -- 5,918
Cash and investment securities (425) 358 (67)
------- ------- -------
Total increase in interest income 8,385 683 9,068
------- ------- -------
Interest paid for:
Deposit accounts 2,008 2,432 4,440
Collateralized mortgage obligations 3,981 -- 3,981
FHLB advances (205) (4) (209)
------- ------- -------
Total increase in interest expense 5,784 2,428 8,212
------- ------- -------
Increase (decrease) in net interest income $ 2,601 $(1,745) $ 856
======= ======= =======
</TABLE>
Total interest income increased by $9.1 million in the first half of
2000 compared to the corresponding period in 1999. This increase was due
primarily to the addition of real estate loans as a result of the Trust
acquisition in the first quarter of 2000, the increase in the average balance of
real estate loans, and to a lesser extent, to the increases in the average
yields on cash and investment securities and real estate loans. These increases
were partially offset by a decrease in the average balance of cash and
investment securities.
The average balance of real estate loans held in the Trust was $133.4
million for the six month period ending June 30, 2000. The average balance of
real estate loans increased to $949.0 million in the current year-to-date period
compared to $895.7 million in the corresponding period in the prior year, due
primarily to purchases of single family residential mortgages. The
weighted-average yield of real estate loans increased to 10.46 percent in the
current year-to-date period, compared to 10.39 percent in the prior year. The
increase in yield of real estate loans was due to the repricing of variable rate
loans at higher interest rates due to the general market increase in the LIBOR
and Prime rates that the loans are indexed to, partially offset by the increased
balance of single family residential mortgages, which generally have lower
effective yields. The weighted-average yield on cash and investment securities
increased to 5.92 percent in the current year-to-date period, compared to 5.26
percent in the corresponding period in the prior year, reflecting the general
increase in market interest rates
Total interest expense increased by $8.2 million in the first half of
2000 compared to the corresponding period in 1999 due primarily to the interest
expense from the CMOs, and to a
11
<PAGE> 12
lesser extent, to increases in the average balance of deposit accounts and in
the average rates paid on deposits.
The average balance of CMOs was $108.6 million for the six months ended
June 30, 2000. The average balance of deposit accounts was $901.9 million in the
six month period ended June 30, 2000, compared to $839.3 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 Trust. The average rate
paid on deposit accounts increased to 5.88 percent in the current year-to-date
period compared to 5.28 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.
PROVISIONS FOR ESTIMATED CREDIT LOSSES
The provision for estimated credit losses decreased to $1.8 million in
the first six months of 2000 from $2.4 million in the corresponding period in
1999. The provision for estimated credit losses was recorded to provide for
reserves primarily due to the increase in the purchased residential loan
portfolio.
NONINTEREST INCOME
Noninterest income totaled $1.7 million for the six months ended June
30, 2000 compared to $0.6 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 totaled $11.9 million and $10.7 million for the
six-months ended June 30, 2000 and 1999, respectively. The increase in
noninterest expense in the current six month period 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 six months ended June
30, 2000, ITLA Capital's ratio of consolidated recurring general and
administrative expense to average assets, on an annualized basis, was 1.76
percent compared to 2.10 percent in the corresponding period in the prior year.
ITLA Capital's efficiency ratio excluding nonrecurring expenses and real estate
operations was 38.2 percent for the six months ended June 30, 2000 compared to
39.7 percent during the corresponding period in the prior year.
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<PAGE> 13
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>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-performing real estate loans $ 8,147 $ 7,977
Non-performing real estate loans held in trust for
collateralized mortgage obligations 1,620 --
Other real estate owned, net 1,160 1,041
------- -------
Total nonperforming assets 10,927 9,018
Troubled debt restructurings 918 13,996
------- -------
$11,845 $23,014
======= =======
Non-performing real estate loans to total
gross real estate loans 0.80% 0.82%
Nonperforming assets to total assets 0.84% 0.81%
</TABLE>
At June 30, 2000 and December 31, 1999, other real estate owned
consisted of five and six properties, respectively.
13
<PAGE> 14
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 Trust.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 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 1,800 4,950
Net charge-offs on real estate loans (794) (1,866)
-------- --------
Balance at end of period $ 20,901 $ 19,895
======== ========
Allowance for credit losses as a percentage of real estate
loans, net 2.20% 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 1.85% --
</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 June 30, 2000,
ITLA Capital held approximately $43.8 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 June 30, 2000 and December 31, 1999, the Bank's liquidity ratios
were 9.5 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 with an available
14
<PAGE> 15
borrowing capacity of $136.8 million based on collateral pledged, and by federal
funds lines of credit with two major banks with an available borrowing capacity
of $30.0 million.
Total deposit accounts increased to $924.6 million at June 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 six month periods ended June 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 June 30, 2000, the Bank's Leverage (Core), Tier I and Total
Risk-Based capital ratios were 8.6 percent, 9.8 percent and 11.0 percent,
respectively. These ratios were 9.0 percent, 10.1 percent and 11.4 percent,
respectively, as of December 31, 1999. The decline in capital ratios from
December 31, 1999 to June 30, 2000 was due to the payment of a $14.3 million
cash dividend from the Bank to its parent, ITLA Capital. These funds were
utilized by ITLA Capital to complete the acquisition of 100 percent of the
equity and certain CMO's of the Trust. 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 June 30, 2000, the Bank's capital
position was designated as "well capitalized" for regulatory purposes.
ITLA Capital's shareholders' equity increased $5.3 million from December
31, 1999 to June 30, 2000 primarily due to the accumulation of $8.8 million in
net income, partially offset by purchases of treasury stock of $2.7 million and
the net change in unrealized gain (loss) on investment securities available for
sale of $0.9 million. There were no dividends declared or paid by ITLA Capital
during the first six months of 2000.
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.
15
<PAGE> 16
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
(a) Exhibit (3)(ii) - Amended and Restated Bylaws.
Exhibit (10.1) - Employment Agreement of George
Haligowski
Exhibit (10.2) - Salary Continuation Plan
(b) A report was filed on May 5, 2000 announcing the
appointment of new executives to the positions of
Chief Financial Officer and Treasurer.
16
<PAGE> 17
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 14, 2000 /s/ George W. Haligowski
-------------------------------------
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 2000 /s/ Timothy M. Doyle
-------------------------------------
Timothy M. Doyle
Managing Director and Chief
Financial Officer
17
