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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2003

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
(State or Other Jurisdiction of Incorporation or Organization)
 888 Prospect Street, Suite 110, La Jolla, California
(Address of Principal Executive Offices) |  | 95-4596322
(I.R.S. Employer Identification No.)
 92037
(Zip Code)

Registrants Telephone Number, Including Area Code: (858) 551-0511

Securities Registered Pursuant to Section 12(b) of the Act:None

Securities Registered Pursuant to Section 12(g) of the Act:Common Stock, $.01 Par Value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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 [   ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [   ].

As of March 8,
2004, there were issued and outstanding 6,268,673 shares of
the Registrants Common Stock. The aggregate market value of the voting stock
held by non-affiliates of the Registrant as of June 30, 2003, computed by
reference to the closing price of such stock as of June 30, 2003, was $230.9
million. (The exclusion from such amount of the market value of the shares
owned by any person shall not be deemed an admission by the Registrant that
such person is an affiliate of the Registrant.)



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TABLE OF CONTENTS



|             |                                                                                               |  |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Business                                                                             
|             | Item 2. Properties                                                                           
|             | Item 3. Legal Proceedings                                                                    
|             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II     
|             | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|             | Item 6. Selected Financial Data                                                              
|             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|             | Item 8. Financial Statements and Supplementary Data                                          
|             | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
|             | Item 9A. Controls and Procedures                                                             
|PART III    
|             | Item 10. Directors and Executive Officers of the Registrant                                  
|             | Item 11. Executive Compensation                                                              
|             | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|             | Item 13. Certain Relationships and Related Transactions                                      
|             | Item 14. Principal Accountant Fees and Services                                              
|PART IV     
|             | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES  
|EXHIBIT 21  
|EXHIBIT 23.1
|EXHIBIT 23.2
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32  



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ITLA CAPITAL CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

|         |  |                                                                                       |  |  |    |      |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                       |  |  |    | Page
|         |  |                                                                                       |  |  |    |     
|PART I  
|Item 1   |  | Business                                                                              |  |  | 3  |     
|Item 2   |  | Properties                                                                            |  |  | 15 |     
|Item 3   |  | Legal Proceedings                                                                     |  |  | 15 |     
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 15 |     
|PART II 
|Item 5   |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  |  | 16 |     
|Item 6   |  | Selected Financial Data                                                               |  |  | 17 |     
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 18 |     
|Item 7.A |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 35 |     
|Item 8   |  | Financial Statements and Supplementary Data                                           |  |  | 37 |     
|Item 9   |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure  |  |  | 64 |     
|Item 9.A |  | Controls and Procedures                                                               |  |  | 64 |     
|PART III
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  |  | 65 |     
|Item 11  |  | Executive Compensation                                                                |  |  | 67 |     
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 72 |     
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |  | 74 |     
|Item 14  |  | Principal Accountant Fees and Services                                                |  |  | 74 |     
|PART IV 
|Item 15  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 75 |     
|         |  | Signatures                                                                            |  |  | 78 |     
|         |  | Certifications                                                                        |  |  | 82 |     

Forward-Looking Statements

Safe Harbor statement under the Private Securities Litigation Reform Act
of 1995: This Form 10-K contains forward-looking statements that are subject to
risks and uncertainties, including, but not limited to, changes in economic
conditions in our market areas, changes in policies by regulatory agencies, the
impact of competitive loan products, loan demand risks, the quality or
composition of our loan or investment portfolios, fluctuations in interest
rates and changes in the relative differences between short and long-term
interest rates, levels of nonperforming assets and operating results, the
impact of terrorist actions on our loan originations and loan repayments and
other risks detailed from time to time in our filings with the Securities and
Exchange Commission. We caution readers not to place undue reliance on
forward-looking statements. We do not undertake and specifically disclaim 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 our actual results for 2004 and beyond to
differ materially from those expressed in any forward-looking statements by, or
on behalf of, us.

As used throughout this report, the terms we, our, ITLA Capital or
the Company refer to ITLA Capital Corporation and its consolidated
subsidiaries.

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PART I




Item 1. Business

General

ITLA Capital Corporation is the largest financial services company
headquartered in San Diego County, California with consolidated assets of $1.8
billion, consolidated net loans of $1.4 billion, consolidated deposits of $1.1
billion and consolidated shareholders equity of $186.9 million as of December
31, 2003. We conduct and manage our business principally through our
wholly-owned subsidiary, Imperial Capital Bank (the Bank), an institution
with $1.7 billion in assets, with six retail branches located in California,
(Beverly Hills, Costa Mesa, Encino, Glendale, San Diego, and San Francisco),
and one branch located in Carson City, Nevada. Additionally, the Bank has
eight lending offices located in California (Del Mar, San Diego, Century City,
Costa Mesa, Glendale, San Francisco, Santa Monica, and Walnut Creek) and five
other lending offices, located in Atlanta, Georgia, Austin, Texas, Carson City,
Nevada, Spokane, Washington, and Tempe, Arizona. On January 1, 2003, the Bank
converted from a California industrial bank to a California-chartered
commercial bank, and the Company became a bank holding company. The Bank has
been in business for 29 years and was formally known as Imperial Thrift and
Loan Association until its name change in January 2000. Our branch offices are
primarily used for our deposit services and lending business. The Bank is
primarily engaged in:



| |  |  | Originating real estate loans secured by income producing properties
for retention in its loan portfolio;                                                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Originating film finance loans, franchise loans, tax refund
anticipation loans, private label small business revolving credit loans;
and                                                                                                                
|
| |  |  | Accepting customer deposits through the following products:
certificates of deposits, money market, passbook and demand deposit
accounts. Our deposit accounts are insured by the Federal Deposit
Insurance Corporation (FDIC) up to the legal limits.

During 2001 and 2000, the Bank was also engaged in the acquisition of
pools of single family mortgages in the secondary market for investment
purposes. On March 28, 2002, the Bank disposed of virtually all of its
residential loan portfolio through the securitization of $86.3 million of its
performing single family mortgages and sale of $17.6 million of the remaining
single family mortgages in a whole loan sale.

During 2000, we acquired through our subsidiary, Imperial Capital Real
Estate Investment Trust (Imperial Capital REIT), all of the equity and
certain collateralized mortgage obligations (CMOs) of the ICCMAC Multi-family
and Commercial Trust 1999-1 (the ICCMAC Trust). On the date of acquisition,
the ICCMAC Trust held assets of $250.5 million as collateral for $205.4 million
of investment grade CMOs that had been sold to third party investors by the
previous owner. At December 31, 2003 and 2002, real estate loans held in trust,
net, for the CMOs totaled $68.6 million and $121.9 million and the CMOs
outstanding balance was $15.9 million and $69.1 million, respectively.

During the first quarter of 2002, we completed our acquisition of Asahi
Bank of California (Asahi Bank), a wholly-owned subsidiary of Asahi Bank Ltd
- Japan (ABLJ), for approximately $14.9 million in cash. On the date of
acquisition, Asahi Bank had total assets of approximately $50.0 million,
including $35.0 million of commercial real estate and business loans and $15.0
million of cash and securities. Upon completion of the acquisition, Asahi Bank
was merged into the Bank.

On October 25, 2002, we acquired the operating assets and the performing
film finance loan portfolio of the Lewis Horwitz Organization (LHO), in an
all cash transaction valued at approximately $93.0 million. LHO is an
internationally recognized lender to the independent film and television
production industry. LHO is currently operating as a division of the Bank.

In November 2002, we entered into a strategic business relationship with
various subsidiaries of Household International, Inc. (Household), a
wholly-owned subsidiary of HSBC Holdings plc (NYSE  HBC) relating to certain
tax refund products. In connection with this relationship, the Bank originates
tax refund anticipation loans and sells Household a non-recourse participation
interest representing substantially all of the outstanding loan balance. Under
the agreement, Household supports the Banks credit administration, compliance,
treasury and accounting functions with a range of services relating to the
administration of this program. Household also services the loans on behalf of
the Bank. Substantially all of the tax refund lending volume is generated
during the first quarter of the year. The tax refund agreement is for a
four-year term, with substantial break-up fees to apply in the event that

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Household terminates the agreement during the first two years of the
agreement. The Bank was affirmed by Household in November 2003, as its
strategic banking partner for the 2004 tax season.

We also entered into an agreement in December 2002 with Household pursuant
to which the Bank originates relatively small private label commercial
revolving loans to small businesses. This agreement is for a two-year term.
These loans are used primarily to fund purchases from major retailers. Pursuant
to this agreement, the Bank sells Household a non-recourse participation
interest representing substantially all of the outstanding loan balance.

We continuously evaluate business expansion opportunities, including
acquisitions or joint ventures with companies that originate or purchase
commercial and multi-family real estate loans as well as other types of secured
commercial loans. In connection with this activity, we periodically have
discussions with and receive financial information about other companies that
may or may not lead to the acquisition of the company, a segment or division of
that company, or a joint venture opportunity.

Our executive offices are located at 888 Prospect Street, Suite 110, La
Jolla, California 92037 and our telephone number at that address is (858)
551-0511.

Lending Activities

General.During 2003, our core lending activities were as follows:



| |  |  | Originating and purchasing real estate loans, including construction loans, secured by income producing properties.
| | - |  | -------------------------------------------------------------------------------------------------------------------
|
| |  |  | Originating and purchasing franchise and film finance loans.                                                       

Income Producing Property Loans.We originate and purchase real estate
loans secured primarily by first trust deeds on income producing properties.
Income property loan collateral consists primarily of the following types of
properties:

|                                              |  |                                                           
|--------------------------------------------- |  | ----------------------------------------------------------
| Apartments                                  |  |  Mini-storage facilities                                 
| Retail centers                              |  |  Mobile home parks                                       
| Small office and light industrial
buildings |  |  Other mixed use or special purpose commercial properties
| Hotels                                      |  |                                                           

At December 31, 2003, the Bank had $1.2 billion of income producing
property loans outstanding, representing 89.9% of its total real estate loans
and 77.7% of its gross loan portfolio. Most of the Banks real estate borrowers
are business owners, individual investors, investment partnerships or limited
liability corporations. The income producing property lending that the Bank
engages in typically involves larger loans to a single borrower and is
generally viewed as exposing the lender to a greater risk of loss than one- to
four-family residential lending. During 2002, we launched Imperial Capital Express, a real estate lending
platform focusing on originating smaller balance income producing property
loans.

Income producing property values are also generally subject to greater
volatility than residential property values. The liquidation values of income
producing properties may be adversely affected by risks generally incident to
interests in real property, such as:

|                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| Changes or continued weakness in general
or local economic conditions;
 Changes or continued weakness in
specific industry segments;

 Increases in other operating expenses
(including energy costs);

 Declines in
real estate values;



 Declines in rental, room or
occupancy rates in hotels,
apartment complexes or
commercial properties; |  |  Changes in governmental
rules, regulations and fiscal
policies, including rent
control ordinances,
environmental legislation and
taxation;

 Increases in interest rates,
real estate and personal
property tax rates; and

 Other factors beyond
the control of the borrower or
the lender.

We originate real estate loans through six lending offices located in
California (Costa Mesa, Del Mar, Glendale, San Diego, San Francisco, and Walnut
Creek) and three offices outside of California, located in Atlanta, Georgia,
Austin, Texas and Spokane, Washington. These offices are staffed by a total of
thirty-six loan officers. Loan officers solicit mortgage loan brokers for loan
applications that meet our underwriting criteria, and also accept applications
directly from borrowers. A majority of the real estate loans funded by us are
originated through mortgage loan brokers. Mortgage loan brokers act as
intermediaries between us and the property owner in arranging real estate loans
and earn a fee based upon the principal amount of each loan funded. Since a
large portion

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of our marketing effort is through our loan officers contacts with
mortgage loan brokers, we do not incur significant expenses for advertising our
lending services to the general public.

Income producing property loans are generally made in amounts up to 75% of
the appraised value of the property; however, in certain instances, multifamily
originations may be made at a loan to value ratio of 80%. Loans are generally
made for terms up to ten years, with amortization periods up to 30 years.
Depending on market conditions at the time the loan was originated, certain
loan agreements may include prepayment penalties. Most real estate loans are
subject to a quarterly adjustment of their interest rate based on one of
several interest rate indexes.

The interest rates charged on real estate loans generally vary based on a
number of factors, including the degree of credit risk, size and maturity of
the loan, whether the loan has a fixed or a variable rate, and prevailing
market rates for similar types of real estate loans. As of December 31, 2003,
64.1% of the Banks real estate loan portfolio was indexed to the Six-Month
London Interbank Offered Rate; 15.9% was indexed to the reference rate charged
by Bank of America; 3% was indexed to the one-month London Interbank Offered
Rate; 0.8% was indexed to the Federal Home Loan Bank (FHLB) 11th District
Cost of Funds Index; 12.1% was fixed for an initial period and then adjustable;
0.5% was indexed to the United States Treasury security indexes; and the balance
of 3.2% was fixed rate. Most of the Banks variable rate real estate loans may
not adjust downward below their initial rate, with increases generally limited
to maximum adjustments of 2% per year up to 5% for the life of the loan. The
inability of the Banks real estate loans to adjust downward can contribute to
increased income in periods of declining interest rates, and also assists the
Bank in our efforts to limit the risks to earnings resulting from changes in
interest rates, subject to the risk that borrowers may refinance these loans
during periods of declining interest rates. At December 31,
2003, 88.8% of the
Banks variable rate and fixed/adjustable loan portfolio contained interest
rate floors. The weighted-average minimum interest rate on this portfolio was
6.75%. At that date, 76.7% of the variable rate loans outstanding had a
lifetime interest rate cap. The weighted-average lifetime interest rate cap on
this portfolio was 11.92%.

In 2003, 2002, and 2001, the Bank purchased income producing real estate
loans totaling $46.8 million, $83.6 million, and $176.9 million, respectively.
In its commercial real estate loan purchases, the Bank generally reserves the
right to reject particular loans from a loan pool being purchased and does so
for loans in a pool that do not meet its underwriting criteria.

Construction Loans.We originate construction loans for income producing
properties, as well as for single-family residential tract construction. At
December 31, 2003, the Bank had $129.5 million of construction loans
outstanding, representing 8.8% of its gross loans receivable. In addition to
the lending risks previously discussed, construction loans also present risks
associated with the accuracy of the initial estimate of the propertys value
upon completion compared to its actual value, the timely completion of
construction activities for their allotted costs and the time needed to
stabilize income properties. These risks can be affected by a variety of
factors, including the oversight of the project, localized costs for labor and
materials, and the weather.

Franchise Loans. In December 2002, the Bank expanded its franchise
lending operations through the opening of the Imperial Franchise Finance, a
franchise lending platform based in Tempe, Arizona. Prior to the opening of
this new platform, under which we now originate, and continue to purchase,
franchise loans, our franchise lending business primarily consisted of
purchased franchise loans through our relationships with correspondent
franchise loan originators. Franchise loans are loans to owners of businesses,
both franchisors and franchisees, such as fast food restaurants or gasoline
retailers that are affiliated with nationally or regionally recognized chains
and brand names. Various combinations of land, building, business equipment and
fixtures may secure these loans, or they may be a general obligation of the
borrower based on a valuation of the borrowers business and debt service
ability. These loans may be viewed as riskier than our real estate secured
loans, as in each case, the primary source of repayment of a franchise loan is
the cash flow of the business and not the underlying value of the collateral.
In addition, in certain cases, the success of the borrowers business depends
on the management talents and efforts of one or two persons or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the business. Many of these
borrowers have smaller market shares than their competition, may be more
vulnerable to economic downturns, often need additional capital to expand or
compete and may experience substantial variations in operating results, any of
which might impair the borrowers ability to repay a loan. As of December 31,
2003 and 2002, our franchise loan portfolio was $102.1 million and $54.7
million, respectively, which represented 6.7% and 4.1%, respectively, of the
Banks gross loan portfolio.

Film Finance Loans. We acquired LHO in October 2002 and are operating LHO
as a division of the Bank. LHO is an internationally recognized commercial
finance lender engaged in providing financing for independent motion picture
and television production. Typically, LHO lends to independent producers of
film and television on a senior secured basis, basing its credit decisions on
the creditworthiness and reputation of distributors and sales agents who have
contracted to distribute the films. LHO provides loans (with a typical term of
12 to 18 months) and letters of credit for the production of motion pictures
and television shows or series that

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have a predictable market worldwide, and therefore, a predictable level of
revenue arising from licensing of the distribution rights throughout the world.

LHO lends to independent producers of film and television, many of which
are located in California. LHO also has borrowing clients outside of the United
States. Independent producers tend to be those producers that do not have major
studio distribution outlets for their product. Large film and television
studios generally maintain their own distribution outlets and finance their
projects with internally generated financing. In addition to funding production
loans against a number of distribution contracts, LHO has a proprietary system
related to valuation of selected unsold rights to permit financing of a portion
of the production budget. Typically, this unsecured amount does not exceed 10%
of the total loan. LHOs lending officers review the quality of the
distributors and their contracts, the budget, the schedule of advances, and
valuation of all distribution rights when considering a new lending
opportunity. All LHO loans require the borrower to provide a completion bond
that guarantees the completion of the film or the payoff of the outstanding
balance of the loan in the event the film is not completed. After closing, each
requested advance is approved by the bonding company on a weekly basis to
ensure that LHO is not advancing ahead of an agreed-upon cash flow schedule.
The loan documentation grants LHO the right to impose certain penalties on the
borrower and exercise certain other rights, including replacing the sales
agent, if sales are not consummated within the appropriate time. Loans are
repaid principally from revenue received from distribution contracts. In many
instances, the distribution contracts provide for multiple payments payable at
certain milestones (such as execution of contract, commencement of principal
photography or completion of principal photography). The maturity date of the
loan is generally six to nine months after completion of the production.
Delivery of the completed production is made to the various distributors only
upon or after their minimum guarantees have been paid in full. To the extent a
distributor fails to make payment upon completion of the film, or the predicted
level of revenue is less than expected, the Bank may incur a loss.

LHO typically charges its customers an interest rate ranging from the
prime rate to prime plus a margin (exclusive of loan fees) on the outstanding
balance of the loan. Loan fees typically range from 1.00% to 2.50% with an
additional fee up to 7.0% depending on the unsecured amount of the production
budget being financed.

At December 31, 2003 and 2002, our film finance portfolio totaled $98.6
million and $119.3 million, respectively, representing 6.4% and 8.1% of our
gross loan portfolio as of these dates. Of these amounts, approximately $26.6
million and $48.8 million, respectively, were issued to producers domiciled
outside of the United States. These foreign loans were primarily issued to
producers in Australia, Canada, and Germany. Approximately $5.1 million and
$600,000 of interest income was earned during fiscal 2003 and 2002,
respectively, in connection with these loans. At December 31, 2003,
non-performing loans as a percentage of the LHO portfolio was 3.1%. There were
no non-performing loans at December 31, 2002.

Loan Underwriting.Many of the Banks loans are made to lower credit grade
borrowers that have marginal credit histories or the property has other factors
such as debt-to-income ratios or property location that prevent the borrower
from obtaining a prime interest rate. We attempt to mitigate the risk
associated with these loans by charging higher interest rates and through our
loan approval and loan purchasing process. The Banks loan underwriters are
responsible for initial reviews of borrowers, collateral, loan terms, and
prepare a written presentation on every loan application submitted to its loan
committee, which is comprised of the following Bank officers:

|                                                 |  |                                                               
|------------------------------------------------ |  | --------------------------------------------------------------
| Chairman, Chief Executive Officer,
President   |  |  Managing Director/Deputy Chief Credit
Officer-Administration
| Vice Chairman and Chief Credit Officer         |  |  Managing Director/Deputy Chief Credit Officer-Production    
| Senior Managing Director/Chief Banking Officer |  |  Deputy Managing Director/Business Credit                    
| Managing Director/Chief Lending Officer        |  |  First Vice President/Manager Loan Underwriting              

The underwriting standards for loans secured by income producing real
estate properties consider the borrowers financial resources and ability to
repay and the amount and stability of cash flow, if any, from the underlying
collateral, to be comparable in importance to the loan-to-value ratio as a
repayment source.

All real estate secured loans over $2.0 million must be submitted to the
loan committee for approval. At least one loan committee member or designee
must personally conduct on-site inspections of any property involved in
connection with a real estate loan recommendation of $1.0 million or more.
Loans up to $750,000 may be approved by any loan committee member. Loans of
$750,000 to $1.5 million require approval by any two members of the Banks loan
committee, while loans in excess of $1.5 million require approval of three loan
committee members. Additionally, loans over $2.0 million must be approved by
the Managing Director/Deputy Chief Credit Officer-Administration; loans over
$3.0 million require the additional signature of the Vice Chairman and Chief
Credit Officer; and individual loans over $5.0 million, loans resulting in an
aggregate borrowing relationship to one borrower in excess of $7.5 million, and
all purchased loan pools must be approved by the executive committee of the
Banks board of directors.

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All franchise and film finance loans must be submitted to the loan
committee for approval regardless of the amount of the loan request. Loan
amounts up to $2.0 million require the approval of three loan committee
members. Loans over $2.0 million must be approved by the First Vice President
of Business Lending Operations and loans over $3.0 million must be approved by
the Vice Chairman and Chief Credit Officer.

Our loans are originated on both a non-recourse and full recourse basis
and we generally seek to obtain personal guarantees from the principals of
borrowers which are single asset or limited liability entities (such as
partnerships, corporations or trusts).

The maximum size of a single loan made by the Bank is limited by
California law to 25% of the Banks equity capital. At December 31, 2003, that
limit was approximately $54.5 million. The Banks largest combined credit
extension to related borrowers was $25.7 million at December 31, 2003. At
December 31, 2003, the Bank had a total of 74 extensions of credit, with a
combined outstanding principal balance of $660.8 million, that were over $5.0
million to a single borrower or related borrowers. All combined extensions of
credit over $5.0 million were performing in accordance with their repayment
terms. At December 31, 2003, the Bank had 1,502 secured real estate loans
outstanding, with an average balance per loan of approximately $837,000.

Servicing and Collections.Real estate loans, construction loans, film
finance and internally originated franchise loans held by the Bank are serviced
by the Banks loan servicing department, which is designed to provide prompt
customer service, and accurate and timely information for account follow-up,
financial reporting and management review. Servicing of substantially all of
the purchased franchise loan portfolio and loans held in the ICCMAC Trust is
performed by third party servicers. The Bank monitors its loans to ensure that
projects are performing as underwritten. This monitoring allows the Bank to
take a proactive approach to addressing projects that do not perform as
planned. When payments are not received by their contractual due date,
collection efforts begin on the fifth day of delinquency with a telephone
contact, and proceed to written notices that progress from reminders of the
borrowers payment obligation to an advice that a notice of default may be
forthcoming. Accounts delinquent for more than 30 days are generally
transferred to the Banks asset management department which, following a review
of the account and management approval, implements a collection or restructure
plan, or a disposition strategy, and evaluates any potential loss exposure on
the asset.

Competition.Our competition in originating real estate, construction,
franchise and film finance loans is principally from community banks, savings
and loan associations, industrial banks, real estate financing conduits,
specialty finance companies, small insurance companies, and larger banks. Many
of these entities enjoy competitive advantages over us relative to a potential
borrower in terms of a prior business relationship, wider geographic presence
or more accessible branch office locations, the ability to offer additional
services or more favorable pricing alternatives, or a lower cost of funds
structure. We attempt to offset the potential effect of these factors by
providing borrowers with greater individual attention and a more flexible and
time-sensitive underwriting, approval and funding process than they might
obtain elsewhere.

Household Strategic Alliance

Tax Refund Lending.In November 2002, we entered into a strategic business
relationship with various subsidiaries of Household relating to certain tax
refund anticipation loans. In connection with this relationship, the Bank
originates tax refund anticipation loans, and sells to Household a non-recourse
participation interest representing substantially all of the outstanding loan
balance. The tax refund agreement with Household is for a four-year term, with
substantial break-up fees to apply in the event that Household terminates the
agreement during the initial two-year period. The Bank was affirmed by
Household in November 2003, as its strategic banking partner for the 2004 tax
season. Household supports our credit administration, compliance, treasury and
accounting functions with a range of services relating to the administration of
this lending program. The Bank would not originate these loans without the
involvement of Household or a similar business partner.

Pursuant to our agreement with Household, the Bank offers tax refund
anticipation loans (RALs) to taxpayers who have filed their returns
electronically with the IRS and do not want to wait for the IRS to send them
their refund check. For this product, a taxpayer requests a loan through a tax
preparer, with the anticipated tax refund as the source of repayment. The
taxpayers application is then subjected to an automated credit review process.
If the application passes this review, the Bank advances to the taxpayer the
amount of the refund due on the taxpayers return up to specified amounts based
on certain criteria, less a pre-paid finance charge and certain other fees.
Each taxpayer signs an agreement permitting the IRS to send their refund
directly to the Bank instead of to the taxpayer. The refund received from the
IRS is used to pay off the loan. Any amount due the taxpayer above the amount
of the RAL is then sent to the taxpayer. The Bank also provides refund
transfers to customers who do not want or do not qualify for loans. The
transfer product facilitates the receipt of the refund by the customer by
authorizing the customers tax preparer to print a check for the customer after
the refund has been received by the Bank from the IRS (RACs). Because of the
mid-April tax-filing deadline, almost all of the loans and transfers are made
and repaid during the first quarter of the year. The Banks revenue, under the
program, consists

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of RAL and RAC transaction fees and the earnings stream from RALs
originated under the program to the extent of its retained interest in such
RALs.

There is a higher credit risk associated with refund loans than with other
types of loans because (1) the Bank does not have personal contact with the
customers of this product; and (2) the customers conduct no business with the
Bank other than this once a year transaction. Much of this risk is eliminated
due to the immediate sale by the Bank to Household, of a participation interest
representing virtually all of the RAL outstanding balance.

Because these programs relate to the filing of income tax returns,
activity is concentrated in the first quarter of each year. This causes first
quarter net income to become a greater percentage of each years net income.
This seasonality impacts a number of performance ratios, including return on
assets (ROA), return on equity (ROE) and the operating efficiency ratio. These
impacts are apparent in both the first quarter of 2003 and the year-to-date
ratios in subsequent quarters. At December 31, 2003 and 2002, there were no RAL
loans outstanding.

Private Label Commercial Revolving Credit Loans. We also entered into an
agreement in December 2002 with Household pursuant to which the Bank originates
private label small commercial revolving loans to small businesses. This
agreement is for a two-year term. These loans are used primarily for purchases
from major retailers. Pursuant to this agreement, the Bank sells Household a
non-recourse participation interest representing substantially all of the
outstanding loan balance. The Bank participates in the earnings stream from the
loans originated under the program to the extent of its retained interest in
such loans. At December 31, 2003 and 2002, our retained interest in commercial
revolving credit loans was $5.8 million and $4.2 million, respectively.

Imperial Capital Real Estate Investment Trust

During 2000, we acquired all of the equity and certain CMOs of the ICCMAC
Trust through our real estate investment trust subsidiary, Imperial Capital
REIT. At December 31, 2003, the ICCMAC Trust held real estate loans of $68.6
million, comprised of approximately 67.0% and 33.0% of multifamily and
commercial loans, respectively, with over 45.9% of the loans secured by
property located in California. Approximately two-thirds of the loans are
adjustable rate mortgages. At December 31, 2003, the ICCMAC Trusts real
estate loans were held as collateral for $15.9 million of investment grade CMOs
sold to third party investors. The cash flow from the ICCMAC Trusts loan pool
pays principal and interest on the CMOs, and also provides cash flow on a
monthly basis to ITLA Capital. ITLA Capital recorded $3.5 million of pre-tax
income from its investment in the ICCMAC Trust during the year ended December
31, 2003.

Servicing of the ICCMAC Trust loans is performed by Orix Capital Markets,
LLC (Orix), a Delaware limited liability company. Under the servicing
agreement, Orix is required to service and administer the commercial mortgage
loans held in trust solely for the benefit of the holders of the CMOs in
accordance with the terms of the servicing agreement and the commercial
mortgage loans.

Orix is required to perform other customary functions of a servicer of
comparable loans, including monitoring insurance coverage; maintaining escrow
or impoundment accounts of borrowers for payment of taxes, insurance and other
items required to be paid pursuant to the loan agreement; processing
assumptions or substitutions in those cases where the loan servicer has
determined not to enforce any applicable due-on-sale clause; demanding that the
borrower cure delinquencies; inspecting and managing commercial mortgaged
properties under certain circumstances; and maintaining records relating to the
commercial mortgage loans.

Nonperforming Assets and Other Loans of Concern

At December 31, 2003, nonperforming assets totaled $15.6 million or 0.86%
of total assets. Nonperforming assets consisted of $8.5 million of nonaccrual
loans and $7.1 million of other real estate owned. Two of our nonperforming
loans had an outstanding balance greater than $1.0 million. For additional
information regarding nonperforming assets see Item 7: Managements Discussion
and Analysis of Financial Condition and Results of Operations-Credit Risk
Elements.

The following is a brief discussion of the non-accrual loans where the
remaining principal balance of the loan at December 31, 2003, exceeded $1.0
million.



| |  | Loan Secured by Hotel  Arizona.This loan was originated in May 1997 with
an initial commitment of $2.2 million. The loan is secured by a 90-unit
motel and the outstanding balance at December 31, 2003 was $1.4 million. The
cash flows generated by the property have been insufficient to service the
debt. A partner of the borrower, a partnership, has agreed to loan the
borrower sufficient funds to cure the current delinquencies.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Loan Secured by Film Rights.This loan was purchased as a part of the LHO
acquisition in 2002. The loan is secured by domestic and international film
rights and the outstanding balance at December 31, 2003 was $1.6 million.
The loan has been cross collateralized with excess cash flows expected to be
received by the borrower from film rights on separate projects. These excess
cash flows are expected to be sufficient to pay off this loan.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31, 2003, we had loans with an aggregate outstanding
balance of $31.3 million with respect to which known information concerning
possible credit problems with the borrowers or the cash flows of the properties
securing the respective loans has caused management to be concerned about the
ability of the borrowers to comply with present loan repayment terms, which may
result in the future inclusion of such loans in the non-accrual loan category.
All of these loans are classified as substandard pursuant to the regulatory
guidelines discussed below. The following is a brief discussion of our other
loans of concern where the remaining principal balance of the loan at December
31, 2003 exceeded $2.0 million.



| |  | Loan Secured by Hotel  Arizona.This loan was originated in May 1997 with
an initial commitment of $4.0 million. The loan is secured by a 99-unit
motel and the outstanding balance at December 31, 2003 was $2.7 million. The
cash flows generated by the property have been historically insufficient to
service the debt, however, the most recent year-to-date operating financial
information shows marked improvement in occupancy and cash flows, with a debt
coverage ratio more than sufficient to service the debt. We continue to
monitor the borrowers efforts to improve the cash flow of this hotel.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Loan Secured by Hotel  California.This loan was originated in June 2001
with an initial commitment of $3.3 million. The loan is secured by a 93-room
hotel and the outstanding balance at December 31, 2003 was $3.1 million. The
property has suffered from declining occupancy. The borrower continues to
pay in accordance with the loan repayment terms. We continue to monitor the
borrowers efforts to improve cash flow of this hotel through improvements to
the property.                                                                                                                               
|
| |  | Loan Secured by Hotel  California.This loan was originated in December
1998 with an initial commitment of $2.6 million. The loan is secured by a
61-room hotel and the outstanding balance at December 31, 2003 was $2.5
million. The borrower continues to pay in accordance with the loan repayment
terms.                                                                                                                                                                                                                                                                                                      
|
| |  | Loan Secured by Hotel  California.This loan was originated in April 1998
with an initial commitment of $3.2 million. The loan is secured by a
204-room hotel and the outstanding balance at December 31, 2003 was $2.6
million. The cash flows generated by the property have been insufficient to
service the debt and property taxes are delinquent. The borrower has
appealed the property tax assessment and is expected to bring delinquent
taxes current in early 2004. We continue to monitor the borrowers efforts
to improve the cash flow of this hotel.                                               
|
| |  | Loan Secured by Single Resident Occupancy  California.This loan was
originated in May 2002 with an initial commitment of $2.3 million. The loan
is secured by a 96-unit single resident occupancy and the outstanding balance
at December 31, 2003 was $2.0 million. The property is 50% occupied. The
borrower is currently in the process of obtaining financing to convert the
property into a limited service hotel.                                                                                                                                                                                          
|
| |  | Loan Secured by Retail Center  Arkansas.This loan was originated in
October 1998 with an initial commitment of $5.3 million. The loan is secured
by the subject retail center and the outstanding balance at December 31, 2003
was $4.8 million. The property is 56% occupied and the borrower is paying as
agreed under the terms of its forbearance agreement. The property is listed
for sale and a letter of intent to purchase the property has been received.
Closing of the sale is expected to be completed by the expiration of the
forbearance period.                                                  
|
| |  | Loan Secured by Franchises  Tennessee.This loan was originated in February
2001 with an initial commitment of $3.5 million. The loan is secured by four
franchise restaurants and the outstanding balance at December 31, 2003 was
$3.3 million. The restaurants have been suffering from declining
sales resulting in the borrower not being in compliance with the covenants contained in its loan agreement. The
franchisor is assisting the borrower through a consultant to develop a plan
to restore sales to appropriate levels. We continue to monitor the sales
growth of these restaurants.             
|
| |  | Loan Secured by Office Building  California.This loan was originated in May
2003 with an initial commitment of $3.7 million. The borrower has struggled
to replace a large tenant that vacated in mid-2003. As of December 31, 2003,
the borrower had been late with payments and was past due on taxes and
insurance related to the property. The note was sold in January 2004 and we
received full payment.                                                                                                                                                                                                    

At December 31, 2003, the other real estate owned portfolio consisted of
four properties located throughout the United States. The largest property had
a net book value of $4.8 million at December 31, 2003.

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Classified Assets

Management uses a loan classification system consistent with the
classification system used by bank regulatory agencies to help it evaluate the
risks inherent in its real estate loan portfolio. Loans are identified as
pass, substandard, doubtful or loss based upon consideration of all
sources of repayment, underlying collateral values, current and anticipated
economic conditions, trends and uncertainties, and historical experience. Pass
loans are further divided into four additional sub-categories, based on the
borrowers financial strength and ability to service the debt and/or the value
and debt service coverage of the underlying collateral. Underlying collateral
values for real estate dependent loans are supported by property appraisals or
evaluations. We review our loan classifications on at least a quarterly basis.
At December 31, 2003, we classified $39.8 million of loans as substandard,
none as doubtful and none as loss of which, $8.5 million of these
classified loans were included in the nonperforming assets table in Item 7.
Managements Discussion and Analysis of Results of Financial Condition and
Operations  Credit Risk Elements, and the balance was included in the $31.3
million of other loans of concern, discussed above.

Funding Sources

The primary source of funding for the Banks lending operations and
investments are deposits. The Banks deposits are federally insured by the
FDIC to the maximum extent permitted by law. Approximately 82.2% of the Banks
deposits are term deposits that pay fixed rates of interest for periods ranging
from 90 days to five years, 13.6% of the Banks deposits are variable rate
passbook accounts and variable rate money market accounts with limited checking
features, and 4.2% are customer demand deposit accounts.

In connection with the Banks charter conversion in 2003, we expanded our
line of banking products and services offered to our customers. The new
products and services consist of commercial banking products and services,
including consumer and business checking accounts. The Banks retail checking
account balance was $47.6 million at December 31, 2003. As we continue to
expand and grow our retail deposit base, we anticipate that the Banks
dependence on interest rate sensitive certificates of deposit as a funding
source will slowly diminish; however, in 2003, the Banks deposit strategy
continued to rely upon offering deposit rates significantly above those
customarily offered by other financial institutions in its market. The Bank has
generally accumulated deposits by relying on renewals of term accounts by
existing depositors, participating in deposit rate surveys which promote the
rates offered by the Bank on its deposit products, and periodically advertising
in various local market newspapers and other media. Management believes that
its deposits are a reliable funding source and that the cost of funds resulting
from the Banks deposit gathering strategy is comparable to those of other
banks pursuing a similar strategy. However, because the Bank competes for
deposits primarily on the basis of rates, the Bank could experience
difficulties in attracting deposits if it could not continue to offer deposit
rates at levels above those of other financial institutions. Management also
believes that any efforts to significantly increase the size of its deposit
base may require greater marketing efforts and/or increases in deposit rates.
At December 31, 2003, the Bank had $126.8 million of brokered deposits.

For information concerning overall deposits outstanding during the periods
indicated and the rates paid thereon, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Net Interest
Income.

The Bank has also used advances from the FHLB of San Francisco as a
funding source. FHLB advances are collateralized by pledges of qualifying cash
equivalents, investment securities, mortgage-backed securities and whole loan
collateral. At December 31, 2003, FHLB advances outstanding totaled $362.1
million, and the remaining available borrowing capacity, based on the loans and
securities pledged as collateral, totaled $161.0 million, net of the $8.5
million of additional FHLB Stock that we would be required to purchase to
support the additional borrowings. Additionally, the Bank also has uncommitted,
unsecured lines of credit with other banks renewable daily in the amount of
$30.0 million. In connection with our tax refund lending business, ITLA Capital
has two $25.0 million revolving credit facilities with an unaffiliated bank.
These credit facilities mature on March 31, 2004 and January 1, 2005,
respectively. See Item 8. Financial Statements and Supplementary Data  Notes
to Consolidated Financial Statements  Notes 8, 9, 11, and 22.

Regulation

On January 1, 2003, the Bank converted from a California industrial bank
to a California-chartered commercial bank, and the Company became a bank
holding company. As a result, the Company is now regulated by the Board of
Governors of the Federal Reserve System (the Federal Reserve Board). The Bank
continues to be regulated by the California Department of Financial
Institutions (the DFI) and the Federal Deposit Insurance Corporation (the
FDIC). Due to legislation which became effective in October 2000, California
industrial banks are now generally subject to the same California banking laws
as California commercial banks. Accordingly, the regulatory oversight to which
the Bank is now subject as a commercial bank is not significantly different
from the regulatory oversight to which it was subject as an industrial bank.

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Holding Company Regulation

Bank holding companies are subject to comprehensive regulation by the
Federal Reserve Board under the Bank Holding Company Act of 1956, and the
regulations of the Federal Reserve Board. As a bank holding company, the
Company is required to file reports with the Federal Reserve Board and such
additional information as the Federal Reserve Board may require, and the
Company and its non-bank subsidiaries are subject to examination by the Federal
Reserve Board. The Federal Reserve Board also has extensive enforcement
authority over bank holding companies, including, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders and to require that a bank holding company divest subsidiaries,
including its bank subsidiaries. In general, enforcement actions may be
initiated for violations of law and regulation as well as unsafe or unsound
practices.

Under Federal Reserve Board policy, a bank holding company must serve as a
source of strength for its subsidiary banks. Under this policy, the Federal
Reserve Board may require, and has required in the past, bank holding companies
to contribute additional capital to undercapitalized subsidiary banks.

Under the Bank Holding Company Act of 1956, a bank holding company must
obtain Federal Reserve Board approval before, among other matters:



| |  |  | acquiring, directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after the
acquisition, it would own or control more than 5% of these shares
(unless it already owns or controls a majority of these shares);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | acquiring all or substantially all of the assets of another bank or bank holding company; or                                                                                                                                                                         
|
| |  |  | merging or consolidating with another bank holding company.                                                                                                                                                                                                          

This statute also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which have been identified as activities closely related to
the business of banking or managing or controlling banks.

Dividends. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Boards view that a bank holding company should pay cash
dividends only to the extent that its net income for the past year is
sufficient to cover both the cash dividends and a rate of earnings retention
that is consistent with the bank holding companys capital needs, asset quality
and overall financial condition. Furthermore, under its source of strength
doctrine, the Federal Reserve Board expects a bank holding company to serve as
a source of financial strength for its bank subsidiaries, which could limit the
ability of a holding company to pay dividends if a bank subsidiary did not have
sufficient capital.

Repurchase or Redemption of Equity Securities.A bank holding company is
required to give the Federal Reserve Board prior written notice of any purchase
or redemption of its outstanding equity securities if the gross consideration
for the purchase or redemption, when combined with the net consideration paid
for all such purchases or redemptions during the preceding 12 months, is equal
to 10% or more of its consolidated net worth. The Federal Reserve Board may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, Federal Reserve Board order, or any condition imposed by, or
written agreement with, the Federal Reserve Board. This notification
requirement does not apply to any company that meets the well-capitalized
standard for bank holding companies, has a safety and soundness examination
rating of at least a 2 and is not subject to any unresolved supervisory
issues.

Regulatory Capital Requirements. The Federal Reserve has established
risk-based measures and a leverage measure of capital adequacy for bank holding
companies. The Company was not subject to any minimum capital requirements
prior to becoming a bank holding company.

The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and
bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.

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The minimum ratio of total capital to risk-weighted assets is 8.0%. Total
capital consists of two components, Tier 1 capital and Tier 2 capital. Tier 1
capital generally consists of common shareholders equity, including retained
earnings, noncumulative perpetual preferred stock, certain trust preferred
securities and minority interest in equity accounts of fully consolidated
subsidiaries, less goodwill and other specified intangible assets. Tier 1
capital must equal at least 4.0% of risk-weighted assets. Tier 2 capital
generally consists of subordinated debt and other hybrid capital instruments,
other preferred stock, a limited amount of loan loss reserves and a limited
amount of unrealized holding gains on equity securities. The total amount of
Tier 2 capital is limited to 100% of Tier 1 capital. At December 31, 2003, our
ratio of total capital to risk-weighted assets was 18.2% and our ratio of Tier
1 capital to risk-weighted assets was 15.6%.

In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 capital to average assets, less goodwill and other specified
intangible assets, of 3.0% for bank holding companies that meet specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserves risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4.0%. At December 31, 2003, the Companys required Tier 1 capital ratio
was 4.0% and our actual Tier 1 capital was 15.3%.

The Company currently is deemed well capitalized under the Federal
Reserve Board capital requirements. To be well capitalized, a bank holding
company must have a ratio of total capital to risk weighted assets of at least
10% and a ratio of Tier 1 capital to risk weighted assets of at least 6.0%.

Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and other restrictions on its business. As
described below, significant additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements.

Bank Regulation  California Law

The regulations of the DFI govern most aspects of the Banks businesses
and operations, including, but not limited to, the scope of its business,
investments, the nature and amount of any collateral for loans, the issuance of
securities, the payment of dividends, bank expansion and bank activities. The
DFIs supervision of the Bank includes comprehensive reviews of all aspects of
the Banks business and condition, and the DFI possesses broad remedial
enforcement authority to influence the Banks operations, both formally and
informally.

Bank Regulation  Federal Law

Because our deposits are insured by the Bank Insurance Fund of the FDIC,
the FDIC, in addition to the DFI, also broadly regulates the Bank. As an
insurer of deposits, the FDIC issues regulations, conducts examinations,
requires the filing of reports, and generally supervises the operations of
institutions to which it provides deposit insurance. The FDIC is also the
federal agency charged with regulating state-chartered banks that are not
members of the Federal Reserve System, such as the Bank. Insured depository
institutions, and their institution-affiliated parties, may be subject to
potential enforcement actions by the FDIC and the DFI for unsafe or unsound
practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Management is not aware of any pending or threatened
enforcement actions against the Bank.

Regulatory Capital Requirements.Federally-insured, state-chartered banks
such as the Bank, are required to maintain minimum levels of regulatory capital
as specified in the FDICs capital maintenance regulations. The FDIC also is
authorized to impose capital requirements in excess of these standards on
individual banks on a case-by-case basis.

The Bank is required to comply with three separate minimum capital
requirements: a tier 1 capital ratio and two risk-based capital
requirements. Tier 1 capital generally includes common shareholders equity,
including retained earnings, qualifying noncumulative perpetual preferred stock
and any related surplus, and minority interests in the equity accounts of fully
consolidated subsidiaries, less intangible assets, other than properly valued
purchased mortgage servicing rights up to certain specified limits and less net
deferred tax assets in excess of certain specified limits.

Tier 1 Capital Ratio.FDIC regulations establish a minimum 3.0% ratio of
Tier 1 capital to total average assets for the most highly-rated
state-chartered, FDIC-supervised banks. All other FDIC supervised banks must
maintain at least a 4.0% tier 1 capital ratio. At December 31, 2003, the Banks
required tier 1 capital ratio was 4.0% and its actual tier 1 capital ratio was
14.2%.

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Risk-Based Capital Requirements.The risk-based capital requirements
generally require the Bank to maintain a ratio of tier 1 capital to
risk-weighted assets of at least 4.0% and a ratio of total risk-based capital
to risk-weighted assets of at least 8.0%. To calculate the amount of capital
required, assets are placed in one of four categories and given a percentage
weight (0%, 20%, 50% or 100%) based on the relative risk of the category. For
example, United States Treasury Bills and Ginnie Mae securities are placed in
the 0% risk category. Fannie Mae and Freddie Mac securities are placed in the
20% risk category, loans secured by one-to four-family residential properties
and certain privately-issued mortgage-backed securities are generally placed in
the 50% risk category, and commercial and consumer loans and other assets are
generally placed in the 100% risk category. In addition, certain
off-balance-sheet items are converted to balance sheet credit equivalent
amounts and each amount is then assigned to one of the four categories.

For purposes of the risk-based capital requirements, total capital means
tier 1 capital plus supplementary or tier 2 capital, so long as the amount of
supplementary or tier 2 capital that is used to satisfy the requirement does
not exceed the amount of tier 1 capital. Tier 2 capital includes cumulative and
certain other perpetual preferred stock, mandatory convertible subordinated
debt and perpetual subordinated debt, mandatory redeemable preferred stock,
intermediate-term preferred stock, mandatory convertible subordinated debt and
subordinated debt, the allowance for loan losses up to a maximum of 1.25% of
risk-weighted assets and a limited amount of unrealized holding gains on
securities. At December 31, 2003 the Banks tier 1 risk-based and total capital
ratios were 14.3% and 15.6%, respectively.

The federal banking agencies have adopted regulations specifying that the
agencies will include, in their evaluation of a banks capital adequacy, an
assessment of the exposure to declines in the economic value of the banks
capital due to changes in interest rates. The FDIC and the other federal
banking agencies have also promulgated final amendments to their respective
risk-based capital requirements which identify concentration of credit risk and
certain risks arising from nontraditional activities, and the management of
such risk, as important factors to consider in assessing an institutions
overall capital adequacy. The FDIC may require higher minimum capital ratios
based on certain circumstances, including where the institution has significant
risks from concentration of credit or certain risks arising from nontraditional
activities.

Prompt Corrective Action Requirements.The FDIC has implemented a system
requiring regulatory sanctions against state-chartered banks (which, for this
purpose, includes the Bank) that are not adequately capitalized, with the
sanctions growing more severe the lower the institutions capital. The FDIC has
established specific capital ratios for five separate capital categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.

An institution is treated as well capitalized if its total risk based
capital ratio is 10.0% or more, its tier 1 risk-based ratio is 6.0% or more,
its tier 1 capital ratio is 5.0% or greater, and it is not subject to any order
or directive by the FDIC to meet a specific capital level. The Bank exceeded
these requirements at December 31, 2003.

The FDIC is authorized and, under certain circumstances, required to take
certain actions against institutions that fail to meet their capital
requirements. The FDIC is generally required to take action to restrict the
activities of an undercapitalized institution. Any such institution must
submit a capital restoration plan and, until such plan is approved by the FDIC,
may not increase its assets, acquire another institution, establish a branch or
engage in any new activities, and generally may not make capital distributions.
The capital restoration plan must include a limited guaranty by the
institutions holding company.

In addition, the FDIC must appoint a receiver or conservator for an
institution, with certain limited exceptions, within 90 days after it becomes
critically undercapitalized. Any undercapitalized institution is also
subject to the general enforcement authority of the FDIC, including the
appointment of a conservator or a receiver.

The FDIC is also generally authorized to reclassify an institution into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.

Community Reinvestment Act and Fair Lending Requirements.The Bank is
subject to certain fair lending requirements and reporting obligations
involving lending operations and Community Reinvestment Act activities. Federal
banking agencies are required to evaluate the record of financial institutions
in meeting the credit needs of their local communities, including low and
moderate income neighborhoods. In addition to substantial penalties and
corrective measures that may be required for a violation of certain fair
lending laws, the federal banking agencies take compliance with such laws into
account when regulating and supervising other activities such as mergers and
acquisitions. In its most recent examination, the FDIC rated the Bank
satisfactory in complying with its Community Reinvestment Act obligations.

Fiscal and Monetary Policies.Our business and earnings are affected
significantly by the fiscal and monetary policies of the federal government and
its agencies. We are particularly affected by the policies of the Federal
Reserve Board, which regulates the

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supply of money and credit in the United States. Among the instruments of
monetary policy available to the Federal Reserve Board are (a) conducting open
market operations in United States government securities; (b) changing the
discount rates of borrowings of depository institutions, (c) imposing or
changing reserve requirements against depository institutions deposits, and
(d) imposing or changing reserve requirements against certain borrowings by
banks and their affiliates. These methods are used in varying degrees and
combinations to directly affect the availability of bank loans and deposits, as
well as the interest rates charged on loans and paid on deposits. The policies
of the Federal Reserve Board may have a material effect on the Companys
business, results of operations and financial condition.

Privacy Provisions of the Gramm-Leach-Bliley Act. Federal banking
regulators, as required under the Gramm-Leach-Bliley Act (the GLB Act), have
adopted rules limiting the ability of banks and other financial institutions to
disclose nonpublic information about consumers to nonaffiliated third parties.
The rules require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain personal
information to nonaffiliated third parties. The privacy provisions of the GLB
Act will affect how consumer information is transmitted through diversified
financial service companies and conveyed to outside vendors. The GLB Act
permits states to enact their own privacy rules which may be stricter than
those under the GLB Act. We cannot predict at this time what terms will be
considered in any proposed California privacy legislation, whether any such
proposed legislation will be enacted and if so, when such legislation may
become effective. Therefore, it is not possible at this time to assess fully
the impact of the privacy provisions on our business, results of operations or
financial condition.

Future Legislation.Various legislation, including proposals to change
substantially the financial institution regulatory system, is from time to time
introduced in Congress. This legislation may change banking statutes and our
operating environment in substantial and unpredictable ways. If enacted, this
legislation could increase or decrease the cost of doing business, limit or
expand permissible activities or affect the competitive balance among banks,
savings associations, credit unions, and other financial institutions. We
cannot predict whether any of this potential legislation will be enacted and,
if enacted, the effect that it, or any implementing regulations, would have on
our business, results of operations or financial condition.

Employees

As of December 31, 2003, we had 230 employees. Management believes that
its relations with employees are satisfactory. We are not subject to any
collective bargaining agreements.

Segment Reporting

Financial and other information regarding our operating segments is
contained in Note 20 to our audited consolidated financial statements included
in Item 8 of this report.

Internet Website

We maintain a website with the address www.itlacapital.com. The
information contained on our website is not included as a part of, or
incorporated by reference into, this Annual Report on Form 10-K. Other than an
investors own Internet access charges, we make available free of charge
through our website our Annual Report on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K, and amendments to these reports, as soon
as reasonably practicable after we have electronically filed such material
with, or furnished such material to, the Securities and Exchange Commission.

14



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##### Table of Contents






Item 2. Properties

ITLA Capital leases
approximately 82,462 square feet of office space for
its operations as shown below.

|                  |  |                                                                                  |  |                |        |              |  |                    |      | 
|----------------- |  | -------------------------------------------------------------------------------- |  | -------------- | ------ | ------------ |  | ------------------ | ---- | 
|                  |  |                                                                                  |  |                |        |              |  | Year Current Lease
|Locations         |  | Office Uses                                                                      |  | Square Footage |        | Term Expires
|                  |  |                                                                                  |  |                |        |             
|La Jolla, CA      |  | Corporate Headquarters                                                           |  |                | 17,419 |              |  |                    | 2008 | 
|La Jolla, CA      |  | Administrative and Marketing                                                     |  |                | 2,325  |              |  |                    | 2006 | 
|Glendale, CA      |  | Loan Administration/Asset Management/Bank Branch                                 |  |                | 6,257  |              |  |                    | 2006 | 
|Glendale, CA      |  | Loan Operations Division/Real Estate Lending                                     |  |                | 8,932  |              |  |                    | 2005 | 
|Del Mar, CA       |  | Real Estate Lending                                                              |  |                | 2,847  |              |  |                    | 2004 | 
|Costa Mesa, CA    |  | Bank Branch/Real Estate Lending                                                  |  |                | 3,609  |              |  |                    | 2006 | 
|San Francisco, CA |  | Bank Branch/Real Estate Lending                                                  |  |                | 5,005  |              |  |                    | 2007 | 
|Beverly Hills, CA |  | Bank Branch                                                                      |  |                | 2,218  |              |  |                    | 2005 | 
|Encino, CA        |  | Bank Branch/Information Systems Operations                                       |  |                | 5,298  |              |  |                    | 2004 | 
|San Diego, CA     |  | Bank Branch                                                                      |  |                | 3,046  |              |  |                    | 2010 | 
|Santa Monica, CA  |  | Imperial Capital Express  Loan Operations/Real Estate Lending                   |  |                | 4,991  |              |  |                    | 2004 | 
|Walnut Creek, CA  |  | Imperial Capital Express  Real Estate Lending                                   |  |                | 2,220  |              |  |                    | 2007 | 
|Century City, CA  |  | Lewis Horwitz Organization                                                       |  |                | 7,003  |              |  |                    | 2008 | 
|Encino, CA        |  | Operation Support                                                                |  |                | 3,170  |              |  |                    | 2004 | 
|Carson City, NV   |  | Bank Branch/RAL and Private Label Commercial Revolving Credit Lending Operations |  |                | 3,000  |              |  |                    | 2007 | 
|Tempe, AZ         |  | Franchise Lending Operations                                                     |  |                | 3,920  |              |  |                    | 2005 | 
|Spokane, WA       |  | Real Estate Lending                                                              |  |                | 1,202  |              |  |                    | 2006 | 

For additional information regarding our premises, see Item 8. Financial
Statements and Supplementary Data  Notes to Consolidated Financial Statements
- Note 7.

Management believes that ITLA Capitals present facilities are adequate
for its current needs, and that alternative or additional space, if necessary,
will be available on reasonable terms.




Item 3. Legal Proceedings

We are party to certain legal proceedings incidental to our business.
Management believes that the outcome of such proceedings, in the aggregate,
will not have a material effect on our business, financial condition or results
of operations.




Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2003.

15



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##### Table of Contents






PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

Our common stock is traded on the NASDAQ national market system under the
symbol ITLA. As of March 8, 2004, there were nine holders of record of our
common stock representing an estimated 1,000 beneficial shareholders with a
total of 6,268,673 shares outstanding. We have not paid any cash dividends
since our holding company reorganization in 1996. As a bank holding company,
our ability to pay dividends may be affected by regulations, including those
governing the payment of dividends by the Bank to the Company, which could be a
source of funds for any dividends paid by the Company, as well as by the
policies of the Federal Reserve Board. See Item 1. BusinessRegulation and
Note 17 to our consolidated financial statements included in Item 8 of this
report.

The following table sets forth, for the periods indicated, the range of
high and low trade prices for our common stock. Stock price data on NASDAQ
reflects inter-dealer prices, without retail mark-up, mark-down or commission.

|     |             |  |              |       |               |  |       |       |               |  |   |       |  |  |   |       | 
|---- | ----------- |  | ------------ | ----- | ------------- |  | ----- | ----- | ------------- |  | - | ----- |  |  | - | ----- | 
|     |             |  | Market Price |       |               |  |      
|     |             |  |              |       | Average Daily
|     |             |  | High         |       | Low           |  | Close |       | Closing Price
|     |             |  |              |       |               |  |       |       |              
|2003 |             |  |              |       |               |  |       |       |               |  |   |       |  |  |   |      
|     | 4th Quarter |  | $            | 51.10 |               |  | $     | 44.16 |               |  | $ | 50.10 |  |  | $ | 48.02 | 
|     | 3rd Quarter |  |              | 45.23 |               |  |       | 40.20 |               |  |   | 42.64 |  |  |   | 42.77 | 
|     | 2nd Quarter |  |              | 40.09 |               |  |       | 32.98 |               |  |   | 40.09 |  |  |   | 37.07 | 
|     | 1st Quarter |  |              | 35.29 |               |  |       | 31.23 |               |  |   | 33.04 |  |  |   | 33.18 | 
|2002 |             |  |              |       |               |  |       |       |               |  |   |       |  |  |   |      
|     | 4th Quarter |  | $            | 36.25 |               |  | $     | 26.37 |               |  | $ | 33.23 |  |  | $ | 31.36 | 
|     | 3rd Quarter |  |              | 31.25 |               |  |       | 27.18 |               |  |   | 30.19 |  |  |   | 29.66 | 
|     | 2nd Quarter |  |              | 31.15 |               |  |       | 25.05 |               |  |   | 29.69 |  |  |   | 29.25 | 
|     | 1st Quarter |  |              | 24.75 |               |  |       | 20.25 |               |  |   | 24.75 |  |  |   | 22.39 | 

The following table includes supplementary quarterly operating results and
per share information for the past two years. The data presented should be read
along with Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations and with Item 8. Financial Statements and
Supplementary Data included elsewhere in this report.

Quarterly Operations (Unaudited)

|     |                                                      |  |                                         |        |         |  |              |        |             |  |   |        |   |  |   |        | 
|---- | ---------------------------------------------------- |  | --------------------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------ | 
|     |                                                      |  | For the Quarter Ended                  
|     |                                                      |  |                                        
|     |                                                      |  | March 31                                |        | June 30 |  | September 30 |        | December 31
|     |                                                      |  |                                         |        |         |  |              |        |            
|     |                                                      |  | (in thousands except per share amounts)
|2003 |                                                      |  |                                         |        |         |  |              |        |             |  |   |        |   |  |   |       
|     | Interest income                                      |  | $                                       | 33,524 |         |  | $            | 27,911 |             |  | $ | 27,075 |   |  | $ | 27,467 | 
|     | Interest expense                                     |  |                                         | 8,433  |         |  |              | 7,873  |             |  |   | 7,115  |   |  |   | 7,446  | 
|     | Net interest income before provision for loan losses |  |                                         | 25,091 |         |  |              | 20,038 |             |  |   | 19,960 |   |  |   | 19,878 | 
|     | Provision for loan losses                            |  |                                         | 4,500  |         |  |              | 1,850  |             |  |   | 750    |   |  |   | 660    | 
|     | Non-interest income                                  |  |                                         | 12,536 |         |  |              | 1,241  |             |  |   | 777    |   |  |   | 686    | 
|     | General and administrative expense                   |  |                                         | 10,117 |         |  |              | 8,917  |             |  |   | 8,958  |   |  |   | 8,723  | 
|     | Total real estate owned expense, net                 |  |                                         | 143    |         |  |              | 51     |             |  |   | 609    |   |  |   | 409    | 
|     | Provision for income taxes                           |  |                                         | 8,326  |         |  |              | 3,525  |             |  |   | 3,473  |   |  |   | 3,622  | 
|     | Net income                                           |  |                                         | 13,022 |         |  |              | 5,490  |             |  |   | 5,406  |   |  |   | 5,716  | 
|     | Basic earnings per share                             |  | $                                       | 2.17   |         |  | $            | 0.91   |             |  | $ | 0.90   |   |  | $ | 0.94   | 
|     | Diluted earnings per share                           |  | $                                       | 2.02   |         |  | $            | 0.85   |             |  | $ | 0.83   |   |  | $ | 0.87   | 
|2002 |                                                      |  |                                         |        |         |  |              |        |             |  |   |        |   |  |   |       
|     | Interest income                                      |  | $                                       | 27,035 |         |  | $            | 26,570 |             |  | $ | 27,380 |   |  | $ | 29,623 | 
|     | Interest expense                                     |  |                                         | 10,489 |         |  |              | 9,076  |             |  |   | 8,800  |   |  |   | 8,957  | 
|     | Net interest income before provision for loan losses |  |                                         | 16,546 |         |  |              | 17,494 |             |  |   | 18,580 |   |  |   | 20,666 | 
|     | Provision for loan losses                            |  |                                         | 1,325  |         |  |              | 2,100  |             |  |   | 2,700  |   |  |   | 2,905  | 
|     | Non-interest income                                  |  |                                         | 125    |         |  |              | 102    |             |  |   | (54    | ) |  |   | 200    | 
|     | General and administrative expense                   |  |                                         | 6,318  |         |  |              | 6,312  |             |  |   | 6,459  |   |  |   | 7,943  | 
|     | Total real estate owned expense, net                 |  |                                         | 467    |         |  |              | 508    |             |  |   | 71     |   |  |   | 277    | 
|     | Provision for income taxes                           |  |                                         | 3,043  |         |  |              | 3,074  |             |  |   | 3,326  |   |  |   | 3,345  | 
|     | Net income                                           |  |                                         | 4,719  |         |  |              | 4,805  |             |  |   | 5,155  |   |  |   | 5,326  | 
|     | Basic earnings per share                             |  | $                                       | 0.79   |         |  | $            | 0.80   |             |  | $ | 0.86   |   |  | $ | 0.89   | 
|     | Diluted earnings per share                           |  | $                                       | 0.74   |         |  | $            | 0.75   |             |  | $ | 0.80   |   |  | $ | 0.84   | 

16



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##### Table of Contents






Item 6. Selected Financial Data

The following condensed consolidated statements of operations and
financial condition and selected performance ratios as of December 31, 2003,
2002, 2001, 2000, and 1999 and for the years then ended have been derived from
our audited consolidated financial statements. The information below is
qualified in its entirety by the detailed information included elsewhere herein
and should be read along with Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 8. Financial Statement
and Supplementary Data.

|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |        |           |        |           | 
|----------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------ | ------------------------------------ | ------------------------------------------ | --------- | ------------------------------------------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | 
|                                                                                                                  |                                                                                        |              |                                      |                                            |           | As of and for the years ended December 31,
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                           
|                                                                                                                  |                                                                                        |              |                                      |                                            |           | 2003                                       |           | 2002   |           | 2001   |           | 2000   |           | 1999  
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           | (in thousands except per share amount)    
|Condensed Consolidated Statements of Operations                                                                   |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Total interest income                                                                                             |                                                                                        | $            | 115,977                              |                                            |           | $                                          | 110,608   |        |           | $      | 123,095   |        |           | $      | 123,775   |        |           | $      | 101,213   |       
|Total interest expense                                                                                            |                                                                                        |              | 30,867                               |                                            |           |                                            | 37,322    |        |           |        | 63,863    |        |           |        | 68,642    |        |           |        | 48,460    |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  | Net interest income before provisions for loan losses                                  |              |                                      | 85,110                                     |           |                                            |           | 73,286 |           |        |           | 59,232 |           |        |           | 55,133 |           |        |           | 52,753 |          
|Provision for loan losses                                                                                         |                                                                                        |              | 7,760                                |                                            |           |                                            | 9,030     |        |           |        | 4,575     |        |           |        | 4,775     |        |           |        | 4,950     |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  | Net interest income after provision for loan losses                                    |              |                                      | 77,350                                     |           |                                            |           | 64,256 |           |        |           | 54,657 |           |        |           | 50,358 |           |        |           | 47,803 |          
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Non-interest income                                                                                               |                                                                                        |              | 15,240                               |                                            |           |                                            | 373       |        |           |        | 1,059     |        |           |        | 2,331     |        |           |        | 901       |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Non-interest expense:                                                                                             |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  | Compensation and benefits                                                              |              |                                      | 18,870                                     |           |                                            |           | 13,954 |           |        |           | 11,778 |           |        |           | 9,958  |           |        |           | 9,739  |          
|                                                                                                                  | Occupancy and equipment                                                                |              |                                      | 4,839                                      |           |                                            |           | 3,165  |           |        |           | 2,968  |           |        |           | 2,567  |           |        |           | 2,788  |          
|                                                                                                                  | Other general and administrative expenses                                              |              |                                      | 13,006                                     |           |                                            |           | 9,913  |           |        |           | 8,072  |           |        |           | 8,129  |           |        |           | 8,230  |          
|                                                                                                                  | Real estate owned expense, net                                                         |              |                                      | 1,212                                      |           |                                            |           | 1,323  |           |        |           | 387    |           |        |           | 138    |           |        |           | 472    |          
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  |                                                                                        |              | Total recurring non-interest expense |                                            |           | 37,927                                     |           |        |           | 28,355 |           |        |           | 23,205 |           |        |           | 20,792 |           |        |           | 21,229 |          
|                                                                                                                  | Nonrecurring expense                                                                   |              |                                      |                                           |           |                                            |           |       |           |        |           |       |           |        |           | 1,400  | (1)       |        |           |       |          
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  |                                                                                        |              | Total non-interest expense           |                                            |           | 37,927                                     |           |        |           | 28,355 |           |        |           | 23,205 |           |        |           | 22,192 |           |        |           | 21,229 |          
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  | Income before provision for income taxes and minority
interest in income of subsidiary |              |                                      | 54,663                                     |           |                                            |           | 36,274 |           |        |           | 32,511 |           |        |           | 30,497 |           |        |           | 27,475 |          
|                                                                                                                  | Minority interest in income of subsidiary(2)(3)                                        |              |                                      | 6,083                                      |           |                                            |           | 3,481  |           |        |           | 2,967  |           |        |           | 478    |           |        |           |       |          
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  | Income before provision for income taxes                                               |              |                                      | 48,580                                     |           |                                            |           | 32,793 |           |        |           | 29,544 |           |        |           | 30,019 |           |        |           | 27,475 |          
|Provision for income taxes                                                                                        |                                                                                        |              | 18,946                               |                                            |           |                                            | 12,788    |        |           |        | 11,393    |        |           |        | 11,880    |        |           |        | 11,270    |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|NET INCOME                                                                                                        |                                                                                        | $            | 29,634                               |                                            |           | $                                          | 20,005    |        |           | $      | 18,151    |        |           | $      | 18,139    |        |           | $      | 16,205    |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|BASIC EARNINGS PER SHARE                                                                                          |                                                                                        | $            | 4.91                                 |                                            |           | $                                          | 3.35      |        |           | $      | 2.82      |        |           | $      | 2.57      |        |           | $      | 2.26      |       
|DILUTED EARNINGS PER SHARE                                                                                        |                                                                                        | $            | 4.55                                 |                                            |           | $                                          | 3.16      |        |           | $      | 2.72      |        |           | $      | 2.51      |        |           | $      | 2.21      |       
|Dividends paid                                                                                                    |                                                                                        | $            |                                     |                                            |           | $                                          |          |        |           | $      |          |        |           | $      |          |        |           | $      |          |       
|Condensed Consolidated Statements of Financial Condition                                                          |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Cash and cash equivalents                                                                                         |                                                                                        | $            | 178,318                              |                                            |           | $                                          | 160,848   |        |           | $      | 134,241   |        |           | $      | 70,950    |        |           | $      | 72,242    |       
|Investment securities available for sale, at fair value                                                           |                                                                                        |              | 53,093                               |                                            |           |                                            | 54,677    |        |           |        | 29,411    |        |           |        | 46,325    |        |           |        | 59,247    |       
|Stock in Federal Home Loan Bank                                                                                   |                                                                                        |              | 17,966                               |                                            |           |                                            | 16,934    |        |           |        | 13,464    |        |           |        | 3,963     |        |           |        | 8,894     |       
|Loans, net                                                                                                        |                                                                                        |              | 1,436,849                            |                                            |           |                                            | 1,316,298 |        |           |        | 1,122,370 |        |           |        | 1,045,927 |        |           |        | 951,480   |       
|Real estate loans held in trust, net                                                                              |                                                                                        |              | 68,575                               |                                            |           |                                            | 121,936   |        |           |        | 162,158   |        |           |        | 211,722   |        |           |        |          |       
|Interest receivable                                                                                               |                                                                                        |              | 8,958                                |                                            |           |                                            | 9,158     |        |           |        | 11,144    |        |           |        | 11,821    |        |           |        | 7,383     |       
|Other real estate owned, net                                                                                      |                                                                                        |              | 7,048                                |                                            |           |                                            | 12,593    |        |           |        | 13,741    |        |           |        | 2,250     |        |           |        | 1,041     |       
|Premises and equipment, net                                                                                       |                                                                                        |              | 5,766                                |                                            |           |                                            | 4,197     |        |           |        | 2,177     |        |           |        | 2,690     |        |           |        | 3,253     |       
|Deferred income taxes                                                                                             |                                                                                        |              | 11,609                               |                                            |           |                                            | 13,822    |        |           |        | 11,869    |        |           |        | 11,302    |        |           |        | 9,401     |       
|Goodwill                                                                                                          |                                                                                        |              | 3,118                                |                                            |           |                                            | 3,118     |        |           |        |          |        |           |        |          |        |           |        |          |       
|Other assets                                                                                                      |                                                                                        |              | 26,915                               |                                            |           |                                            | 8,384     |        |           |        | 7,733     |        |           |        | 8,193     |        |           |        | 2,882     |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  |                                                                                        | Total Assets |                                      | $                                          | 1,818,215 |                                            |           | $      | 1,721,965 |        |           | $      | 1,508,308 |        |           | $      | 1,415,143 |        |           | $      | 1,115,823 |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Deposit accounts                                                                                                  |                                                                                        | $            | 1,147,017                            |                                            |           | $                                          | 1,065,911 |        |           | $      | 953,654   |        |           | $      | 1,015,699 |        |           | $      | 913,613   |       
|Collateralized mortgage obligations                                                                               |                                                                                        |              | 15,868                               |                                            |           |                                            | 69,077    |        |           |        | 109,648   |        |           |        | 161,852   |        |           |        |          |       
|Federal Home Loan Bank advances                                                                                   |                                                                                        |              | 362,135                              |                                            |           |                                            | 338,685   |        |           |        | 269,285   |        |           |        | 79,250    |        |           |        | 67,250    |       
|Account payable and other liabilities                                                                             |                                                                                        |              | 19,696                               |                                            |           |                                            | 10,006    |        |           |        | 9,674     |        |           |        | 11,269    |        |           |        | 11,265    |       
|Junior subordinated debentures (3)                                                                                |                                                                                        |              | 86,600                               |                                            |           |                                            |          |        |           |        |          |        |           |        |          |        |           |        |          |       
|Guaranteed preferred beneficial interests in the
Companys junior subordinated deferrable interest
debentures (3) |                                                                                        |              |                                     |                                            |           |                                            | 81,595    |        |           |        | 28,118    |        |           |        | 13,519    |        |           |        |          |       
|Shareholders equity                                                                                              |                                                                                        |              | 186,899                              |                                            |           |                                            | 156,691   |        |           |        | 137,929   |        |           |        | 133,554   |        |           |        | 123,695   |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|                                                                                                                  |                                                                                        |              |                                      | Total Liabilities and Shareholders Equity |           | $                                          | 1,818,215 |        |           | $      | 1,721,965 |        |           | $      | 1,508,308 |        |           | $      | 1,415,143 |        |           | $      | 1,115,823 | 
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       
|Book value per share                                                                                              |                                                                                        | $            | 31.30                                |                                            |           | $                                          | 27.11     |        |           | $      | 23.54     |        |           | $      | 20.05     |        |           | $      | 17.22     |       
|                                                                                                                  |                                                                                        |              |                                      |                                            |           |                                            |           |        |           |        |           |        |           |        |           |        |           |        |           |       



---

|(1) |  | Represents expenses related to the consolidation of the Banks
headquarters with ITLA Capitals headquarters in La Jolla, California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Represents accrued distributions payable on our trust preferred
securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|   
|   
|   
|(3) |  | As a result of our adoption as of December 31, 2003 of revised
Interpretation No. 46 issued by the Financial Accounting Standards Board,
we de-consolidated our trust subsidiaries which issued our trust preferred
securities. The effect of this was to recognize investments in our trust
subsidiaries in other assets, to report the amount of junior subordinated
debentures we issued to these trusts as a liability in our consolidated
balance sheet and to recognize the interest expense on the junior
subordinated debentures in our consolidated statement of income. Prior to
the de-consolidation, we reported our trust preferred securities in

17



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##### Table of Contents



| |  | the mezzanine section of our balance sheet as guaranteed preferred
beneficial interests in the Companys junior subordinated deferrable interest
debentures and recognized distributions paid to the holders of the trust
preferred securities as minority interest in income of subsidiary in our
consolidated statement of income. See Note 1 to our consolidated financial
statements included in Item 8 of this report.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                |  |                                            |        |      |  |      |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------- |  | ------------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                                |  | As of and for the years ended December 31,
|                                                                                |  |                                           
|                                                                                |  | 2003                                       |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                                                |  |                                            |        |      |  |      |        |      |  |     
|Selected Performance Ratios                                                     |  |                                            |        |      |  |      |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Return on average assets                                                        |  |                                            | 1.71   | %    |  |      | 1.41   | %    |  |      | 1.32   | % |  |  | 1.47   | % |  |  | 1.57   | %
|Return on average shareholders equity                                          |  |                                            | 16.88  | %    |  |      | 13.56  | %    |  |      | 13.28  | % |  |  | 13.95  | % |  |  | 14.23  | %
|Net interest margin (1)                                                         |  |                                            | 5.03   | %    |  |      | 5.30   | %    |  |      | 4.33   | % |  |  | 4.47   | % |  |  | 5.11   | %
|Average interest-earning assets to average
interest bearing liabilities         |  |                                            | 135.03 | %    |  |      | 113.94 | %    |  |      | 113.80 | % |  |  | 113.49 | % |  |  | 113.74 | %
|Efficiency ratio (2)                                                            |  |                                            | 37.79  | %    |  |      | 38.50  | %    |  |      | 38.49  | % |  |  | 38.62  | % |  |  | 39.57  | %
|Efficiency ratio excluding real estate
operations and nonrecurring expense, net |  |                                            | 36.59  | %    |  |      | 36.70  | %    |  |      | 37.85  | % |  |  | 35.94  | % |  |  | 38.69  | %
|Total recurring general and administrative
expense to average assets            |  |                                            | 2.29   | %    |  |      | 1.90   | %    |  |      | 1.66   | % |  |  | 1.78   | % |  |  | 2.01   | %
|Average shareholders equity to average assets                                  |  |                                            | 11.16  | %    |  |      | 10.36  | %    |  |      | 9.93   | % |  |  | 10.86  | % |  |  | 11.01  | %
|Nonperforming assets to total assets                                            |  |                                            | 0.86   | %    |  |      | 1.08   | %    |  |      | 1.92   | % |  |  | 1.44   | % |  |  | 0.81   | %
|Allowance for loan losses to loans held for
investment, net (3)                 |  |                                            | 2.14   | %    |  |      | 2.31   | %    |  |      | 2.16   | % |  |  | 2.12   | % |  |  | 2.05   | %
|Allowance for loan loss to nonaccrual loans                                     |  |                                            | 392.26 | %    |  |      | 555.61 | %    |  |      | 174.30 | % |  |  | 149.85 | % |  |  | 249.40 | %
|Net charge-offs (recoveries) to average loans
held for investment, net          |  |                                            | 0.52   | %    |  |      | 0.36   | %    |  |      | 0.39   | % |  |  | 0.18   | % |  |  | 0.20   | %



---

|(1) |  | Net interest margin represents net interest income divided by total
average interest-earning assets.                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Efficiency ratio represents non-interest expense divided by non-interest
income and net interest income before provision for loan losses.
|   
|   
|   
|   
|(3) |  | Loans before allowance for loan losses and net of unearned finance
charges and loan fees.                                                




Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

Application of Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies followed by the Company conform, in
all material respects, to accounting principles generally accepted in the
United States and to general practices within the financial services industry.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. While the Company bases estimates on
historical experience, current information and other factors deemed to be
relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial
results if (i) the accounting estimate requires management to make assumptions
about matters that are highly uncertain and (ii) different estimates that
management reasonably could have used for the accounting estimate in the
current period, or changes in the accounting estimate that are reasonably
likely to occur from period to period, could have a material impact on the
Companys financial statements. Accounting polices related to the allowance for
loan losses are considered to be critical, as these policies involve
considerable subjective judgment and estimation by management. The Company also
considers accounting policies related to stock-based compensation to be
critical due to the continuously evolving standards, changes to which could
materially impact the way the Company accounts for stock options. We also
consider our accounting polices related to our tax refund lending program and
other real estate owned to be critical due to the potential significance of
these activities and the estimates involved. Critical accounting policies, and
the Companys procedures related to these policies, are described in detail
below. Also see Note 1  Organization and Summary of Significant Accounting
Policies in the accompanying notes to the consolidated financial statements
included elsewhere in this report.

Allowance for Loan Losses (ALL).Our management assesses the adequacy of
the ALL prior to the end of each calendar quarter. This assessment includes
procedures to estimate the allowance and test the adequacy and appropriateness
of the resulting balance.

18



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We establish the ALL amount separately for two different risk groups
(1) individual loans (loans with specifically identifiable risks); and (2)
homogeneous loans (groups of loan with similar characteristics). We base the
allocation for specific loans primarily on risk rating grades assigned to each
of these loans as a result of our loan management and review processes. We then
assign each risk-rating grade a loss ratio, which is determined based on the
experience of management and our independent loan review process. We estimate
losses on impaired loans based on estimated cash flows discounted at the loans
original effective interest rate or based on the underlying collateral value.
Based on managements experience, we also assign loss ratios to groups of
loans. These loss ratios are assigned to the various homogenous categories of
the portfolio.

We then test the resulting ALL balance by comparing the balance in the ALL
to historical trends and peer information. Our management then evaluates the
result of the procedures performed, including the result of our testing, and
concludes on the appropriateness of the balance of the ALL in its entirety.

Stock-based Compensation.The Company accounts for stock-based employee
compensation plans based on the intrinsic value method provided in Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Because the exercise price of the
Companys employee and director stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized on
options granted.

SFAS No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS 148, requires pro forma disclosures of net income and earnings per share
for companies not adopting its fair value accounting method for stock-based
employee compensation. The pro forma disclosures presented in Note 1 -
Organization and Summary of Significant Accounting Policies in the accompanying
notes to consolidated financial statements included elsewhere in this report
use the fair value method of SFAS 123 to measure compensation expense for
stock-based employee compensation plans. The fair value of stock options
granted was estimated at the date of grant using the Black-Scholes
option-pricing model. This model was developed for use in estimating the fair
value of publicly traded options that have no vesting restrictions and are
fully transferable. Additionally, the model requires the input of highly
subjective assumptions. Because the Companys employee and director stock
options have characteristics significantly different from those of publicly
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the
Black-Scholes option-pricing model does not necessarily provide a reliable
single measure of the fair value of the Companys employee stock options.

Tax Refund Lending.In connection with our agreement with Household
related to the RAL program, we originate tax refund anticipation loans and sell
a non-recourse interest to Household. The non-recourse interest sold represents
substantially all of the outstanding loan balance. Premiums earned on the sale
of these loans are recorded as income at the time the loans are sold to
Household.

Other Real Estate Owned.Properties acquired through foreclosure, or in
lieu of foreclosure, are transferred to the other real estate owned portfolio
and is initially recorded at estimated fair value less the estimated costs to
sell the property. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of cost or
estimated fair value less the estimated costs of disposition. The fair value of
other real estate owned is generally determined from appraisals obtained from
independent appraisers.

Adoption of Recent Accounting Pronouncements

In November 2002, Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provisions for FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002, and were included in the
Companys financial statements for the years ended December 31, 2003.
Implementation of the provisions of FIN 45 did not have a material impact on
the Companys financial statements.

19



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##### Table of Contents



In January 2003, FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 establishes the criteria
used to identify variable interest entities and to determine whether or not to
consolidate a variable interest entity. The Company adopted FIN 46 at December
31, 2003. In accordance therewith, the Company deconsolidated its trusts
subsidiaries. The result was to recognize investments in the trusts in other
assets, and to report the amount of subordinated debentures issued by the Company
to the trusts subsidiaries in the liability section of the Companys
consolidated balance sheet. In addition, beginning January 1, 2004, the
Company will recognize the interest expense on the subordinated debentures in
the consolidated statements of income. Prior to FIN 46, the Company
consolidated its trusts subsidiaries and reported trust preferred securities in
the mezzanine section of the Companys consolidated balance sheets and
recognized the proportionate share of income attributable to the preferred
shareholders as minority interest in income of subsidiary in the consolidated
statements of income. This interpretation was effective immediately for
variable interest entities created after January 31, 2003 and was initially to
be effective for variable interest entities acquired prior to February 1, 2003,
in the quarter ended September 30, 2003. Effective October 9, 2003, the FASB
agreed to defer the effective date of FIN 46 for variable interests held by
public companies in all entities that were acquired prior to February 1, 2003.
The deferral required public companies to adopt the provisions of FIN 46 for
periods ended after December 15, 2003. Adoption of FIN 46, as revised, did not
have a material impact on the results of operations or financial position, but
will affect net interest income, our efficiency ratios and our net interest
spread. As a result of the adoption of FIN 46 at December 31, 2003, financial
information prior to the adoption has not been restated.

On May 15, 2003, FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
150 modifies the accounting for certain financial instruments that issuers
could account for as equity. Under SFAS 150, those instruments with
characteristics of both liabilities and equity must be classified as
liabilities in the consolidated balance sheets, with the corresponding payments
to holders of the instruments recognized as interest expense.

The reporting requirements of SFAS 150 are effective July 1, 2003. On
October 29, 2003, the FASB agreed to defer provisions related to mandatory
redeemable financial instruments to periods beginning after December 15, 2004.
The adoption SFAS 150 did not have a material impact on the results of
operations or the financial position of the Company.

General

The following discussion and analysis reviews the financial condition and
results of our consolidated operations, including our consolidated
subsidiaries: Imperial Capital Bank and Imperial Capital Real Estate Investment
Trust.

The following discussion and analysis is intended to identify the major
factors that influenced our financial condition as of December 31, 2003 and
2002 and our results of operations for the years ended December 31, 2003, 2002
and 2001. Our primary business involves the origination and purchase of loans
secured by income producing real estate, located predominately in California
and, to a lesser extent, the origination and purchase of franchise loans and
the origination of film finance loans.

Consolidated net income in 2003 was $29.6 million, or $4.55 per diluted
share, compared to $20.0 million, or $3.16 per diluted share in 2002 and $18.2
million, or $2.72 per diluted share in 2001. The increase in net income in
2003 was primarily due to an increase in net interest income to $85.1 million
for 2003 as compared to $73.3 million in 2002, and an increase in non-interest
income to $15.2 million for 2003 as compared to $373,000 for 2002. These
increases were partially offset by a $9.6 million increase in non-interest
expense, a $2.6 million increase in minority interest in income of subsidiary,
and a $6.2 million increase in provision for income taxes.

The increase in net income in 2002 was primarily due to an increase in net
interest income to $73.3 million for 2002 as compared to $59.2 million in 2001.
This increase was partially offset by a $4.5 million increase in provision for
loan losses and a $5.2 million increase in non-interest expense.

Total loan production including the unfunded portion of construction loans
was $794.8 million for the year ended December 31, 2003, as compared to $666.9
million and $502.1 million for the years ended December 31, 2002 and 2001. Loan
production in 2003 consisted of real estate loan originations of $646.7
million, the origination of $90.5 million of film finance loans and the
origination and purchase of $57.6 million of franchise loans.

Our average total assets increased approximately 21.5% during 2003 to $1.7
billion. Average deposit accounts totaled $1.0 billion in 2003 compared to
$931.4 million in 2002, an increase of $79.6 million, or 8.6%. FHLB advances
averaged $201.4 million in 2003, compared to $194.2 million in 2002, an
increase of $7.2 million, or 3.7%. The average balance of the CMOs was $44.7
million during 2003 compared to $88.5 million in 2002 reflecting repayments of
loans held in trust.

20



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##### Table of Contents



As discussed further in the new accounting pronouncement section above, we
deconsolidated our trusts subsidiaries as of December 31, 2003. As a result, we
recorded the $86.6 million of underlying debentures issued by us to the trusts
subsidiaries as Junior subordinated debentures and $2.6 million of our
investment in the trusts and $2.1 million of deferred debt issuance costs as
Other assets in the consolidated balance sheet at December 31, 2003. Further
discussion of the trust subsidiaries and related junior subordinated debentures
is included in Notes 1 and 10 to the consolidated financial statements included
in Item 8 of this report.

Results of Operations

Net Interest Income

The following table presents, for the periods indicated, our condensed
average balance sheet information, 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.

|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |      |  
|----------------------------------------------------- | ------------------------------------------ | - | ------------------------ | --------- | ------- | - | ------- | ------- | ------- |  | ------- | ---- | ------ | - | --------- | --------- | ------- | - | ------- | ------- |  |  | ---- | ---- | - | - | --------- | --------- |  | - | ------- | ------- |  |  | ---- | ---- | -
|                                                      |                                            |   | Years Ended December 31,
|                                                      |                                            |   |                         
|                                                      |                                            |   | 2003                     |           | 2002    |   | 2001   
|                                                      |                                            |   |                          |           |         |   |        
|                                                      |                                            |   | Average                  |           | Income/ |   | Yield/  |         | Average |  | Income/ |      | Yield/ |   | Average   |           | Income/ |   | Yield/ 
|                                                      |                                            |   | Balance                  |           | Expense |   | Rate    |         | Balance |  | Expense |      | Rate   |   | Balance   |           | Expense |   | Rate   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |        
|                                                      |                                            |   | (dollars in thousands)  
|Assets                                                |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Cash and investment securities                        |                                            | $ | 277,832                  |           |         | $ | 5,399   |         |         |  | 1.94    | %    |        | $ | 77,384    |           |         | $ | 3,475   |         |  |  | 4.49 | %    |   | $ | 73,823    |           |  | $ | 3,192   |         |  |  | 4.32 | %   
|Real estate loans (1)                                 |                                            |   | 1,145,177                |           |         |   | 89,327  |         |         |  | 7.80    | %    |        |   | 1,083,645 |           |         |   | 91,066  |         |  |  | 8.40 | %    |   |   | 1,072,792 |           |  |   | 102,233 |         |  |  | 9.53 | %   
|Real
estate loans held in trust (1)                   |                                            |   | 97,698                   |           |         |   | 5,980   |         |         |  | 6.12    | %    |        |   | 143,705   |           |         |   | 10,239  |         |  |  | 7.13 | %    |   |   | 189,349   |           |  |   | 14,954  |         |  |  | 7.90 | %   
|Franchise
loans (1)                                   |                                            |   | 66,101                   |           |         |   | 4,772   |         |         |  | 7.22    | %    |        |   | 60,492    |           |         |   | 4,479   |         |  |  | 7.40 | %    |   |   | 32,956    |           |  |   | 2,716   |         |  |  | 8.24 | %   
|Motion
picture financing (1)                          |                                            |   | 99,104                   |           |         |   | 7,433   |         |         |  | 7.50    | %    |        |   | 18,060    |           |         |   | 1,349   |         |  |  | 7.47 | %    |   |   |          |           |  |   |        |         |  |  |     |     
|Commercial
and other loans (1)                        |                                            |   | 7,732                    |           |         |   | 3,066   |         |         |  | 39.65   | %    |        |   |          |           |         |   |        |         |  |  |     |      |   |   |          |           |  |   |        |         |  |  |     |     
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                      | Total loans receivable                     |   |                          | 1,415,812 |         |   |         | 110,578 |         |  |         | 7.81 | %      |   |           | 1,305,902 |         |   |         | 107,133 |  |  |      | 8.20 | % |   |           | 1,295,097 |  |   |         | 119,903 |  |  |      | 9.26 | %
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Total interest earning assets                         |                                            |   | 1,693,644                |           |         | $ | 115,977 |         |         |  | 6.85    | %    |        |   | 1,383,286 |           |         | $ | 110,608 |         |  |  | 8.00 | %    |   |   | 1,368,920 |           |  | $ | 123,095 |         |  |  | 8.99 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Non-interest-earning assets                           |                                            |   | 70,226                   |           |         |   |         |         |         |  |         |      |        |   | 70,468    |           |         |   |         |         |  |  |      |      |   |   | 34,218    |           |  |   |         |         |  |  |      |     
|Allowance for loan losses                             |                                            |   | (33,508                  | )         |         |   |         |         |         |  |         |      |        |   | (30,071   | )         |         |   |         |         |  |  |      |      |   |   | (26,835   | )         |  |   |         |         |  |  |      |     
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                      | Total assets                               |   | $                        | 1,730,362 |         |   |         |         |         |  |         |      |        |   | $         | 1,423,683 |         |   |         |         |  |  |      |      |   |   | $         | 1,376,303 |  |   |         |         |  |  |      |      |  
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Liabilities and Shareholders Equity                  |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Interest bearing deposit accounts:                    |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Interest demand accounts                              |                                            | $ | 12,571                   |           |         | $ | 136     |         |         |  | 1.08    | %    |        | $ |          |           |         | $ |        |         |  |  |     |      |   | $ |          |           |  | $ |        |         |  |  |     |     
|Money market and passbook accounts                    |                                            |   | 162,638                  |           |         |   | 2,551   |         |         |  | 1.57    | %    |        |   | 151,258   |           |         |   | 2,873   |         |  |  | 1.90 | %    |   |   | 119,022   |           |  |   | 4,767   |         |  |  | 4.01 | %   
|Time certificates                                     |                                            |   | 832,873                  |           |         |   | 21,929  |         |         |  | 2.63    | %    |        |   | 780,168   |           |         |   | 26,476  |         |  |  | 3.39 | %    |   |   | 841,002   |           |  |   | 48,097  |         |  |  | 5.72 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                      | Total interest bearing deposit accounts    |   |                          | 1,008,082 |         |   |         | 24,616  |         |  |         | 2.44 | %      |   |           | 931,426   |         |   |         | 29,349  |  |  |      | 3.15 | % |   |           | 960,024   |  |   |         | 52,864  |  |  |      | 5.51 | %
|Collateralize mortgage obligations                    |                                            |   | 44,767                   |           |         |   | 1,076   |         |         |  | 2.40    | %    |        |   | 88,485    |           |         |   | 2,301   |         |  |  | 2.60 | %    |   |   | 139,267   |           |  |   | 6,209   |         |  |  | 4.46 | %   
|FHLB Advances                                         |                                            |   | 201,419                  |           |         |   | 5,175   |         |         |  | 2.57    | %    |        |   | 194,160   |           |         |   | 5,672   |         |  |  | 2.92 | %    |   |   | 103,675   |           |  |   | 4,790   |         |  |  | 4.62 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Total interest bearing liabilities                    |                                            |   | 1,254,268                |           |         | $ | 30,867  |         |         |  | 2.46    | %    |        |   | 1,214,071 |           |         | $ | 37,322  |         |  |  | 3.07 | %    |   |   | 1,202,966 |           |  | $ | 63,863  |         |  |  | 5.31 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Non-interest bearing demand accounts                  |                                            |   | 2,973                    |           |         |   |         |         |         |  |         |      |        |   |          |           |         |   |         |         |  |  |      |      |   |   |          |           |  |   |         |         |  |  |      |     
|Other non-interest bearing liabilities                |                                            |   | 297,549                  |           |         |   |         |         |         |  |         |      |        |   | 62,080    |           |         |   |         |         |  |  |      |      |   |   | 36,644    |           |  |   |         |         |  |  |      |     
|Shareholders equity                                  |                                            |   | 175,572                  |           |         |   |         |         |         |  |         |      |        |   | 147,532   |           |         |   |         |         |  |  |      |      |   |   | 136,693   |           |  |   |         |         |  |  |      |     
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|                                                      | Total liabilities and shareholders equity |   | $                        | 1,730,362 |         |   |         |         |         |  |         |      |        |   | $         | 1,423,683 |         |   |         |         |  |  |      |      |   |   | $         | 1,376,303 |  |   |         |         |  |  |      |      |  
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Net interest spread (2)                               |                                            |   |                          |           |         |   |         |         |         |  | 4.39    | %    |        |   |           |           |         |   |         |         |  |  | 4.93 | %    |   |   |           |           |  |   |         |         |  |  | 3.68 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Net interest income before provisions for loan losses |                                            |   |                          |           |         | $ | 85,110  |         |         |  |         |      |        |   |           |           |         | $ | 73,286  |         |  |  |      |      |   |   |           |           |  | $ | 59,232  |         |  |  |      |     
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     
|Net interest margin (3)                               |                                            |   |                          |           |         |   |         |         |         |  | 5.03    | %    |        |   |           |           |         |   |         |         |  |  | 5.30 | %    |   |   |           |           |  |   |         |         |  |  | 4.33 | %   
|                                                      |                                            |   |                          |           |         |   |         |         |         |  |         |      |        |   |           |           |         |   |         |         |  |  |      |      |   |   |           |           |  |   |         |         |  |  |      |     



---

|(1) |  | Before allowance for loan losses and net of deferred loan fees and costs.
Net loan fee amortization of $2.4 million, $1.7 million and $1.3 million
was included in net interest income for 2003, 2002 and 2001, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Average yield on interest-earning assets minus average rate paid on
interest-bearing liabilities.                                                                                                                            
|   
|   
|   
|   
|(3) |  | Net interest income divided by total average interest-earning assets.                                                                                                                                                        

Our primary source of revenue is net interest income. Our net interest
income is affected by (a) the difference between the yields recognized on
interest-earning assets, including loans and investments, and the interest
rates paid on interest-bearing liabilities, which is referred to as net
interest spread, and (b) the relative amounts of interest-earning assets and
interest-bearing liabilities. As of December 31, 2003, 2002 and 2001, our ratio
of average interest-earning assets to average interest-bearing liabilities was
135.03%, 113.93% and 113.80%, respectively.

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##### Table of Contents



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 and changes in average interest rates.
The change in interest due to both volume and rate has been allocated to change
due to volume and rate in proportion to the relationship of the absolute dollar
amounts of each.

|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |         |        |         |        | 
|-------------------------------------------- | ----------------------------------- | ------------------------------- | --------------------------------------------- | --------------------------------------- | ------ | ------------------- | ------ | ------------------- | ------ | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | --- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------- | ------ | 
|                                             |                                     |                                 |                                               |                                         |        | 2003 vs. 2002       |        | 2002 vs. 2001      
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                    
|                                             |                                     |                                 |                                               |                                         |        | Increase (Decrease) |        | Increase (Decrease)
|                                             |                                     |                                 |                                               |                                         |        | Due to:             |        | Due to:            
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                    
|                                             |                                     |                                 |                                               |                                         |        | Volume              |        | Rate                |        | Total  |       | Volume |        | Rate   |        | Total 
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |       
|                                             |                                     |                                 |                                               |                                         |        | (in thousands)     
|Interest and fees earned on:                 |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|                                             |                                     | Loans, net                      |                                               | $                                       | 12,373 |                     |        | $                   | (4,669 | )      |       | $      | 7,704  |        |        | $      | 4,695  |     |         | $       | (12,750 | )       |         | $       | (8,055 | )      
|                                             |                                     | Cash and investment securities  |                                               |                                         | 3,894  |                     |        |                     | (1,970 | )      |       |        | 1,924  |        |        |        | 159    |     |         |         | 124     |         |         |         | 283    |        
|                                             |                                     | Real estate loans held in trust |                                               |                                         | (2,810 | )                   |        |                     | (1,449 | )      |       |        | (4,259 | )      |        |        | (3,256 | )   |         |         | (1,459  | )       |         |         | (4,715 | )      
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|Total increase (decrease) in interest income |                                     |                                 | 13,457                                        |                                         |        |                     | (8,088 | )                   |        |        | 5,369 |        |        |        | 1,598  |        |        |     | (14,085 | )       |         |         | (12,487 | )      
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|Interest paid on:                            |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|                                             | Deposit accounts                    |                                 |                                               | 1,944                                   |        |                     |        | (6,677              | )      |        |       | (4,733 | )      |        |        | (899   | )      |     |         | (22,616 | )       |         |         | (23,515 | )     
|                                             | Collateralized mortgage obligations |                                 |                                               | (1,048                                  | )      |                     |        | (177                | )      |        |       | (1,225 | )      |        |        | (1,319 | )      |     |         | (2,589  | )       |         |         | (3,908  | )     
|                                             | FHLB advances                       |                                 |                                               | 186                                     |        |                     |        | (683                | )      |        |       | (497   | )      |        |        | 2,644  |        |     |         | (1,762  | )       |         |         | 882     |       
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|                                             |                                     |                                 | Total increase (decrease) in interest expense |                                         |        | 1,082               |        |                     |        | (7,537 | )     |        |        | (6,455 | )      |        |        | 426 |         |         |         | (26,967 | )       |         |        | (26,541 | )     
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        
|                                             |                                     |                                 |                                               | Increase (decrease) net interest income |        | $                   | 12,375 |                     |        | $      | (551  | )      |        | $      | 11,824 |        |        | $   | 1,172   |         |         | $       | 12,882  |         |        | $       | 14,054 | 
|                                             |                                     |                                 |                                               |                                         |        |                     |        |                     |        |        |       |        |        |        |        |        |        |     |         |         |         |         |         |        

2003 Compared to 2002

Net interest income before provision for loan losses increased to $85.1
million for the year ended December 31, 2003, compared to $73.3 million for the
prior year, an increase of 16.1%. This increase was due primarily to increased
net interest income of the Bank offset by the decline in the net interest
income of the REIT. The Banks net interest income improved from the prior year
primarily as a result of the increase in the average balance of loans
outstanding and a decline in the average cost of funds due to its interest
bearing liabilities repricing to lower current market interest rates. The
increase in the Banks net interest income was partially offset by a decline in
the yield of its loan portfolio as higher yielding loans were repaid and
replaced by new loan production at lower current market interest rates.

The average yield on our total loan portfolio was 7.81% in 2003 compared
to 8.20% in 2002. Our commercial real estate loan portfolio is primarily
composed of adjustable rate mortgages indexed to six month LIBOR with interest
rate floors, below which the loans contractual interest rate may not adjust.
Approximately 95.4% of our real estate loan portfolio (including real estate
loans held in trust) was comprised of adjustable rate mortgages at December 31,
2003. These adjustable rate mortgages generally re-price on a quarterly basis
and, as of December 31, 2003, approximately $1.3 billion or 96.5% of our real
estate loan portfolio contained interest rate floors, below which the loans
contractual interest rate may not adjust. At December 31, 2003, the weighted
average floor interest rate of these loans was 6.83%. At that date,
approximately $1.2 billion or 93.6% of those loans were at the floor interest
rate.

Net interest income was also positively impacted by an increased interest
income from cash and investment securities as a result of increased liquidity
in connection with the Banks RAL program with Household.

The net interest income of the REIT declined from the prior year as a
result of the reduction in the average balance of its loan portfolio, caused by
a significant increase in loan prepayments, and a decline in its net interest
spread due to its assets repricing to lower current market interest rates
slightly faster than its liabilities.

Interest expense on interest-bearing liabilities decreased $6.5 million or
17.3% to $30.9 million in 2003 compared to $37.3 million in 2002 primarily due
to a decrease in interest expense on deposits and CMOs. Interest expense from
deposit accounts decreased $4.7 million or 16.1% to $24.6 million in 2003
compared to $29.3 million in 2002 due to decreases in the average rate paid on
deposits as a result of lower market interest rates and the growth in retail
non-interest bearing demand deposits in 2003. The average rate paid on
deposits was 2.44% in 2003 compared to 3.15% in 2002.

Interest expense from the CMOs decreased $1.2 million or 53.2% to $1.1
million in 2003 as compared to $2.3 million in 2002. The decrease was primarily
due to a decrease in rates paid on CMOs, as well as a decline in average
balance of CMOs. The average balance and average yield on the CMOs was $44.8
million and 2.40%, respectively, in 2003 as compared to $88.5 million and 2.60%
in 2002, respectively.

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Interest expense from FHLB advances decreased $497,000 to $5.2 million in
2003 compared to $5.7 million in 2002, due to a decrease in the average rate
paid on FHLB advances. The average balance of FHLB advances increased $7.3
million or 3.7% to $201.4 million in 2003 compared to $194.2 million in 2002.
The average rate paid on FHLB advances was 2.57% in 2003 compared to 2.92% in
2002. We have used our borrowing capacity under our FHLB credit line to take
advantage of the current favorable short-term rate environment through
effective liability management, which has lowered our cost of funds and
enhanced our net interest income.

Provision for Loan losses

Provision for loan losses decreased to $7.8 million in 2003 compared to
$9.0 million in 2002. The current period provision for loan losses was
recorded to provide reserves adequate to support the known and inherent risk of
loss in the loan portfolio, and reflects the overall decline in total
non-performing loans and other loans of concern from $41.4 million at December
31, 2002 to $39.8 million at December 31, 2003. See also Credit Risk Elements
 Allowance for Loan Losses and Nonperforming Assets.

Non-interest Income

Non-interest income increased $14.9 million to $15.2 million in 2003
compared to $0.4 million in 2002. The increase in non-interest income was due
primarily to fee income earned in connection with the RAL program, consisting
of approximately $9.0 million of net premiums on the sale of RAL loans and $4.6
million of processing and administrative fees. Because the RAL program relates
to the filing of income tax returns, transaction activity is concentrated
during the tax season. This resulted in the Company earning substantially all
of its RAL program income in the first quarter of the year.

Non-interest Expense

General and Administrative Expense

General and administrative expenses increased to $36.7 million for the
current year, compared to $27.0 million for the previous year. The increase was
attributable to the acquisition of the LHO, the development of Imperial Capital
Express (the Banks small balance commercial real estate lending platform),
additions to the Banks franchise loan origination staff, and certain
infrastructure and personnel costs relating to the Banks charter conversion.
The Companys efficiency ratio (defined as recurring general and administrative
expenses as a percentage of net revenue) was 36.6 percent for the year ended
December 31, 2003, compared to 36.7 percent for the prior year. Full time
equivalent associates averaged 209 in 2003 compared to 154 in 2002.

Real Estate Owned Expense

Real estate owned expense, decreased to $1.2 million in 2003 compared to
$1.3 million in 2002. The decrease was primarily attributable to a $250,000
decrease in real estate owned expenses, partially offset by an increase of
$74,000 in the provision for losses on other real estate owned (OREO) and a
decrease of $65,000 in gain on sale of OREO, net. See also Credit Risk
Elements  Allowance for Loan Losses and Nonperforming Assets.

Income Taxes

Provision for income taxes increased to $18.9 million in 2003 compared to
$12.8 million in 2002. The increase in provision for income taxes was due to
the increase in taxable income earned in 2003. The effective tax rate was
39.0% for 2003 and 2002. The effective tax rate differed from the applicable
statutory federal tax rate due to state income taxes and the state income tax
deduction for tax exempt income on loans located in designated redevelopment
and enterprise zones and due to federal income tax credits received from a low
income housing tax credit investment.

At December 31, 2003, we had a net deferred tax asset of $11.6 million.
The deferred tax asset related primarily to loan loss provisions recognized on
our financial statements that have not yet been recognized on our income tax
returns. During 2003, we had no deferred tax assets relating to net operating
loss carry forward deductions. The deferred tax asset is considered fully
realizable. Accordingly, no valuation allowance on the deferred tax asset was
established in 2003.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, consisting of accrued
distributions payable on our Trust Preferred securities, was $6.1 million in
2003 as compared to $3.5 million in 2002. The increase was due to the issuance
of $55.0 million of variable rate cumulative

23



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##### Table of Contents



Trust Preferred securities during the fourth quarter of 2002, which were
outstanding for the entire year in 2003. See Item 8. Financial Statements and
Supplementary Data  Notes to Consolidated Financial Statements  Note 10.

2002 Compared to 2001

Net interest income before provision for loan losses increased $14.1
million or 23.8% to $73.3 million in 2002 compared to $59.2 million in 2001.
The increase in net interest income was primarily attributable to the
improvement in net interest spread caused by the declining rate environment,
which lowered our average cost of funds and resulted in most of our loans
reaching their interest rate floors.

Interest income decreased $12.5 million or 10.1% to $110.6 million in 2002
compared to $123.1 million in 2001. The decrease in interest income was due
primarily to our loans being originated or repricing at lower rates due to the
general decline in market interest rates. The average yield on our loans was
8.40% in 2002 compared to 9.53% in 2001. Our commercial real estate loan
portfolio is primarily comprised of adjustable rate mortgages indexed to the
six month LIBOR. Approximately 91.6% of our real estate loan portfolio
(including real estate loans held in trust) was adjustable rate mortgages at
December 31, 2002. These adjustable rate mortgages generally re-price on a
quarterly basis and, as of December 31, 2002, approximately $1.1 billion or
87.1% of our real estate loan portfolio contained interest rate floors, below
which the loans contractual interest rate may not adjust. At December 31,
2002, the weighted average floor interest rate of these loans was 7.45%. At
that date, approximately $1.1 billion or 97.9% of those loans were at the floor
interest rate.

Interest expense on interest-bearing liabilities decreased $26.5 million
or 41.6% to $37.3 million in 2002 compared to $63.9 million in 2001 primarily
due to a decrease in interest expense on deposits and CMOs. Interest expense
from deposit accounts decreased $23.5 million or 44.5% to $29.3 million in 2002
compared to $52.9 million in 2001 due to decreases in the average rate paid on
deposits as a result of lower market interest rates. The average rate paid on
deposits was 3.15% in 2002 compared to 5.51% in 2001.

Interest expense from the CMOs decreased $3.9 million or 62.9% to $2.3
million in 2002 as compared to $6.2 million in 2001. The decrease was primarily
due to a decrease in rates paid on CMOs, as well as a decline in average
balance of CMOs. The average balance and average yield on the CMOs was $88.5
million and 2.60% in 2002 as compared to $139.3 million and 4.46% in 2001,
respectively.

Interest expense from FHLB advances increased $0.9 million to $5.7 million
in 2002 compared to $4.8 million in 2001, due to an increase in the average
outstanding balance, which was partially offset by a decrease in the average
rate paid on FHLB advances. The average balance of FHLB advances increased
$90.5 million or 87.3% to $194.2 million in 2002 compared to $103.7 million in
2001. The average rate paid on FHLB advances was 2.92% in 2002 compared to
4.62% in 2001.

Provision for Loan losses

Provision for loan losses increased to $9.0 million in 2002 compared to
$4.6 million in 2001. The current period provision for loan losses was recorded
to provide the reserves adequate to support the known and inherent risk of loss
resulting from the current growth in the loan portfolio and due to the increase
in other loans of concern to $35.5 million from $21.5 million at December 31,
2001. See also Credit Risk Elements  Allowance for Loan Losses and
Nonperforming Assets.

Non-interest Income

Non-interest income decreased $0.7 million to $0.4 million in 2002
compared to $1.1 million in 2001. The decrease in non-interest income was due
primarily to a $0.5 million net valuation provision recorded in 2002 for the
Companys residual interest relating to the securitization of our residential
loan portfolio.

24



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##### Table of Contents



Non-interest Expense

General and Administrative Expense

General and administrative expense totaled $27.0 million and $22.8 million
in 2002 and 2001, respectively. In 2002, our ratio of recurring general and
administrative expenses to average assets was 1.90%, compared to 1.66% in 2001.
This increase was primarily attributable to the additions made to the retail
and wholesale loan originations sales and support staff, and certain
infrastructure costs relating to the charter conversion activities, including
core processing system conversion costs, and additions to the information
technology and savings and operation staff. Full time equivalent associates
averaged 154 in 2002 compared to 133 in 2001.

Real Estate Owned Expense

Real estate owned expense, net, increased to $1.3 million in 2002 compared
to $0.4 million in 2001. The increase was primarily attributable to a $0.5
million increase in real estate owned expense and to the $0.5 million increase
in the provision for losses on OREO. These increases were offset by a $0.1
million increase in gain on sale of OREO, net. See also Credit Risk Elements 
Allowance for Loan Losses and Nonperforming Assets.

Income Taxes

Provision for income taxes increased to $12.8 million in 2002 compared to
$11.4 million in 2001. The increase in provision for income taxes was primarily
due to an increase in taxable income. The effective tax rate was 39.0% and
38.6% for 2002 and 2001, respectively. The effective tax rate differed from the
applicable statutory federal tax rate due to state income taxes and the state
income tax deduction for tax exempt income on loans located in designated
redevelopment and enterprise zones and due to federal income tax credits
received from a low income housing tax credit investment.

At December 31, 2002, we had a net deferred tax asset of $13.8 million.
The deferred tax asset related primarily to loss provisions recognized on our
financial statements that have not yet been recognized on our income tax
returns. During 2002, we had no deferred tax assets relating to net operating
loss carry forward deductions. The deferred tax asset is considered fully
realizable, as when the temporary differences associated with the deferred tax
assets are recognized for income tax purposes, those deductions are expected to
be fully offset, either by carryback against previously taxed income or by a
reduction of future taxable income. Accordingly, no valuation allowance on the
deferred tax asset was established in 2002.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, consisting of accrued
distributions payable on our Trust Preferred securities, was $3.5 million in
2002 as compared to $3.0 million in 2001. The increase was due to the
additional issuance of $55.0 million of variable rate cumulative Trust
Preferred securities in 2002, as well as the Trust Preferred securities issued
in 2001 being outstanding for the entire fiscal year in 2002. See Item 8.
Financial Statements and Supplementary Data  Notes to Consolidated Financial
Statements  Note 10.

Financial Condition

At December 31, 2003 Compared with December 31, 2002

Total assets increased by $96.3 million, or 5.6%, to $1.8 billion at
December 31, 2003 compared to $1.7 billion at December 31, 2002. This increase
was primarily due to a $17.5 million, or 10.9%, increase in cash and cash
equivalents to $178.3 million at December 31, 2003 from $160.8 million at
December 31, 2002, and a $120.6 million, or 9.2%, increase in loans receivable,
net to $1.4 billion at December 31, 2003 from $1.3 billion at December 31,
2002. These increases were partially offset by the reductions in net real
estate loans held in trust of $53.4 million. The growth in assets was funded
primarily by an increase in deposits of $81.1 million and in FHLB advances of
$23.5 million. The increase in deposits was primarily related to an increase
in interest bearing demand accounts of $38.5 million and an increase in time
certificates of deposit of $45.5 million. CMOs decreased from $69.1 million at
December 31, 2002 to $15.9 million at December 31, 2003, reflecting repayments
on loans held in trust. Shareholders equity increased primarily due to the
retention of $29.6 million of net income.

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##### Table of Contents



At December 31, 2002 Compared with December 31, 2001

Total assets increased by $213.7 million, or 14.2%, to $1.7 billion at
December 31, 2002 compared to $1.5 billion at December 31, 2001. This increase
was primarily due to a $26.6 million, or 19.8%, increase in cash and cash
equivalents to $160.8 million at December 31, 2002 from $134.2 million at
December 31, 2001, and a $193.9 million, or 17.3%, increase in loans
receivable, net to $1.3 billion at December 31, 2002 from $1.1 billion at
December 31, 2001. These increases were partially offset by the reductions in
net real estate loans held in trust of $40.2 million. The growth in assets was
funded primarily by an increase in FHLB advances of $69.4 million and deposits
of $112.3 million. The increase in deposits was primarily concentrated in
brokered deposits with a lower cost of funds than the current market rates
offered through the Banks retail branch network. CMOs decreased from $109.6
million at December 31, 2001 to $69.1 million at December 31, 2002, reflecting
the repayments on loans held in trust. Shareholders equity increased primarily
due to the retention of $20.0 million of net income as retained earnings for
the year, partially offset by the purchase of $2.3 million of ITLA Capitals
common stock currently held as treasury stock.

Loans Receivable, Net

The following table shows the comparison of our loan portfolio by major
categories as of the dates indicated.

|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |         | 
|---------------------------------------- | ----------------------- | - | -------------- | --------- | ---- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- |  | - | ------- | ------- | 
|                                         |                         |   | December 31,  
|                                         |                         |   |               
|                                         |                         |   | 2003           |           | 2002 |   | 2001      |           | 2000 |   | 1999     
|                                         |                         |   |                |           |      |   |           |           |      |   |          
|                                         |                         |   | (in thousands)
|Real estate loans                        |                         | $ | 1,196,729      |           |      | $ | 1,189,258 |           |      | $ | 1,191,688 |           |  | $ | 1,176,988 |           |  | $ | 864,048 |        
|Construction loans                       |                         |   | 129,540        |           |      |   | 101,422   |           |      |   | 54,129    |           |  |   | 95,206    |           |  |   | 107,833 |        
|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |        
|                                         | Total real estate loans |   |                | 1,326,269 |      |   |           | 1,290,680 |      |   |           | 1,245,817 |  |   |           | 1,272,194 |  |   |         | 971,881 | 
|Film finance                             |                         |   | 98,630         |           |      |   | 119,283   |           |      |   |          |           |  |   |          |           |  |   |        |        
|Franchise loans                          |                         |   | 102,128        |           |      |   | 54,672    |           |      |   | 57,617    |           |  |   | 3,912     |           |  |   |        |        
|Commercial and other loans               |                         |   | 6,869          |           |      |   | 4,314     |           |      |   |          |           |  |   |          |           |  |   |        |        
|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |        
|                                         |                         |   | 1,533,896      |           |      |   | 1,468,949 |           |      |   | 1,303,434 |           |  |   | 1,276,106 |           |  |   | 971,881 |        
|Unamortized premium                      |                         |   | 5,429          |           |      |   | 7,898     |           |      |   | 9,773     |           |  |   | 11,300    |           |  |   | 2,590   |        
|Deferred loan origination fees and costs |                         |   | (500           | )         |      |   | (5,604    | )         |      |   | (2,029    | )         |  |   | (2,571    | )         |  |   | (3,096  | )      
|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |        
|                                         |                         |   | 1,538,825      |           |      |   | 1,471,243 |           |      |   | 1,311,178 |           |  |   | 1,284,835 |           |  |   | 971,375 |        
|Allowance for loan losses                |                         |   | (33,401        | )         |      |   | (33,009   | )         |      |   | (26,650   | )         |  |   | (27,186   | )         |  |   | (19,895 | )      
|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |        
|                                         |                         | $ | 1,505,424      |           |      | $ | 1,438,234 |           |      | $ | 1,284,528 |           |  | $ | 1,257,649 |           |  | $ | 951,480 |        
|                                         |                         |   |                |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |         |        

The contractual maturities of our loan portfolio at December 31, 2003 are
as follows:

|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |      |  
|---------------------------------- | --------------------------------------- | - | ---------------------- | ---- | ---------- | - | --------- | ---- | ------- | - | --------- | ---- | - | - | --------- | ---- | -
|                                   |                                         |   | Loans Maturing in      |      |            |   |          
|                                   |                                         |   |                        |      |            |   |          
|                                   |                                         |   |                        |      |            |   | Between   |      | Greater |   |           |      |  
|                                   |                                         |   | Less Than              |      | One and    |   | Than Five |      |         |   |          
|                                   |                                         |   | One Year               |      | Five Years |   | Years     |      | Total  
|                                   |                                         |   |                        |      |            |   |           |      |        
|                                   |                                         |   | (dollars in thousands)
|Real estate loans                  |                                         | $ | 50,788                 |      |            | $ | 131,966   |      |         | $ | 1,013,975 |      |   | $ | 1,196,729 |     
|Construction loans                 |                                         |   | 55,538                 |      |            |   | 48,035    |      |         |   | 25,967    |      |   |   | 129,540   |     
|Film finance                       |                                         |   | 83,062                 |      |            |   | 15,568    |      |         |   |          |      |   |   | 98,630    |     
|Franchise loans                    |                                         |   |                       |      |            |   | 12,482    |      |         |   | 89,646    |      |   |   | 102,128   |     
|Commercial and other loans         |                                         |   | 6,083                  |      |            |   | 786       |      |         |   |          |      |   |   | 6,869     |     
|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |     
|                                   |                                         | $ | 195,471                |      |            | $ | 208,837   |      |         | $ | 1,129,588 |      |   | $ | 1,533,896 |     
|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |     
|Loans with fixed interest rates    |                                         | $ | 12,279                 |      |            | $ | 37,900    |      |         | $ | 16,558    |      |   | $ | 66,737    |     
|Loans with variable interest rates |                                         |   | 183,192                |      |            |   | 170,937   |      |         |   | 1,113,030 |      |   |   | 1,467,159 |     
|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |     
|                                   |                                         | $ | 195,471                |      |            | $ | 208,837   |      |         | $ | 1,129,588 |      |   | $ | 1,533,896 |     
|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |     
|                                   | Percentage with variable interest rates |   |                        | 93.7 | %          |   |           | 81.9 | %       |   |           | 98.5 | % |   |           | 95.6 | %
|                                   |                                         |   |                        |      |            |   |           |      |         |   |           |      |   |   |           |     

The table above should not be regarded as a forecast of future cash
collections because a substantial portion of real estate loans may be renewed
or repaid prior to contractual maturity and have adjustable interest rates.

26



---



##### Table of Contents



The following table sets forth certain information regarding the real
property collateral securing our real estate loan portfolio as of December 31,
2003.

|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |       |   |       | 
|-------------------------------- | ------------------------------ | --------------------------- | ---------------------- | ----- | ---------------------- | ----- | --------- | ------- | ------- | --------- | ------- | ----- | -------------------------- | ----- | ------- | ----- | ----- |  | - | ------ |  |  | - | ----- |  | - | ----- | ----- | - | ----- | 
|                                 |                                |                             |                        |       | Number                 |       |           |         |         |           | Percent |       | Range of Principal Balance |       | Non-   
|                                 |                                |                             |                        |       | of                     |       | Gross     |         | of      |           |         |       | Accrual                   
|                                 |                                |                             |                        |       | Loans                  |       | Amount    |         | Total   |           | Min     |       | Max                        |       | Average |       | Loans
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |      
|                                 |                                |                             |                        |       | (dollars in thousands)
|Income Producing Property Loans: |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 | Multi-family (5 or more units) |                             |                        | 1,209 |                        |       | $         | 675,584 |         |           |         | 50.94 | %                          |       | $       | 3     |       |  | $ | 8,178  |  |  | $ | 578   |  |   | $     | 2,557 |  
|                                 | Retail                         |                             |                        | 121   |                        |       |           | 138,710 |         |           |         | 10.46 | %                          |       |         | 4     |       |  |   | 10,456 |  |  |   | 1,146 |  |   |       |      |  
|                                 | Office                         |                             |                        | 71    |                        |       |           | 106,044 |         |           |         | 8.00  | %                          |       |         | 18    |       |  |   | 10,426 |  |  |   | 1,178 |  |   |       | 77    |  
|                                 | Hotel                          |                             |                        | 28    |                        |       |           | 76,619  |         |           |         | 5.78  | %                          |       |         | 106   |       |  |   | 11,679 |  |  |   | 2,736 |  |   |       | 1,359 |  
|                                 | Industrial/warehouse           |                             |                        | 38    |                        |       |           | 31,353  |         |           |         | 2.36  | %                          |       |         | 9     |       |  |   | 4,091  |  |  |   | 825   |  |   |       |      |  
|                                 | Mixed-use                      |                             |                        | 89    |                        |       |           | 79,145  |         |           |         | 5.97  | %                          |       |         | 27    |       |  |   | 6,620  |  |  |   | 889   |  |   |       |      |  
|                                 | Mobile home parks              |                             |                        | 42    |                        |       |           | 29,500  |         |           |         | 2.22  | %                          |       |         | 82    |       |  |   | 1,693  |  |  |   | 702   |  |   |       |      |  
|                                 | Other                          |                             |                        | 63    |                        |       |           | 55,548  |         |           |         | 4.19  | %                          |       |         | 23    |       |  |   | 5,891  |  |  |   | 882   |  |   |       | 289   |  
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 |                                |                             | Total income producing |       |                        | 1,661 |           |         |         | 1,192,503 |         |       |                            | 89.92 | %       |       |       |  |   |        |  |  |   |       |  |   |       |       |   | 4,282 | 
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|Construction and Land:           |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 | Construction                   |                             |                        | 43    |                        |       |           | 129,540 |         |           |         | 9.76  | %                          |       |         | 30    |       |  |   | 15,149 |  |  |   | 3,013 |  |   |       |      |  
|                                 | Land                           |                             |                        | 1     |                        |       |           | 1,579   |         |           |         | 0.12  | %                          |       |         | 1,579 |       |  |   | 1,579  |  |  |   | 1,579 |  |   |       |      |  
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 |                                | Total construction and land |                        |       | 44                     |       |           |         | 131,119 |           |         |       | 9.88                       | %     |         |       |       |  |   |        |  |  |   |       |  |   |       |       |  |      
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|Single-family mortgages:         |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 | Single-family (1-4 units)      |                             |                        | 19    |                        |       |           | 2,647   |         |           |         | 0.20  | %                          |       |         | 11    |       |  |   | 468    |  |  |   | 139   |  |   |       | 404   |  
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      
|                                 |                                |                             | 1,724                  |       |                        | $     | 1,326,269 |         |         |           | 100.0   | %     |                            |       |         |       |       |  |   |        |  |  |   |       |  | $ | 4,686 |      
|                                 |                                |                             |                        |       |                        |       |           |         |         |           |         |       |                            |       |         |       |       |  |   |        |  |  |   |       |  |   |       |      

The following table sets forth the location of the collateral for our real
estate loan portfolios as of December 31, 2003.

|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |       |       |  
|-------------------- | -------------------------------------- | ------------------------- | ----- | ---------------------- | ----- | ------ | --------- | ------- | ------- | ------- | ----- | ----- | ----- | -
|                     |                                        |                           |       | Number                 |       |        |           |         |         | Percent
|                     |                                        |                           |       | of                     |       | Gross  |           | of     
|                     |                                        |                           |       | Loans                  |       | Amount |           | Total  
|                     |                                        |                           |       |                        |       |        |           |        
|                     |                                        |                           |       | (dollars in thousands)
|Southern California: |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     | Los Angeles County                     |                           |       | 789                    |       |        | $         | 464,223 |         |         |       | 35.02 | %    
|                     | San Diego County                       |                           |       | 64                     |       |        |           | 92,998  |         |         |       | 7.01  | %    
|                     | Riverside County                       |                           |       | 48                     |       |        |           | 50,102  |         |         |       | 3.78  | %    
|                     | San Bernardino County                  |                           |       | 58                     |       |        |           | 48,079  |         |         |       | 3.62  | %    
|                     | Orange County                          |                           |       | 48                     |       |        |           | 37,443  |         |         |       | 2.82  | %    
|                     | All Other Southern California Counties |                           |       | 22                     |       |        |           | 38,929  |         |         |       | 2.93  | %    
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     |                                        | Total Southern California |       |                        | 1,029 |        |           |         | 731,774 |         |       |       | 55.19 | %
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|Northern California: |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     | San Francisco County                   |                           |       | 21                     |       |        |           | 11,745  |         |         |       | 0.89  | %    
|                     | Sacramento County                      |                           |       | 3                      |       |        |           | 1,631   |         |         |       | 0.12  | %    
|                     | Santa Clara County                     |                           |       | 3                      |       |        |           | 7,839   |         |         |       | 0.59  | %    
|                     | Alameda County                         |                           |       | 41                     |       |        |           | 31,162  |         |         |       | 2.35  | %    
|                     | Fresno County                          |                           |       | 42                     |       |        |           | 20,946  |         |         |       | 1.58  | %    
|                     | San Mateo                              |                           |       | 12                     |       |        |           | 8,545   |         |         |       | 0.64  | %    
|                     | All Other Northern California Counties |                           |       | 163                    |       |        |           | 149,785 |         |         |       | 11.29 | %    
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     |                                        | Total Northern California |       |                        | 285   |        |           |         | 231,653 |         |       |       | 17.46 | %
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|Outside California:  |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     | Arizona                                |                           |       | 127                    |       |        |           | 105,440 |         |         |       | 7.95  | %    
|                     | Texas                                  |                           |       | 42                     |       |        |           | 21,757  |         |         |       | 1.64  | %    
|                     | Washington                             |                           |       | 26                     |       |        |           | 33,015  |         |         |       | 2.49  | %    
|                     | Nevada                                 |                           |       | 62                     |       |        |           | 69,602  |         |         |       | 5.25  | %    
|                     | Colorado                               |                           |       | 55                     |       |        |           | 50,185  |         |         |       | 3.78  | %    
|                     | Oregon                                 |                           |       | 42                     |       |        |           | 33,326  |         |         |       | 2.51  | %    
|                     | Montana                                |                           |       | 2                      |       |        |           | 11,863  |         |         |       | 0.89  | %    
|                     | Utah                                   |                           |       | 10                     |       |        |           | 5,952   |         |         |       | 0.45  | %    
|                     | Idaho                                  |                           |       | 5                      |       |        |           | 9,432   |         |         |       | 0.71  | %    
|                     | Other U.S. States                      |                           |       | 39                     |       |        |           | 22,270  |         |         |       | 1.68  | %    
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     |                                        | Total Outside California  |       |                        | 410   |        |           |         | 362,842 |         |       |       | 27.35 | %
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      
|                     |                                        |                           | 1,724 |                        |       | $      | 1,326,269 |         |         |         | 100.0 | %    
|                     |                                        |                           |       |                        |       |        |           |         |         |         |       |      

27



---



##### Table of Contents



Although we generally seek to limit risks associated with our portfolio of
real estate and construction loans by limiting the geographic concentration and
by varying the types of underlying collateral, significant concentration risks
still remain. Concentrations of loans in certain geographic regions, for
example, cause our risk associated with these loans to be closely associated
with the general economic and social environment of the region. Localized
economic and competitive conditions, natural disasters, possible terrorist
activities or social conditions all may affect the values of collateral located
within a particular geographic area. In addition, certain types of properties
may be more or less subject to changes in prevailing economic, competitive or
social conditions.

The following table sets forth certain information with respect to our
loan originations and purchases. Premiums paid and discounts taken on loans
purchased in the secondary market are not included below.

|                                                                         |  |                                            |           |      |  |      |           |     |  |   |           |  
|------------------------------------------------------------------------ |  | ------------------------------------------ | --------- | ---- |  | ---- | --------- | --- |  | - | --------- | -
|                                                                         |  | As of and for the Years Ended December 31,
|                                                                         |  |                                           
|                                                                         |  | 2003                                       |           | 2002 |  | 2001
|                                                                         |  |                                            |           |      |  |     
|                                                                         |  | (dollars in thousands)                    
|Gross real estate loans originated and
retained in the portfolio         |  | $                                          | 599,885   |      |  | $    | 412,332   |     |  | $ | 285,650   |  
|Gross real estate loans originated on
behalf of third-party investors    |  |                                            |          |      |  |      |          |     |  |   | 9,018     |  
|Gross commercial revolving credit loans                                  |  |                                            | 41,054    |      |  |      | 4,195     |     |  |   |          |  
|Gross film financing originated                                          |  |                                            | 90,528    |      |  |      | 34,340    |     |  |   |          |  
|Gross franchise loans originated                                         |  |                                            | 50,333    |      |  |      |          |     |  |   |          |  
|Gross film financing purchased                                           |  |                                            |          |      |  |      | 92,584    | (1) |  |   |          |  
|Gross franchise loans purchased                                          |  |                                            | 7,244     |      |  |      | 7,335     |     |  |   | 53,319    |  
|Gross real estate loans purchased                                        |  |                                            | 46,809    |      |  |      | 120,363   | (1) |  |   | 154,081   |  
|                                                                         |  |                                            |           |      |  |      |           |     |  |   |           |  
|Total loan production                                                    |  | $                                          | 835,853   |      |  | $    | 671,149   |     |  | $ | 502,068   |  
|                                                                         |  |                                            |           |      |  |      |           |     |  |   |           |  
|Gross loans at end of period                                             |  | $                                          | 1,533,896 |      |  | $    | 1,468,949 |     |  | $ | 1,303,434 |  
|Gross loans weighted-average portfolio yield                             |  |                                            | 7.64      | %    |  |      | 8.20      | %   |  |   | 9.26      | %
|Average size of loans originated and
retained in the Companys portfolio |  | $                                          | 943       |      |  | $    | 1,062     |     |  | $ | 1,120     |  



---

|(1) |  | Includes $36.8 million of gross real estate loans acquired in 2002 in
connection with the acquisition of Asahi Bank of California and $92.6
million of film finance loans acquired in 2002 in connection with the
acquisition of LHO.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Securities

The following table shows the amortized cost and approximate fair value of
investment securities available for sale at the dates indicated.

|                                               |  |                |        |       |  |           |        |       |  |           |        |       |  |   |        |  |  |   |        |  |  |   |        | 
|---------------------------------------------- |  | -------------- | ------ | ----- |  | --------- | ------ | ----- |  | --------- | ------ | ----- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2003           |        | 2002  |  | 2001     
|                                               |  |                |        |       |  |          
|                                               |  | Amortized      |        | Fair  |  | Amortized |        | Fair  |  | Amortized |        | Fair 
|                                               |  | Cost           |        | Value |  | Cost      |        | Value |  | Cost      |        | Value
|                                               |  |                |        |       |  |           |        |       |  |           |        |      
|                                               |  | (in thousands)
|U.S. Government Agency                         |  | $              | 47,749 |       |  | $         | 47,621 |       |  | $         | 48,698 |       |  | $ | 48,986 |  |  | $ | 29,409 |  |  | $ | 29,404 | 
|Residual interest in securitized loans         |  |                | 5,055  |       |  |           | 5,368  |       |  |           | 5,305  |       |  |   | 5,619  |  |  |   |       |  |  |   |       | 
|Equity securities                              |  |                | 25     |       |  |           | 104    |       |  |           | 25     |       |  |   | 72     |  |  |   | 14     |  |  |   | 7      | 
|                                               |  |                |        |       |  |           |        |       |  |           |        |       |  |   |        |  |  |   |        |  |  |   |        | 
|Total investment securities available
for sale |  | $              | 52,829 |       |  | $         | 53,093 |       |  | $         | 54,028 |       |  | $ | 54,677 |  |  | $ | 29,423 |  |  | $ | 29,411 | 
|                                               |  |                |        |       |  |           |        |       |  |           |        |       |  |   |        |  |  |   |        |  |  |   |        | 

During the first quarter of 2002, the Company formed a limited liability
company to issue $86.3 million of asset-backed notes in a securitization of
substantially all of its residential loan portfolio. The Company recognized a
gain of $3.7 million on the securitization of these loans which is included in
other non-interest income within the consolidated statements of income for
2002. Concurrent with recognizing such gain on sale, the Company recorded a
residual interest of $5.6 million, which represents the present value of future
cash flows (spread and fees) that are anticipated to be received over the life
of the loans. The residual interest is recorded on the consolidated balance
sheets in the Investment securities available for sale, at fair value. The
value of the residual interest is subject to substantial credit, prepayment,
and interest rate risk on the sold residential loans. In accordance with the
provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, the residual interest is classified as available-for-sale
and, as such, recorded at fair value with the resultant changes in fair value
recorded as unrealized gain or loss in a separate component of shareholders
equity in accumulated other comprehensive income or loss, until realized.
Fair value is determined on a monthly

28



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basis based on a discounted cash flow analysis. These cash flows are
projected over the lives of the receivables using prepayment, default, and
interest rate assumptions that we believe market participants would use for
similar financial instruments.

During 2003, the Company recognized an other than temporary impairment of
$1.0 million in connection with its residual interest. Impairments that are
deemed to be other than temporary are charged to non-interest income. In
evaluating impairments as other than temporary the Company considers credit
risk, as well as the magnitude and trend of default rates and prepayment speeds
of the underlying residential loans.

At December 31, 2003 and 2002, key assumptions used to estimate the fair
value of the residual interest based on projected cash flows, and the
sensitivity of the value to immediate adverse changes in those assumptions is
as follows:

|                                                     |  |                   |       |                   |  |   |       |  
|---------------------------------------------------- |  | ----------------- | ----- | ----------------- |  | - | ----- | -
|                                                     |  | December 31, 2003 |       | December 31, 2002
|                                                     |  |                   |       |                  
|Dollars in thousands                                 |  |                   |       |                   |  |   |       |  
|Fair value of retained interest                      |  | $                 | 5,368 |                   |  | $ | 5,619 |  
|Weighted average life (in years)  securities        |  |                   | 0.90  |                   |  |   | 1.49  |  
|Weighted average life (in years)  residual interest |  |                   | 4.47  |                   |  |   | 4.70  |  
|Weighted average annual prepayment speed             |  |                   | 35.0  | %                 |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $                 | (67   | )                 |  | $ | (23   | )
|Impact of 25% adverse change                         |  | $                 | (120  | )                 |  | $ | (59   | )
|Weighted average annual discount rate                |  |                   | 15.0  | %                 |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $                 | (147  | )                 |  | $ | (167  | )
|Impact of 25% adverse change                         |  | $                 | (367  | )                 |  | $ | (404  | )
|Weighted average lifetime credit losses              |  |                   | 3.3   | %                 |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $                 | (313  | )                 |  | $ | (285  | )
|Impact of 25% adverse change                         |  | $                 | (753  | )                 |  | $ | (678  | )

These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in the fair value of the residual are based on a
variation in assumptions and generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value may not be
linear. Also, in the above table, the effect of a variation in a particular
assumption on the fair value of the residual interest is calculated without
changing any other assumption; in reality, changes in one factor may result in
changes in another (for example, increases in market interest rates may result
in lower prepayments but increased credit losses), which might magnify or
counteract the sensitivities, and depending on the severity of such changes,
the results of operations may be materially affected.

The following table indicates the composition of the investment security
portfolio assuming these securities are held to maturity based on the final
maturity of each investment.

|                                         |                                        |                                                |         |     |              |  |              |   |               |  |           |        |               |  |                |      |       |  |   |   |          |  |   |   |  |  |          |     |     |  |   |      |   |  | 
|---------------------------------------- | -------------------------------------- | ---------------------------------------------- | ------- | --- | ------------ |  | ------------ | - | ------------- |  | --------- | ------ | ------------- |  | -------------- | ---- | ----- |  | - | - | -------- |  | - | - |  |  | -------- | --- | --- |  | - | ---- | - |  | 
|                                         |                                        |                                                |         |     |              |  |              |   |               |  |           |        | Due after One |  | Due after Five |      |       |  |   |   |          |  |  
|                                         |                                        |                                                |         |     | Due in One   |  | Year through |   | Years through |  | Due after
|                                         |                                        |                                                |         |     | Year or Less |  | Five Years   |   | Ten Years     |  | Ten Years
|                                         |                                        |                                                |         |     |              |  |              |   |               |  |          
|                                         |                                        |                                                |         |     |              |  |              |   | Weighted      |  |           |        |               |  | Weighted       |      |       |  |   |   | Weighted |  |   |   |  |  | Weighted
|                                         |                                        |                                                |         |     |              |  |              |   | Average       |  |           |        |               |  | Average        |      |       |  |   |   | Average  |  |   |   |  |  | Average 
|December
31, 2003                        |                                        |                                                | Balance |     | Yield        |  | Balance      |   | Yield         |  | Balance   |        | Yield         |  | Balance        |      | Yield
|                                         |                                        |                                                |         |     |              |  |              |   |               |  |           |        |               |  |                |      |       |  |  
|Investment securities available for sale |                                        |                                                |         |     |              |  |              |   |               |  |           |        |               |  |                |      |       |  |   |   |          |  |   |   |  |  |          |     |     |  |   |     
|                                         | U.S. Government Agency                 |                                                | $       |    |              |  |              |  |               |  | $         | 46,791 |               |  |                | 2.82 | %     |  | $ |  |          |  |   |  |  |  | $        | 830 |     |  |   | 8.33 | %
|                                         | Equity securities                      |                                                |         | 104 |              |  |              |  |               |  |           |       |               |  |                |     |       |  |   |  |          |  |   |  |  |  |          |    |     |  |   |     |  
|                                         | Residual interest in securitized loans |                                                |        |     |              |  |             |   |               |  | 5,368     |        |               |  |               |      |       |  |  |   |          |  |  |   |  |  |         |     |     |  |  |     
|                                         |                                        |                                                |         |     |              |  |              |   |               |  |           |        |               |  |                |      |       |  |   |   |          |  |   |   |  |  |          |     |     |  |   |     
|                                         |                                        | Total investment securities available for sale |         | $   | 104          |  |              |   |               |  |           | $      | 52,159        |  |                |      |       |  |   | $ |         |  |   |   |  |  |          | $   | 830 |  |   |      |   | 
|                                         |                                        |                                                |         |     |              |  |              |   |               |  |           |        |               |  |                |      |       |  |   |   |          |  |   |   |  |  |          |     |     |  |   |     

Liquidity and Deposit Accounts

Liquidity refers to our 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. We maintain a cash and investment securities portfolio designed to
satisfy operating and regulatory liquidity requirements while preserving
capital and maximizing yield. As of December 31, 2003 and 2002, the Banks
liquidity ratios were 17.5% and 19.0%, respectively, exceeding the DFI
regulatory requirement of 1.5%. In addition, our liquidity position is
supported by a credit facility with the FHLB of San Francisco. As of December
31, 2003, we had remaining available borrowing capacity under this credit
facility of $161.0 million, net of the $8.5 million of additional FHLB Stock
that we would be required to purchase to support those additional borrowings,
and $30.0 million of unused federal funds credit facilities under established
lines of credit with two banks. In addition, ITLA Capital established two
$25.0 million revolving credit facilities with an unaffiliated bank. Both credit facilities
were entered into on January 1, 2004. These facilities mature on March 31,
2004 and January 1, 2005, respectively.

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Total deposit accounts increased approximately $81.1 million to $1.147
billion at December 31, 2003 from $1.066 billion at December 31, 2002. The
increase in deposits in 2003 was primarily related to an increase in interest
bearing demand deposit accounts of $38.5 million and an increase in time
certificate of deposits of $45.5 million. Brokered deposits totaled $126.8
million and $103.6 million at December 31, 2003 and 2002, respectively. Total
deposit accounts increased approximately $112.3 million to $1.1 billion at
December 31, 2002 from $953.7 million at December 31, 2001. In both 2003 and
2002, the funds provided from deposits were used to fund the growth in our loan
portfolio. Although we compete for deposits primarily on the basis of rates,
based on our historical experience regarding retention of deposits, management
believes that a significant portion of deposits will remain with us upon
maturity on an ongoing basis.

The following table sets forth information regarding deposits outstanding
at the dates indicated.

|                                    |  |                |           |      |  |      |           |  |  |   |         | 
|----------------------------------- |  | -------------- | --------- | ---- |  | ---- | --------- |  |  | - | ------- | 
|                                    |  | December 31,  
|                                    |  |               
|                                    |  | 2003           |           | 2002 |  | 2001
|                                    |  |                |           |      |  |     
|                                    |  | (in thousands)
|Non-interest demand accounts        |  | $              | 9,074     |      |  | $    |          |  |  | $ |        | 
|Interest demand accounts            |  |                | 38,518    |      |  |      |          |  |  |   |        | 
|Money market and passbook accounts  |  |                | 156,505   |      |  |      | 168,525   |  |  |   | 158,188 | 
|Time certificates under $100,000    |  |                | 564,207   |      |  |      | 521,404   |  |  |   | 526,911 | 
|Time certificates $100,000 and over |  |                | 378,713   |      |  |      | 375,982   |  |  |   | 268,555 | 
|                                    |  |                |           |      |  |      |           |  |  |   |         | 
|                                    |  | $              | 1,147,017 |      |  | $    | 1,065,911 |  |  | $ | 953,654 | 
|                                    |  |                |           |      |  |      |           |  |  |   |         | 

The following table sets forth the maturities of certificates of deposit
$100,000 and over at December 31, 2003 (in thousands):

|                                           |                                    |   |         |         | 
|------------------------------------------ | ---------------------------------- | - | ------- | ------- | 
|Certificates of deposit $100,000 and over: |                                    |   |         |        
|                                           | Maturing within three months       |   | $       | 72,425  | 
|                                           | After three but within six months  |   |         | 96,517  | 
|                                           | After six but within twelve months |   |         | 121,928 | 
|                                           | After twelve months                |   |         | 87,843  | 
|                                           |                                    |   |         |        
|                                           |                                    | $ | 378,713 |        
|                                           |                                    |   |         |        

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of
financial transactions that, in accordance with generally accepted accounting
principles are not recorded in the financial statements. These transactions
involve, to varying degrees, elements of credit, interest rate, and liquidity
risk. Such transactions are used by the Company to meet the financing needs of
our customers.

The Companys off-balance sheet arrangements, which principally include
lending commitments, are described below. At December 31, 2003, the Company
also had a residual interest of $5.4 million in a qualified special purpose
entity formed in 2002 to issue $86.3 million of asset-backed notes in a
securitization of substantially all of the Companys residential loan
portfolio, and a $2.6 million equity interest in our deconsolidated trusts
through which we have issued trust preferred securities. See Notes 10 and 12
of our consolidated financial statements included in Item 8 of this report.

Lending Commitments.Lending commitments include loan commitments, unused
lines of credit and standby letters of credit. The instruments are not
recorded in the consolidated balance sheet until funds are advanced under the
commitments. The Company provides these lending commitments to customers in
the normal course of business.

At December 31, 2003, the Companys approved loan origination commitments
outstanding totaled $153.5 million. Unfunded commercial letters of credit and
revolving credit lines totaled $66.1 million. These letters of credit are
commitments for possible future extension of credit to existing customers.
These lines of credit are typically uncollateralized and usually do not contain
a specified maturity date.

The Company applies essentially the same credit policies and standards as
it does in the lending process when making these commitments. See Note 15 to
the consolidated financial statements included in Item 8 of this report for
additional information regarding lending commitments.

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Contractual Obligations

The following table shows the contractual obligations of the Company by
expected payment period, as of December 31, 2003. Further discussion of these
commitments is included in Notes 8, 10, 11, and 16 to the consolidated
financial statements included in Item 8 of this report.

|                                    |  |                |         |         |  |             |         |            |  |            |         |             |  |   |        |  |  |   |        | 
|----------------------------------- |  | -------------- | ------- | ------- |  | ----------- | ------- | ---------- |  | ---------- | ------- | ----------- |  | - | ------ |  |  | - | ------ | 
|                                    |  |                |         |         |  |             |         |            |  | After One  |         | After Three |  |   |        | 
|                                    |  |                |         |         |  | One Year    |         | Through    |  | Through    |         | More Than  
|Contractual Obligations             |  | Total          |         | or Less |  | Three Years |         | Five Years |  | Five Years
|                                    |  |                |         |         |  |             |         |            |  |           
|                                    |  | (in thousands)
|Long-term FHLB advances             |  | $              | 111,135 |         |  | $           | 56,600  |            |  | $          | 34,005  |             |  | $ | 11,000 |  |  | $ | 9,530  | 
|Junior subordinated debentures      |  |                | 86,600  |         |  |             |        |            |  |            |        |             |  |   |       |  |  |   | 86,600 | 
|Operating lease obligations         |  |                | 11,382  |         |  |             | 2,632   |            |  |            | 5,281   |             |  |   | 3,288  |  |  |   | 181    | 
|Deposits with stated maturity
dates |  |                | 942,920 |         |  |             | 726,191 |            |  |            | 190,128 |             |  |   | 26,601 |  |  |   |       | 
|Purchase obligations                |  |                | 2,470   |         |  |             | 687     |            |  |            | 1,783   |             |  |   |       |  |  |   |       | 

FHLB advances and junior subordinated debentures have defined terms and
under certain circumstances are callable at the option of the lender.

Operating leases represent obligations entered into by the Company for its
use of office facilities. Certain of these noncancelable operating leases
contain rental escalation clauses based on increases in the consumer price
index. At the end of the lease obligations, renewal options may be exercised
by the Company for up to an additional ten years.

Purchase obligations
represent contractual service and other operating and marketing
obligations of the Company.

Capital Resources

The Company, the Banks holding company, had Tier 1 leverage, Tier 1 risk
based and total risk-based capital ratios at December 31, 2003 of 14.2 percent,
15.6 percent and 18.2 percent, respectively, which represents $158.4 million,
$150.7 million and $128.1 million, respectively, of capital in excess of the
amount required to be well capitalized for bank holding company regulatory
purposes. Our trust preferred securities presently qualify as Tier 1 capital.
As a result of the deconsolidation of our trust subsidiaries required by our
adoption of FIN 46 as of December 31, 2003, the Federal Reserve Board is
evaluating whether the deconsolidation will affect the qualification of the
trust preferred securities as Tier 1 capital. See Note 10 to our consolidated
financial statements included in Item 8 of this report.

The Bank had Tier 1 leverage, Tier 1 risk based and total risk-based
capital ratios at December 31, 2003 of 13.2 percent, 14.3 percent and 15.6
percent, respectively, which represents $133.6 million, $124.7 million and
$83.5 million, respectively, of capital in excess of the amount required to be
well capitalized for regulatory purposes. These ratios were 13.1%, 13.2% and
14.4% as of December 31, 2002, respectively.

Shareholders equity increased to $186.9 million at December 31, 2003 from
$156.7 million at December 31, 2002. The increase was primarily due to the
retention of $29.6 million of net income as retained earnings for the year and
$2.9 million received from the exercise of employee stock options, partially
offset by the purchase of $2.2 million of the Companys common stock currently
held as treasury stock. There were no dividends declared or paid by us during
2003.

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Credit Risk Elements

Allowance for Loan Losses and Nonperforming Assets

The following table provides certain information with respect to our total
allowance for loan losses, including charge-offs, recoveries and selected
ratios, for the periods indicated.

|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |       |         |        |  
|---------------------------- | -------------------------------------------- | --------------------------------------------------------- | ---------------------------- | ----- | ------------------------------------------ | ------ | ------ | ----- | --------- | ------ | ------ | ----- | --------- | ------ | ------ | ----- | --------- | ------ | ------ | ----- | ------- | ------ | -
|                             |                                              |                                                           |                              |       | As of and for the Years Ended December 31,
|                             |                                              |                                                           |                              |       |                                           
|                             |                                              |                                                           |                              |       | 2003                                       |        | 2002   |       | 2001      |        | 2000   |       | 1999     
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |          
|                             |                                              |                                                           |                              |       | (dollars in thousands)                    
|Balance at beginning of year |                                              | $                                                         | 33,009                       |       |                                            | $      | 26,650 |       |           | $      | 27,186 |       |           | $      | 19,895 |       |           | $      | 16,811 |      
|                             | Provision for loan losses                    |                                                           |                              | 7,760 |                                            |        |        | 9,030 |           |        |        | 4,575 |           |        |        | 4,775 |           |        |        | 4,950 |        
|                             | Addition due to purchase of the ICCMAC Trust |                                                           |                              |      |                                            |        |        |      |           |        |        |      |           |        |        | 4,614 |           |        |        |      |        
|                             | Additions due to purchase of LHO and Asahi   |                                                           |                              |      |                                            |        |        | 2,048 |           |        |        |       |           |        |        |       |           |        |        |       |        
|Charge offs:                 |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              |                                                           | Real estate loans            |       |                                            | (5,286 | )      |       |           | (4,730 | )      |       |           | (2,845 | )      |       |           | (1,489 | )      |       |         | (2,088 | )
|                             |                                              |                                                           | Construction loans           |       |                                            |       |        |       |           |       |        |       |           | (2,419 | )      |       |           | (1,000 | )      |       |         |       |  
|                             |                                              |                                                           | Film finance loans           |       |                                            | (800   | )      |       |           |       |        |       |           |       |        |       |           |       |        |       |         |       |  
|                             |                                              |                                                           | Franchise loans              |       |                                            | (661   | )      |       |           |       |        |       |           |       |        |       |           |       |        |       |         |       |  
|                             |                                              |                                                           | Commercial and other loans   |       |                                            | (700   | )      |       |           |       |        |       |           |       |        |       |           |       |        |       |         |       |  
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              |                                                           | Total charge-offs            |       |                                            | (7,447 | )      |       |           | (4,730 | )      |       |           | (5,264 | )      |       |           | (2,489 | )      |       |         | (2,088 | )
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             | Recoveries:                                  |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |       |        
|                             |                                              |                                                           | Real estate loans            |       |                                            | 14     |        |       |           | 11     |        |       |           | 153    |        |       |           | 391    |        |       |         | 222    |  
|                             |                                              |                                                           | Commercial and other loans   |       |                                            | 65     |        |       |           |       |        |       |           |       |        |       |           |       |        |       |         |       |  
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              |                                                           | Total recoveries             |       |                                            | 79     |        |       |           | 11     |        |       |           | 153    |        |       |           | 391    |        |       |         | 222    |  
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              |                                                           | Net (charge-offs) recoveries |       |                                            | (7,368 | )      |       |           | (4,719 | )      |       |           | (5,111 | )      |       |           | (2,098 | )      |       |         | (1,866 | )
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|Balance at end of the year   |                                              | $                                                         | 33,401                       |       |                                            | $      | 33,009 |       |           | $      | 26,650 |       |           | $      | 27,186 |       |           | $      | 19,895 |      
|                             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              | Average loans outstanding during the year                 |                              | $     | 1,415,812                                  |        |        | $     | 1,305,902 |        |        | $     | 1,295,097 |        |        | $     | 1,147,602 |        |        | $     | 925,059 |       
|                             |                                              | Loans, net, at end of the year (1)                        |                              | $     | 1,538,825                                  |        |        | $     | 1,471,243 |        |        | $     | 1,311,178 |        |        | $     | 1,284,835 |        |        | $     | 971,375 |       
|Selected Ratios:             |                                              |                                                           |                              |       |                                            |        |        |       |           |        |        |       |           |        |        |       |           |        |        |      
|                             |                                              | Net (charge-offs) recoveries to average loans
outstanding |                              |       | (0.52                                      | )%     |        |       | (0.36     | )%     |        |       | (0.39     | )%     |        |       | (0.18     | )%     |        |       | (0.20   | )%    
|                             |                                              | Net (charge-offs) recoveries to loans, net (1)            |                              |       | (0.48                                      | )%     |        |       | (0.32     | )%     |        |       | (0.39     | )%     |        |       | (0.16     | )%     |        |       | (0.19   | )%    
|                             |                                              | Allowance for loan losses to loans, net (1)               |                              |       | 2.14                                       | %      |        |       | 2.31      | %      |        |       | 2.16      | %      |        |       | 2.12      | %      |        |       | 2.05    | %     
|                             |                                              | Allowance for loan losses to nonaccrual loans             |                              |       | 392.26                                     | %      |        |       | 555.61    | %      |        |       | 174.30    | %      |        |       | 149.85    | %      |        |       | 249.40  | %     



---

|(1) |  | Loans, before allowance for loan losses and net of premium, deferred loan
origination costs and deferred loan fees.
|--- |  | -------------------------------------------------------------------------------------------------------------------

The allowance for loan losses increased to $33.4 million or 2.14% of our
total loan portfolio at December 31, 2003 from $33.0 million or 2.31% of our
total loan portfolio at December 31, 2002. The increase in the allowance was
due primarily to the growth in the Banks loan portfolio, which increased
$120.6 million in 2003. During 2003, we decreased our provision to $7.8 million
compared to $9.0 million in 2002. The current period provision for loan losses
was recorded to provide reserves adequate to support the known and inherent
risk of loss in the loan portfolio, and reflects the overall decline in total
non-performing loans and other loans of concern from $41.4 million at December
31, 2002 to $39.8 million at December 31, 2003.

The allowance for loan losses increased to $33.0 million or 2.31% of our
total loan portfolio at December 31, 2002 from $26.7 million or 2.03% of our
total loan portfolio at December 31, 2001. During 2002, we increased our
provision to $9.0 million compared to $4.6 million in 2001. The increases in
the allowance was due primarily to the growth in our loan portfolio and the
increase in our other loans of concern, which increased from $21.5 million in
2001 to $35.5 million in 2002.

The following table sets forth managements historical allocation of the
allowance for loan losses by loan or contract category and the percentage of
gross loans in each category to total gross loans at the dates indicated.



|                       |       |        |              |        |            |        |          |     |            |        |          |        |  |  |           |     |   |   |        |        | 
|---------------------- | ----- | ------ | ------------ | ------ | ---------- | ------ | -------- | --- | ---------- | ------ | -------- | ------ |  |  | --------- | --- | - | - | ------ | ------ | 
|                       |       |        | December 31,
|                       |       |        |             
|                       |       |        | 2003         |        | 2002       |        | 2001    
|                       |       |        |              |        |            |        |         
|                       |       |        | Allowance    |        |            |        |          |     | Allowance  |        |          |        |  |  | Allowance
|                       |       |        | for loan     |        | % of loans |        | for loan |     | % of loans |        | for loan
|Loan Category:         |       | losses |              | (1)    |            | losses |          | (1) |            | losses
|                       |       |        |              |        |            |        |          |     |            |       
|Secured by real estate |       | $      | 25,522       |        |            |        | 76       | %   |            | $      | 28,348   |        |  |  | 86        | %   |   | $ | 26,650 |       
|Film finance           |       |        | 4,354        |        |            |        | 13       |     |            |        | 2,961    |        |  |  | 9         |     |   |   |       |       
|Franchise              |       |        | 3,185        |        |            |        | 10       |     |            |        | 1,490    |        |  |  | 5         |     |   |   |       |       
|Commercial             |       |        | 340          |        |            |        | 1        |     |            |        | 210      |        |  |  |          |     |   |   |       |       
|                       |       |        |              |        |            |        |          |     |            |        |          |        |  |  |           |     |   |   |        |       
|                       | Total |        | $            | 33,401 |            |        |          | 100 | %          |        | $        | 33,009 |  |  |           | 100 | % |   | $      | 26,650 | 
|                       |       |        |              |        |            |        |          |     |            |        |          |        |  |  |           |     |   |   |        |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                       |       |     |              |        |          |     |            |        |          |     |            |     |           |   |        |        |  |  |     |     |  
|---------------------- | ----- | --- | ------------ | ------ | -------- | --- | ---------- | ------ | -------- | --- | ---------- | --- | --------- | - | ------ | ------ |  |  | --- | --- | -
|                       |       |     | December 31,
|                       |       |     |             
|                       |       |     | 2001         |        | 2000     |     | 1999      
|                       |       |     |              |        |          |     |           
|                       |       |     |              |        |          |     | Allowance  |        |          |     |            |     | Allowance |   |        |        | 
|                       |       |     | % of loans   |        | for loan |     | % of loans |        | for loan |     | % of loans
|Loan Category:         |       | (1) |              | losses |          | (1) |            | losses |          | (1)
|                       |       |     |              |        |          |     |            |        |          |    
|Secured by real estate |       |     | 100          | %      |          | $   | 27,186     |        |          |     | 100        | %   |           | $ | 19,895 |        |  |  | 100 | %  
|Film finance           |       |     |             |        |          |     |           |        |          |     |           |     |           |   |       |        |  |  |    |    
|Franchise              |       |     |             |        |          |     |           |        |          |     |           |     |           |   |       |        |  |  |    |    
|Commercial             |       |     |             |        |          |     |           |        |          |     |           |     |           |   |       |        |  |  |    |    
|                       |       |     |              |        |          |     |            |        |          |     |            |     |           |   |        |        |  |  |     |    
|                       | Total |     |              | 100    | %        |     | $          | 27,186 |          |     |            | 100 | %         |   | $      | 19,895 |  |  |     | 100 | %
|                       |       |     |              |        |          |     |            |        |          |     |            |     |           |   |        |        |  |  |     |    



---

|(1) |  | Percentage represents the percent of gross loans in category to total
gross loans.
|--- |  | ----------------------------------------------------------------------------------

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Management believes the allowance for loan losses accounting policy is
critical to the portrayal and understanding of our financial condition and
results of operations. As such, selection and application of this critical
accounting policy involves judgments, estimates, and uncertainties that are
susceptible to change. In the event that different assumptions or conditions
were to prevail, and depending upon the severity of such changes, the
possibility of materially different financial condition or results of
operations is a reasonable likelihood.

Management periodically assesses the adequacy of the allowance for loan
losses by reference to many factors that 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;                                                              
|
|
|
|
| |  |  delinquency trends and nonaccrual loan levels;                                                               
|
|
|
|
| |  |  historical loss experience and risks associated with changes in economic, social and business conditions; and
|
|
|
|
| |  |  the underwriting standards in effect when the loan was made.                                                 

Accordingly, the calculation of the adequacy of the allowance for loan
losses is not based solely on the level of nonperforming assets. Management
believes that our allowance for loan losses as of December 31, 2003 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 our financial condition and results of
operations. In addition, the determination of the amount of the Banks
allowance for loan losses is subject to review by bank 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 following table sets forth the delinquency status of our loan
portfolios at each of the dates indicated.

|                      |                        |  |                        |        |           |  |            |      |           |  |        |        |            |  |  |      |   |  |            |        |  |  |  |      |  
|--------------------- | ---------------------- |  | ---------------------- | ------ | --------- |  | ---------- | ---- | --------- |  | ------ | ------ | ---------- |  |  | ---- | - |  | ---------- | ------ |  |  |  | ---- | -
|                      |                        |  | December 31,          
|                      |                        |  |                       
|                      |                        |  | 2003                   |        | 2002      |  | 2001      
|                      |                        |  |                        |        |           |  |           
|                      |                        |  |                        |        |           |  | Percent of |      |           |  |        |        | Percent of |  |  |      |   |  | Percent of
|                      |                        |  |                        |        |           |  | Gross      |      |           |  |        |        | Gross      |  |  |      |   |  | Gross     
|                      |                        |  | Amount                 |        | Portfolio |  | Amount     |      | Portfolio |  | Amount |        | Portfolio 
|                      |                        |  |                        |        |           |  |            |      |           |  |        |        |           
|                      |                        |  | (dollars in thousands)
|Period of Delinquency |                        |  |                        |        |           |  |            |      |           |  |        |        |            |  |  |      |   |  |            |        |  |  |  |     
|                      | 30  59 days           |  | $                      | 21,455 |           |  |            | 1.39 | %         |  | $      | 17,500 |            |  |  | 1.19 | % |  | $          | 11,481 |  |  |  | 0.88 | %
|                      | 60  89 days           |  |                        | 882    |           |  |            | 0.06 | %         |  |        | 148    |            |  |  | 0.01 | % |  |            | 7,954  |  |  |  | 0.61 | %
|                      | 90 days or more        |  |                        | 8,515  |           |  |            | 0.55 | %         |  |        | 5,941  |            |  |  | 0.40 | % |  |            | 13,450 |  |  |  | 1.03 | %
|                      |                        |  |                        |        |           |  |            |      |           |  |        |        |            |  |  |      |   |  |            |        |  |  |  |     
|                      | Total loans delinquent |  | $                      | 30,852 |           |  |            | 2.00 | %         |  | $      | 23,589 |            |  |  | 1.61 | % |  | $          | 32,885 |  |  |  | 2.52 | %
|                      |                        |  |                        |        |           |  |            |      |           |  |        |        |            |  |  |      |   |  |            |        |  |  |  |     

The increase in total delinquent loans in 2003 was due primarily to an
increase of $3.0 million of past due film finance loans, a $799,000 increase in
past due franchise loans and a $577,000 increase of past due loans held in
trust, partially offset by a $1.8 million decrease in past due commercial real
estate loans.

The Company has established a policy that all loans greater than $1.5
million are reviewed annually. This review usually involves obtaining updated
information about the collateral and source of repayment. In addition,
independent outside consultants periodically review the Banks loan portfolio
and report findings to management and the audit committee of the board of
directors. Loans considered to warrant special attention are presented to the
review and reserve committee, which meets at least monthly to review the status
of classified loans, consider new classifications or declassifications,
determine the need for and amount of any charge offs, and recommend to our
executive committee of the board of directors the level of allowance for loan
losses to be maintained. If management believes that the collection of the full
amount of principal is unlikely and the value of the collateral securing the
obligation is insufficient, steps are generally taken to protect and liquidate
the collateral. Losses resulting from the difference between the loan balance
and the fair market value of the collateral are recognized by a partial
charge-off of the loan balance to the collaterals

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fair market value. While real property collateral is held for sale, it is
subject to periodic evaluation and/or appraisal. If an evaluation or appraisal
indicates that the property will ultimately sell for less than our recorded
value plus costs of disposition, the loss is recognized by a charge to
allowance for loan losses on other real estate owned.

Loans are placed on nonaccrual status when they become 90 days or more
contractually delinquent, or earlier if the collection of interest is
considered by management to be doubtful, unless the loan is considered well
secured and in the process of collection. Subsequent cash collections on
nonaccrual loans are either recognized as interest income on a cash basis, if
the loan is well secured and in managements judgment the net book value is
fully collectible, or recorded entirely as a reduction of principal.

The following table sets forth our nonperforming assets by category and
troubled debt restructurings as of the dates indicated:

|                                                                     |              |                                                                               |        |                        |        |      |        |       |        |      |        |        |        |   |        |       |        |   |        |       |        | 
|-------------------------------------------------------------------- | ------------ | ----------------------------------------------------------------------------- | ------ | ---------------------- | ------ | ---- | ------ | ----- | ------ | ---- | ------ | ------ | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                                     |              |                                                                               |        | December 31,          
|                                                                     |              |                                                                               |        |                       
|                                                                     |              |                                                                               |        | 2003                   |        | 2002 |        | 2001  |        | 2000 |        | 1999  
|                                                                     |              |                                                                               |        |                        |        |      |        |       |        |      |        |       
|                                                                     |              |                                                                               |        | (dollars in thousands)
|Nonaccrual loans:(1)                                                 |              |                                                                               |        |                        |        |      |        |       |        |      |        |        |        |   |        |       |        |   |        |      
|                                                                     | Real estate  |                                                                               | $      | 4,686                  |        |      | $      | 3,913 |        |      | $      | 13,690 |        |   | $      | 9,430 |        |   | $      | 7,977 |       
|                                                                     | Construction |                                                                               |        |                       |        |      |        |      |        |      |        | 1,600  |        |   |        | 8,712 |        |   |        |      |       
|                                                                     | Franchise    |                                                                               |        | 799                    |        |      |        | 1,986 |        |      |        |       |        |   |        |      |        |   |        |      |       
|                                                                     | Film finance |                                                                               |        | 3,030                  |        |      |        |      |        |      |        |       |        |   |        |      |        |   |        |      |       
|Other real estate owned, net                                         |              |                                                                               | 7,048  |                        |        |      | 12,593 |       |        |      | 13,741 |        |        |   | 2,250  |       |        |   | 1,041  |      
|                                                                     |              |                                                                               |        |                        |        |      |        |       |        |      |        |        |        |   |        |       |        |   |        |      
|                                                                     |              | Total nonperforming assets                                                    |        |                        | 15,563 |      |        |       | 18,492 |      |        |        | 29,031 |   |        |       | 20,392 |   |        |       | 9,018  | 
|                                                                     |              | Accruing loans past-due 90 days or more
with respect to principal or interest |        |                        |       |      |        |       |       |      |        |        |       |   |        |       | 9,765  |   |        |       |       | 
|                                                                     |              | Performing troubled debt restructurings                                       |        |                        | 4,709  |      |        |       | 7,858  |      |        |        | 3,752  |   |        |       | 3,002  |   |        |       | 13,996 | 
|                                                                     |              |                                                                               |        |                        |        |      |        |       |        |      |        |        |        |   |        |       |        |   |        |      
|                                                                     |              | $                                                                             | 20,272 |                        |        | $    | 26,350 |       |        | $    | 32,783 |        |        | $ | 33,159 |       |        | $ | 23,014 |      
|                                                                     |              |                                                                               |        |                        |        |      |        |       |        |      |        |        |        |   |        |       |        |   |        |      
|Nonaccrual loans to total gross loans and
real estate loans in trust |              |                                                                               | 0.55   | %                      |        |      | 0.36   | %     |        |      | 1.17   | %      |        |   | 1.42   | %     |        |   | 0.82   | %    
|Allowance for loan losses to nonaccrual loans                        |              |                                                                               | 392.26 | %                      |        |      | 555.61 | %     |        |      | 174.30 | %      |        |   | 149.85 | %     |        |   | 249.40 | %    
|Nonperforming assets to total assets                                 |              |                                                                               | 0.86   | %                      |        |      | 1.08   | %     |        |      | 1.92   | %      |        |   | 1.44   | %     |        |   | 0.81   | %    



---

|(1) |  | Includes three loans with a net book balance of $3.8 million that were
nonperforming troubled debt restructurings in 2003 and one loan with net
book balance of $1.4 million that was a nonperforming troubled debt
restructuring in 2000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross interest income that would have been recorded on nonaccrual loans
had they been current in accordance with original terms was $608,000 and
$941,000 for the years ended December 31, 2003 and 2002 respectively. The
amount of interest income on such nonaccrual loans included in net income for
the years ended December 31, 2003 and 2002 was $290,000 and $244,000,
respectively.

Our nonaccrual loans totaled $8.5 million at December 31, 2003. Two of
these loans had an outstanding balance greater than $1.0 million.

In 2003, $9.6 million of new other real estate owned was acquired, $14.2
million of other real estate owned was sold, and a provision of $870,000 was
recorded, resulting in net other real estate owned at December 31, 2003 of $7.0
million. Other real estate owned at December 31, 2003 consisted of three
properties with an average balance of approximately $2.3 million. The other
real estate owned property with the largest net book balance totaled $4.8
million.

In addition to the above, management has concerns as to the borrowers
ability to comply with present repayment terms on $31.3 million of other loans
of concern as of December 31, 2003. See Item 1. BusinessNonperforming Assets
and Other Loans of Concern.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We realize income principally from the differential or spread between the
interest earned on loans, investments and other interest-earning assets and the
interest paid on deposits and borrowings. Loan volumes and yields, as well as
the volume of and rates on investments, deposits and borrowings, are affected
by market interest rates. Additionally, because of the terms and conditions of
many of our loan agreements and deposit accounts, a change in interest rates
could also affect the duration of the loan portfolio and/or the deposit base,
which could alter our sensitivity to future changes in interest rates.

Interest rate risk management focuses on maintaining consistent growth in
net interest income within board-approved policy limits while taking into
consideration, among other factors, our overall credit, operating income,
operating cost and capital profile. The asset/liability management committee,
which includes senior management representatives and reports to the Board of
Directors, monitors and manages interest rate risk to maintain an acceptable
level of change in net interest income as a result of changes in interest
rates. See Item 1. Business  Nonperforming Assets and Other Loans of
Concern.

In evaluating our exposure to changes in interest rates, certain risks
inherent in the method of analysis presented in the following table must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
and at different times to changes in market rates. Additionally, loan
prepayments and early withdrawals of time certificates could cause interest
sensitivities to vary from those that appear in the following table. Further,
certain assets, such as variable rate real estate loans, have features that
restrict changes in interest rates on a short-term basis and over the life of
the asset. The majority of our variable rate real estate loans may not adjust
downward below their initial rate, with increases generally limited to maximum
adjustments of 2% per year and up to 5% over the life of the loan. These loans
may also be subject to prepayment penalties. At December 31, 2003, 83.4% of our
variable rate loan portfolio would not adjust downward below the initial
interest rate with the weighted-average minimum interest rate on this portfolio
being 6.87% and 77.4% of the total loans outstanding had a lifetime interest
rate cap, with the weighted-average lifetime interest rate cap on this
portfolio being 9.28%. The anticipated effects of these various factors are
considered by management in implementing interest rate risk management
activities.

We use an internal earnings simulation model as a tool to identify and
manage our interest rate risk profile. The model is based on projected cash
flows and repricing characteristics for all financial instruments and
incorporates market-based assumptions regarding the impact of changing interest
rates on current volumes of applicable financial instruments, considering
applicable interest rate floors and caps and prepayment penalties associated
with each financial instrument. These assumptions are inherently uncertain and,
as a result, the model cannot precisely measure net interest income or
precisely predict the impact of changes in interest rates on net interest
income. Actual results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes as well as changes in market
conditions and management strategies.

The following table shows our estimated earnings sensitivity profile as of
December 31, 2003:

|                    |  |                      |        |  
|------------------- |  | -------------------- | ------ | -
|Changes in          |  | Percentage Change in
|Interest rates      |  | Net Interest Income 
|(Basis Points)      |  | (12 Months)         
|                    |  |                     
|+ 200 Over One Year |  |                      | 1.67   | %
|+ 100 Over One Year |  |                      | - 0.20 | %
|- 100 Over One Year |  |                      | 1.92   | %
|- 200 Over One Year |  |                      | N/A    |  

Because of the low level of current market interest rates, the above
analysis was not performed for an interest rate decrease greater than 100 basis
points.

Another tool used to identify and manage our interest rate risk profile is
the static gap analysis. Interest sensitivity gap analysis measures the
difference between the assets and liabilities repricing or maturing within
specific time periods. Although our cumulative GAP position indicates an
asset-sensitive position, our loan portfolio has reached floor interest rates
in excess of current market rates to such an extent that a 150 basis point
increase in rates does not cause our assets to reprice. Our liabilities within
the cumulative GAP period reprice upward to market rates under this scenario
causing compression of net interest income. In a declining rate environment,
our liabilities will continue to reprice downward, while our loan portfolio
remains at its floor rates, creating an increase in net interest income.

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The following table presents an estimate of our static GAP analysis as of
December 31, 2003.

|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |           | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------------------ | --------- | ------------- | - | ---------- | ------- | ------------ | - | ------------ | ------- | ----- | - | ------- | ------ |  | - | -------- | ------- |  | - | --------- | --------- | 
|                                                                                             |                                            |   | Maturing or Repricing in
|                                                                                             |                                            |   |                         
|                                                                                             |                                            |   |                          |           |               |   | After 3    |         | After 1 Year |   |              |         |       |   |         |        |  |   |          |         | 
|                                                                                             |                                            |   | 3 months                 |           | Months But    |   | But Within |         | After        |   | Non-Interest |         |       |   |        
|                                                                                             |                                            |   | or less                  |           | Within 1 year |   | 5 Years    |         | 5 Years      |   | Sensitive    |         | Total
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |      
|                                                                                             |                                            |   | (dollars in thousands)  
|Assets                                                                                       |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Loans (1)                                                                                    |                                            | $ | 793,130                  |           |               | $ | 564,346    |         |              | $ | 109,151      |         |       | $ | 1,795   |        |  | $ |         |         |  | $ | 1,468,422 |          
|Real estate loans held in trust(2)                                                           |                                            |   | 32,278                   |           |               |   | 22,164     |         |              |   | 15,956       |         |       |   | 5       |        |  |   |         |         |  |   | 70,403    |          
|Cash and cash equivalents                                                                    |                                            |   | 174,046                  |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   | 4,272    |         |  |   | 178,318   |          
|Investment securities available for sale                                                     |                                            |   | 8,183                    |           |               |   | 34,306     |         |              |   | 9,880        |         |       |   | 18,690  |        |  |   |         |         |  |   | 71,059    |          
|Noninterest-earning assets less
allowance for loan losses and unearned
fees                  |                                            |   |                         |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   | 30,013   |         |  |   | 30,013    |          
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|                                                                                             | Total assets                               |   | $                        | 1,007,637 |               |   | $          | 620,816 |              |   | $            | 134,987 |       |   | $       | 20,490 |  |   | $        | 34,285  |  |   | $         | 1,818,215 | 
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Liabilities and Shareholders Equity                                                         |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Time certificates under $100,000                                                             |                                            | $ | 129,702                  |           |               | $ | 315,809    |         |              | $ | 118,696      |         |       | $ |        |        |  | $ |         |         |  | $ | 564,207   |          
|Time certificates $100,000 and more                                                          |                                            |   | 96,922                   |           |               |   | 196,284    |         |              |   | 85,507       |         |       |   |        |        |  |   |         |         |  |   | 378,713   |          
|Money market and passbook accounts                                                           |                                            |   | 109,803                  |           |               |   | 38,196     |         |              |   | 8,506        |         |       |   |        |        |  |   |         |         |  |   | 156,505   |          
|Demand deposit accounts                                                                      |                                            |   | 47,592                   |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   |         |         |  |   | 47,592    |          
|FHLB advances                                                                                |                                            |   | 299,900                  |           |               |   | 16,000     |         |              |   | 36,705       |         |       |   | 9,530   |        |  |   |         |         |  |   | 362,135   |          
|Collateralized mortgage obligations                                                          |                                            |   | 15,868                   |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   |         |         |  |   | 15,868    |          
|Other liabilities                                                                            |                                            |   |                         |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   | 19,696   |         |  |   | 19,696    |          
|Junior subordinated debentures                                                               |                                            |   | 57,561                   |           |               |   |           |         |              |   |             |         |       |   | 29,039  |        |  |   |         |         |  |   | 86,600    |          
|Shareholders equity                                                                         |                                            |   |                         |           |               |   |           |         |              |   |             |         |       |   |        |        |  |   | 186,899  |         |  |   | 186,899   |          
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|                                                                                             | Total liabilities and shareholders
equity |   | $                        | 757,348   |               |   | $          | 566,289 |              |   | $            | 249,414 |       |   | $       | 38,569 |  |   | $        | 206,595 |  |   | $         | 1,818,215 | 
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Net repricing assets over (under)
repricing liabilities equals interest
rate sensitivity GAP |                                            | $ | 250,289                  |           |               | $ | 54,527     |         |              | $ | (114,427     | )       |       | $ | (18,079 | )      |  | $ | (172,310 | )       |  |   |           |          
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Cumulative interest rate sensitivity GAP                                                     |                                            | $ | 250,289                  |           |               | $ | 304,816    |         |              | $ | 190,389      |         |       | $ | 172,310 |        |  | $ |         |         |  |   |           |          
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          
|Cumulative GAP as a percentage of total
assets                                               |                                            |   | 13.77                    | %         |               |   | 16.76      | %       |              |   | 10.47        | %       |       |   | 9.48    | %      |  |   | 0.0      | %       |  |   |           |          
|                                                                                             |                                            |   |                          |           |               |   |            |         |              |   |              |         |       |   |         |        |  |   |          |         |  |   |           |          



---

|(1) |  | Adjustable rate loans consist principally of real estate secured loans
with a maximum term of 30 years. Approximately 65% of these loans are
generally adjustable quarterly based on changes in various indexes,
subject generally to a maximum increase of 2% annually and up to 5% over
the life of the loan. Approximately 17% of these loans are fixed for an
initial period of two to five years from origination, and then are
adjustable quarterly based on changes in various indexes. Nonaccrual loans
of approximately $7.7 million are assumed to reprice after five years.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Nonaccrual loans of approximately $809,000 are assumed to reprice after
five years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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##### Table of Contents






Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                         |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                         |  | Page
|                                                                                                                                         |  |     
|Report of Independent Auditors                                                                                                           |  |      | 38 | 
|Report of Predecessor Independent Public Accountants                                                                                     |  |      | 39 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                             |  |      | 40 | 
|Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001                                                   |  |      | 41 | 
|Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for
the Years Ended December 31, 2003, 2002 and 2001 |  |      | 42 | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001                                               |  |      | 43 | 
|Notes to Consolidated Financial Statements                                                                                               |  |      | 44 | 

37



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Shareholders and the Board of Directors of
ITLA Capital Corporation:

We have audited the accompanying consolidated balance sheets of ITLA Capital
Corporation and subsidiaries (the Company), a Delaware corporation, as of
December 31, 2003 and 2002, and the related consolidated statements of income,
changes in shareholders equity and comprehensive income, and cash flows for the years then ended.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ITLA Capital
Corporation and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.

As are further described in Note 1 to the consolidated financial statements, at
December 31, 2003 the Company adopted FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, as revised, which required the
deconsolidation of its trust subsidiaries that had issued its mandatorily
redeemable preferred securities and to which the Company issued its junior
subordinated debentures.

/s/ Ernst &Young LLP

Los Angeles, California
January 30, 2004

38



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and the Board of Directors of
ITLA Capital Corporation:

We have audited the accompanying consolidated balance sheets of ITLA Capital
Corporation and subsidiaries (the Company), a Delaware corporation, as of
December 31, 2001 and 2000, and the related consolidated statements of income,
changes in shareholders equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ITLA Capital Corporation and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.

/s/ Arthur Andersen LLP

Los Angeles, California
January 25, 2002

This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with ITLA Capital Corporations filing on Form 10-K for the year ended
December 31, 2001. Arthur Andersen LLP has not reissued this report in
connection with this filing on Form 10-K.

39



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |           |           |           | 
|--------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | --------- | -------------------- | --------- | --------- | --------- | --------- | --------- | 
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           | December 31,        
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                     
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           | 2003                 |           | 2002     
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           | (in thousands except
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           | share amounts)      
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                     
|Assets                                                                                                                      |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|Cash and cash equivalents                                                                                                   |                                                                                                                                                 | $                          | 178,318                                    |           |                      | $         | 160,848   |          
|Investment securities available for sale, at fair value                                                                     |                                                                                                                                                 |                            | 53,093                                     |           |                      |           | 54,677    |          
|Stock in Federal Home Loan Bank                                                                                             |                                                                                                                                                 |                            | 17,966                                     |           |                      |           | 16,934    |          
|Loans, net (net of allowance for loan losses of $31,573 and $31,081 in 2003 and 2002, respectively)                         |                                                                                                                                                 |                            | 1,436,849                                  |           |                      |           | 1,316,298 |          
|Real estate loans held in trust, net (net of allowance for loan losses of $1,828 and $1,928 in 2003
and 2002, respectively) |                                                                                                                                                 |                            | 68,575                                     |           |                      |           | 121,936   |          
|Interest receivable                                                                                                         |                                                                                                                                                 |                            | 8,958                                      |           |                      |           | 9,158     |          
|Other real estate owned, net                                                                                                |                                                                                                                                                 |                            | 7,048                                      |           |                      |           | 12,593    |          
|Premises and equipment, net                                                                                                 |                                                                                                                                                 |                            | 5,766                                      |           |                      |           | 4,197     |          
|Deferred income taxes                                                                                                       |                                                                                                                                                 |                            | 11,609                                     |           |                      |           | 13,822    |          
|Goodwill                                                                                                                    |                                                                                                                                                 |                            | 3,118                                      |           |                      |           | 3,118     |          
|Other assets                                                                                                                |                                                                                                                                                 |                            | 26,915                                     |           |                      |           | 8,384     |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            |                                                                                                                                                 |                            | Total assets                               |           | $                    | 1,818,215 |           |           | $         | 1,721,965 | 
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|Liabilities and Shareholders Equity                                                                                        |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|Liabilities:                                                                                                                |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            | Deposit accounts                                                                                                                                |                            | $                                          | 1,147,017 |                      |           | $         | 1,065,911 |          
|                                                                                                                            | Federal Home Loan Bank advances                                                                                                                 |                            |                                            | 362,135   |                      |           |           | 338,685   |          
|                                                                                                                            | Collateralized mortgage obligations                                                                                                             |                            |                                            | 15,868    |                      |           |           | 69,077    |          
|                                                                                                                            | Accounts payable and other liabilities                                                                                                          |                            |                                            | 19,696    |                      |           |           | 10,006    |          
|                                                                                                                            | Junior subordinated debentures                                                                                                                  |                            |                                            | 86,600    |                      |           |           |          |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            |                                                                                                                                                 | Total liabilities          |                                            |           | 1,631,316            |           |           |           | 1,483,679 |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|Commitments and contingencies (note 16)                                                                                     |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|Guaranteed preferred beneficial interests in the Companys junior subordinated deferrable interest
debentures               |                                                                                                                                                 |                            |                                           |           |                      |           | 81,595    |          
|Shareholders equity:                                                                                                       |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            | Preferred stock, 5,000,000 shares authorized, none issued                                                                                       |                            |                                            |          |                      |           |           |          |          
|                                                                                                                            | Contributed capital  common stock, $.01 par value; 20,000,000 shares authorized, 8,447,294 and
8,226,414 issued in 2003 and 2002, respectively |                            |                                            | 61,704    |                      |           |           | 58,841    |          
|                                                                                                                            | Retained earnings                                                                                                                               |                            |                                            | 165,407   |                      |           |           | 135,773   |          
|                                                                                                                            | Accumulated other comprehensive income, net                                                                                                     |                            |                                            | 155       |                      |           |           | 435       |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            |                                                                                                                                                 |                            | 227,266                                    |           |                      |           | 195,049   |          
|                                                                                                                            | Less treasury stock, at cost  2,475,689 and 2,447,656 shares in 2003 and 2002, respectively                                                    |                            |                                            | (40,367   | )                    |           |           | (38,358   | )        
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            |                                                                                                                                                 | Total shareholders equity |                                            |           | 186,899              |           |           |           | 156,691   |          
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          
|                                                                                                                            |                                                                                                                                                 |                            | Total liabilities and shareholders equity |           | $                    | 1,818,215 |           |           | $         | 1,721,965 | 
|                                                                                                                            |                                                                                                                                                 |                            |                                            |           |                      |           |           |          

See accompanying notes to the consolidated financial statements.

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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |         |         |        |        | 
|-------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------ | ---------------------------------------------------- | -------------------------- | ------- | ------------------------ | ------ | ------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | 
|                                                                                       |                                                 |                                      |                                                      |                            |         | Years Ended December 31,
|                                                                                       |                                                 |                                      |                                                      |                            |         |                         
|                                                                                       |                                                 |                                      |                                                      |                            |         | 2003                     |        | 2002   |         | 2001  
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |       
|                                                                                       |                                                 |                                      |                                                      |                            |         | (in thousands except per
|                                                                                       |                                                 |                                      |                                                      |                            |         | share amounts)          
|Interest income:                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | Loans receivable, including fees                |                                      | $                                                    | 104,598                    |         |                          | $      | 96,894 |         |        | $      | 104,949 |        
|                                                                                       | Real estate loans held in trust                 |                                      |                                                      | 5,980                      |         |                          |        | 10,239 |         |        |        | 14,954  |        
|                                                                                       | Cash and investment securities                  |                                      |                                                      | 5,399                      |         |                          |        | 3,475  |         |        |        | 3,192   |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 | Total interest income                |                                                      |                            | 115,977 |                          |        |        | 110,608 |        |        |         | 123,095 |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|Interest expense:                                                                      |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | Deposit accounts                                |                                      |                                                      | 24,616                     |         |                          |        | 29,349 |         |        |        | 52,864  |        
|                                                                                       | Federal Home Loan Bank advances                 |                                      |                                                      | 5,175                      |         |                          |        | 5,672  |         |        |        | 4,790   |        
|                                                                                       | Collateralized mortgage obligations             |                                      |                                                      | 1,076                      |         |                          |        | 2,301  |         |        |        | 6,209   |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 | Total interest expense               |                                                      |                            | 30,867  |                          |        |        | 37,322  |        |        |         | 63,863  |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 |                                      | Net interest income before provision for loan losses |                            |         | 85,110                   |        |        |         | 73,286 |        |         |         | 59,232 |       
|Provision for loan losses                                                              |                                                 |                                      | 7,760                                                |                            |         |                          | 9,030  |        |         |        | 4,575  |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 |                                      | Net interest income after provision for loan losses  |                            |         | 77,350                   |        |        |         | 64,256 |        |         |         | 54,657 |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|Non-interest income:                                                                   |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | Premium on sale of loans, net                   |                                      |                                                      | 8,983                      |         |                          |        |       |         |        |        |        |        
|                                                                                       | Late and collection fees                        |                                      |                                                      | 252                        |         |                          |        | 201    |         |        |        | 274     |        
|                                                                                       | Other                                           |                                      |                                                      | 6,005                      |         |                          |        | 172    |         |        |        | 785     |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 | Total non-interest income            |                                                      |                            | 15,240  |                          |        |        | 373     |        |        |         | 1,059   |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|Non-interest expense:                                                                  |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | Compensation and benefits                       |                                      |                                                      | 18,870                     |         |                          |        | 13,954 |         |        |        | 11,778  |        
|                                                                                       | Occupancy and equipment                         |                                      |                                                      | 4,839                      |         |                          |        | 3,165  |         |        |        | 2,968   |        
|                                                                                       | Other                                           |                                      |                                                      | 13,006                     |         |                          |        | 9,913  |         |        |        | 8,072   |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 | Total general and administrative     |                                                      |                            | 36,715  |                          |        |        | 27,032  |        |        |         | 22,818  |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | Real estate owned expense, net                  |                                      |                                                      | 382                        |         |                          |        | 632    |         |        |        | 136     |        
|                                                                                       | Provision for losses on other real estate owned |                                      |                                                      | 870                        |         |                          |        | 796    |         |        |        | 269     |        
|                                                                                       | Gain on sale of other real estate owned, net    |                                      |                                                      | (40                        | )       |                          |        | (105   | )       |        |        | (18     | )      
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 | Total real estate owned expense, net |                                                      |                            | 1,212   |                          |        |        | 1,323   |        |        |         | 387     |       
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       |                                                 |                                      |                                                      | Total non-interest expense |         |                          | 37,927 |        |         |        | 28,355 |         |         |        | 23,205 | 
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|Income before provision for income taxes and minority interest in income of subsidiary |                                                 |                                      | 54,663                                               |                            |         |                          | 36,274 |        |         |        | 32,511 |        
|Minority interest in income of subsidiary                                              |                                                 |                                      | 6,083                                                |                            |         |                          | 3,481  |        |         |        | 2,967  |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|Income before provision for income taxes                                               |                                                 |                                      | 48,580                                               |                            |         |                          | 32,793 |        |         |        | 29,544 |        
|Provision for income taxes                                                             |                                                 |                                      | 18,946                                               |                            |         |                          | 12,788 |        |         |        | 11,393 |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | NET INCOME                                      |                                      | $                                                    | 29,634                     |         |                          | $      | 20,005 |         |        | $      | 18,151  |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | BASIC EARNINGS PER SHARE                        |                                      | $                                                    | 4.91                       |         |                          | $      | 3.35   |         |        | $      | 2.82    |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        
|                                                                                       | DILUTED EARNINGS PER SHARE                      |                                      | $                                                    | 4.55                       |         |                          | $      | 3.16   |         |        | $      | 2.72    |        
|                                                                                       |                                                 |                                      |                                                      |                            |         |                          |        |        |         |        |        |        

See accompanying notes to the consolidated financial statements.

41



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME



|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------- | --------- | -------- |  | ----------- | ---------- | ------ |  |  | --------- | -
|                                                                                                      |  | Common Stock                       
|                                                                                                      |  | Number of shares                   
|                                                                                                      |  |                                    
|                                                                                                      |  | Gross                               |           |          |  |             |            | Net   
|                                                                                                      |  | Shares                              |           |          |  |             |            | Shares
|                                                                                                      |  | Issued and                          |           | Treasury |  | Issued and 
|                                                                                                      |  | Outstanding                         |           | Shares   |  | Outstanding
|                                                                                                      |  |                                     |           |          |  |            
|                                                                                                      |  | (in thousands except share amounts)
|Balance at January 1, 2001                                                                            |  |                                     | 8,206,749 |          |  |             | (1,546,336 | )      |  |  | 6,660,413 |  
|Issuance of common stock -
employee stock options                                                     |  |                                     | 6,000     |          |  |             |            |        |  |  | 6,000     |  
|Earned compensation from
Supplemental Executive
Retirement Plan
/Recognition and Retention
Plan, net  |  |                                     |          |          |  |             | 1,980      |        |  |  | 1,980     |  
|Common stock repurchased                                                                              |  |                                     |          |          |  |             | (809,700   | )      |  |  | (809,700  | )
|Net income                                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|Total comprehensive income                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|Balance at December 31, 2001                                                                          |  |                                     | 8,212,749 |          |  |             | (2,354,056 | )      |  |  | 5,858,693 |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|Issuance of common
stock-employee stock
options                                                       |  |                                     | 13,665    |          |  |             |           |        |  |  | 13,665    |  
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |          |          |  |             |           |        |  |  |          |  
|Common stock repurchased                                                                              |  |                                     |          |          |  |             | (93,600    | )      |  |  | (93,600   | )
|Net income                                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|Total comprehensive income                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|Balance at December 31, 2002                                                                          |  |                                     | 8,226,414 |          |  |             | (2,447,656 | )      |  |  | 5,778,758 |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|Issuance of common stock-
employee stock options                                                      |  |                                     | 220,880   |          |  |             |           |        |  |  | 220,880   |  
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |          |          |  |             | 24,919     |        |  |  | 24,919    |  
|Common stock repurchased                                                                              |  |                                     |          |          |  |             | (52,952    | )      |  |  | (52,952   | )
|Net income                                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|Total comprehensive income                                                                            |  |                                     |          |          |  |             |           |        |  |  |          |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  
|Balance at December 31, 2003                                                                          |  |                                     | 8,447,294 |          |  |             | (2,475,689 | )      |  |  | 5,971,605 |  
|                                                                                                      |  |                                     |           |          |  |             |            |        |  |  |           |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | ------------ |  | ----------- | ----- | -------- |  | ------------- | ------ | ------- |  | ----- | ------- | ----- |  | -------- | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                      |  | Shareholders' Equity               
|                                                                                                      |  |                                    
|                                                                                                      |  | Contributed Capital                 |        |              |  |             |       |          |  |               |        |         |  |      
|                                                                                                      |  |                                     |        | Accumulated  |  |             |       |          |  |               |        |        
|                                                                                                      |  |                                     |        |              |  |             |       |          |  | Total         |        |         |  |       |         | Other |  | Treasury |      |   |  |  
|                                                                                                      |  | Share                               |        | Earned       |  | Contributed |       | Retained |  | Comprehensive |        | Stock,  |  |       |         |      
|                                                                                                      |  | Capital                             |        | Compensation |  | Capital     |       | Earnings |  | Income (loss) |        | At Cost |  | Total
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |      
|                                                                                                      |  | (in thousands except share amounts)
|Balance at January 1, 2001                                                                            |  | $                                   | 56,495 |              |  | $           | 625   |          |  | $             | 57,120 |         |  | $     | 97,617  |       |  | $        | 91   |   |  | $ | (21,274 | ) |  | $ | 133,554 |  
|Issuance of common stock -
employee stock options                                                     |  |                                     | 74     |              |  |             |      |          |  |               | 74     |         |  |       |        |       |  |          |     |   |  |   |        |   |  |   | 74      |  
|Earned compensation from
Supplemental Executive
Retirement Plan
/Recognition and Retention
Plan, net  |  |                                     |       |              |  |             | 989   |          |  |               | 989    |         |  |       |        |       |  |          |     |   |  |   | 18      |   |  |   | 1,007   |  
|Common stock repurchased                                                                              |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          |     |   |  |   | (14,759 | ) |  |   | (14,759 | )
|Net income                                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       | 18,151  |       |  |          |     |   |  |   |        |   |  |   | 18,151  |  
|Total comprehensive income                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          | (98  | ) |  |   |        |   |  |   | (98     | )
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                                                                          |  |                                     | 56,569 |              |  |             | 1,614 |          |  |               | 58,183 |         |  |       | 115,768 |       |  |          | (7   | ) |  |   | (36,015 | ) |  |   | 137,929 |  
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|Issuance of common
stock-employee stock
options                                                       |  |                                     | 184    |              |  |             |      |          |  |               | 184    |         |  |       |        |       |  |          |     |   |  |   |        |   |  |   | 184     |  
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |       |              |  |             | 474   |          |  |               | 474    |         |  |       |        |       |  |          |     |   |  |   |        |   |  |   | 474     |  
|Common stock repurchased                                                                              |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          |     |   |  |   | (2,343  | ) |  |   | (2,343  | )
|Net income                                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       | 20,005  |       |  |          |     |   |  |   |        |   |  |   | 20,005  |  
|Total comprehensive income                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          | 442  |   |  |   |        |   |  |   | 442     |  
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                                                                          |  |                                     | 56,753 |              |  |             | 2,088 |          |  |               | 58,841 |         |  |       | 135,773 |       |  |          | 435  |   |  |   | (38,358 | ) |  |   | 156,691 |  
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|Issuance of common stock-
employee stock options                                                      |  |                                     | 2,897  |              |  |             |      |          |  |               | 2,897  |         |  |       |        |       |  |          |     |   |  |   |        |   |  |   | 2,897   |  
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |       |              |  |             | (34   | )        |  |               | (34    | )       |  |       |        |       |  |          |     |   |  |   | 224     |   |  |   | 190     |  
|Common stock repurchased                                                                              |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          |     |   |  |   | (2,233  | ) |  |   | (2,233  | )
|Net income                                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       | 29,634  |       |  |          |     |   |  |   |        |   |  |   | 29,634  |  
|Total comprehensive income                                                                            |  |                                     |       |              |  |             |      |          |  |               |       |         |  |       |        |       |  |          | (280 | ) |  |   |        |   |  |   | (280    | )
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                                                          |  | $                                   | 59,650 |              |  | $           | 2,054 |          |  | $             | 61,704 |         |  | $     | 165,407 |       |  | $        | 155  |   |  | $ | (40,367 | ) |  | $ | 186,899 |  
|                                                                                                      |  |                                     |        |              |  |             |       |          |  |               |        |         |  |       |         |       |  |          |      |   |  |   |         |   |  |   |         |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | -------------- |  | ------------------ | ---- | ------------- |  | ------------------- | - |  |  | - | ------ | 
|                                                                                                      |  | Comprehensive Income               
|                                                                                                      |  |                                    
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  | Reclassification of |   |  |  |  
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  | realized gains      |   |  |  |  
|                                                                                                      |  |                                     |        |                |  | Unrealized         |      | previously    |  |                     |   | 
|                                                                                                      |  |                                     |        |                |  | Gain (loss)        |      | recognized in |  | Total              
|                                                                                                      |  | Net                                 |        | on securities, |  | comprehensive      |      | Comprehensive
|                                                                                                      |  | Income                              |        | net of tax     |  | income, net of tax |      | Income       
|                                                                                                      |  |                                     |        |                |  |                    |      |              
|                                                                                                      |  | (in thousands except share amounts)
|Balance at January 1, 2001                                                                            |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Issuance of common stock -
employee stock options                                                     |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Earned compensation from
Supplemental Executive
Retirement Plan
/Recognition and Retention
Plan, net  |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Common stock repurchased                                                                              |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Net income                                                                                            |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Total comprehensive income                                                                            |  | $                                   | 18,151 |                |  | $                  | (98  | )             |  | $                   |  |  |  | $ | 18,053 | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Balance at December 31, 2001                                                                          |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Issuance of common
stock-employee stock
options                                                       |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Common stock repurchased                                                                              |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Net income                                                                                            |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Total comprehensive income                                                                            |  |                                     | 20,005 |                |  |                    | 442  |               |  |                     |  |  |  |   | 20,447 | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Balance at December 31, 2002                                                                          |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Issuance of common stock-
employee stock options                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Earned compensation from
Supplemental Executive
Retirement Plan /
Recognition and Retention
Plan, net |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Common stock repurchased                                                                              |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Net income                                                                                            |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Total comprehensive income                                                                            |  | $                                   | 29,634 |                |  | $                  | (280 | )             |  | $                   |  |  |  | $ | 29,354 | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|Balance at December 31, 2003                                                                          |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 
|                                                                                                      |  |                                     |        |                |  |                    |      |               |  |                     |   |  |  |   |        | 

See accompanying notes to the consolidated financial statements.

42



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |        |          |        |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------- | ------- | ------------------------ | ------- | ------ | -------- | ------ | -------- | ------ | -------- | ------ | ------- | -
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         | Years Ended December 31,
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                         
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         | 2003                     |         | 2002   |          | 2001  
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         | (in thousands)          
|Cash Flows From Operating Activities: |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      | Net Income                                                                        |                                                                                  | $                                                                                | 29,634                                         |         |                          | $       | 20,005 |          |        | $        | 18,151 |         
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |        |         
|                                      |                                                                                   |                                                                                  | Depreciation and amortization of premises and equipment                          |                                                |         | 1,722                    |         |        |          | 946    |          |        |          | 836    |        
|                                      |                                                                                   |                                                                                  | Amortization of premium on purchased loans                                       |                                                |         | 2,136                    |         |        |          | 1,859  |          |        |          | 3,143  |        
|                                      |                                                                                   |                                                                                  | Amortization of original issue discount and deferred debt issuance costs on CMOs |                                                |         | 328                      |         |        |          | 168    |          |        |          | 294    |        
|                                      |                                                                                   |                                                                                  | Amortization of deferred loan origination fees, net of costs                     |                                                |         | (2,390                   | )       |        |          | (1,688 | )        |        |          | (1,333 | )      
|                                      |                                                                                   |                                                                                  | Provision for loan losses                                                        |                                                |         | 7,760                    |         |        |          | 9,030  |          |        |          | 4,575  |        
|                                      |                                                                                   |                                                                                  | Provision for losses on other real estate owned                                  |                                                |         | 870                      |         |        |          | 796    |          |        |          | 269    |        
|                                      |                                                                                   |                                                                                  | Deferred income tax expense (benefit)                                            |                                                |         | 2,399                    |         |        |          | (2,255 | )        |        |          | (546   | )      
|                                      |                                                                                   |                                                                                  | Other, net                                                                       |                                                |         | 216                      |         |        |          | (105   | )        |        |          | (18    | )      
|                                      |                                                                                   | Decrease in interest receivable                                                  |                                                                                  |                                                | 200     |                          |         |        | 1,986    |        |          |        | 677      |       
|                                      |                                                                                   | (Increase) decrease in other assets                                              |                                                                                  |                                                | (13,795 | )                        |         |        | 363      |        |          |        | 462      |       
|                                      |                                                                                   | Increase (decrease) in accounts payable and other liabilities                    |                                                                                  |                                                | 9,690   |                          |         |        | (368     | )      |          |        | (654     | )     
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  | Net cash provided by operating activities      |         |                          | 38,770  |        |          |        | 30,737   |        |          |        | 25,856  |  
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|Cash Flows From Investing Activities: |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   | Proceeds from securitization and sale of real estate loans                       |                                                                                  |                                                |        |                          |         |        | 98,155   |        |          |        |         |       
|                                      |                                                                                   | Purchases of investment securities available for sale                            |                                                                                  |                                                | (55,395 | )                        |         |        | (102,462 | )      |          |        | (45,400  | )     
|                                      |                                                                                   | Proceeds from the maturity and calls of investment securities available for sale |                                                                                  |                                                | 55,894  |                          |         |        | 78,705   |        |          |        | 62,260   |       
|                                      |                                                                                   | Purchase of stock in Federal Home Loan Bank                                      |                                                                                  |                                                | (479    | )                        |         |        | (3,470   | )      |          |        | (9,160   | )     
|                                      |                                                                                   | Purchase of loans                                                                |                                                                                  |                                                | (54,053 | )                        |         |        | (90,909  | )      |          |        | (207,400 | )     
|                                      |                                                                                   | (Increase) decrease in loans, net                                                |                                                                                  |                                                | (76,100 | )                        |         |        | (84,889  | )      |          |        | 108,493  |       
|                                      |                                                                                   | Repayment of real estate loans held in trust                                     |                                                                                  |                                                | 51,946  |                          |         |        | 38,896   |        |          |        | 47,927   |       
|                                      |                                                                                   | Proceeds from sale of real estate loans                                          |                                                                                  |                                                |        |                          |         |        |         |        |          |        | 755      |       
|                                      |                                                                                   | Proceeds from sale of other real estate owned                                    |                                                                                  |                                                | 8,226   |                          |         |        | 3,972    |        |          |        | 5,687    |       
|                                      |                                                                                   | Cash paid for capital expenditures                                               |                                                                                  |                                                | (3,291  | )                        |         |        | (2,859   | )      |          |        | (752     | )     
|                                      |                                                                                   | Cash paid to acquire LHO, net                                                    |                                                                                  |                                                |        |                          |         |        | (93,042  | )      |          |        |         |       
|                                      |                                                                                   | Cash paid to acquire Asahi Bank of California, net                               |                                                                                  |                                                |        |                          |         |        | (14,872  | )      |          |        |         |       
|                                      |                                                                                   | Other, net                                                                       |                                                                                  |                                                |        |                          |         |        |         |        |          |        | (331     | )     
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  | Net cash used in investing activities          |         |                          | (73,252 | )      |          |        | (172,775 | )      |          |        | (37,921 | )
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|Cash Flows From Financing Activities: |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   | Proceeds from exercise of employee stock options                                 |                                                                                  |                                                | 2,897   |                          |         |        | 184      |        |          |        | 74       |       
|                                      |                                                                                   | Cash paid to acquire treasury stock                                              |                                                                                  |                                                | (2,233  | )                        |         |        | (2,343   | )      |          |        | (14,759  | )     
|                                      |                                                                                   | Repayment of Asahi repurchase agreement, net                                     |                                                                                  |                                                |        |                          |         |        | (14,693  | )      |          |        |         |       
|                                      |                                                                                   | Proceeds from issuance of trust preferred securities                             |                                                                                  |                                                |        |                          |         |        | 53,348   |        |          |        | 14,549   |       
|                                      |                                                                                   | Principal payments on collateralized mortgage obligations                        |                                                                                  |                                                | (53,268 | )                        |         |        | (40,739  | )      |          |        | (52,498  | )     
|                                      |                                                                                   | Increase (decrease) in deposit accounts                                          |                                                                                  |                                                | 81,106  |                          |         |        | 103,488  |        |          |        | (62,045  | )     
|                                      |                                                                                   | Net proceeds from short-term borrowings from the Federal Home Loan Bank          |                                                                                  |                                                | 64,000  |                          |         |        | 9,700    |        |          |        | 124,800  |       
|                                      |                                                                                   | Proceeds from long-term borrowings from the Federal Home Loan Bank               |                                                                                  |                                                | 16,000  |                          |         |        | 109,700  |        |          |        | 75,235   |       
|                                      |                                                                                   | Repayments of long-term borrowings from the Federal Home Loan Bank               |                                                                                  |                                                | (56,550 | )                        |         |        | (50,000  | )      |          |        | (10,000  | )     
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  | Net cash provided by financing activities      |         |                          | 51,952  |        |          |        | 168,645  |        |          |        | 75,356  |  
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  | Net increase in cash and cash equivalents      |         |                          | 17,470  |        |          |        | 26,607   |        |          |        | 63,291  |  
|                                      |                                                                                   |                                                                                  |                                                                                  | Cash and cash equivalents, beginning of period |         |                          | 160,848 |        |          |        | 134,241  |        |          |        | 70,950  |  
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   |                                                                                  |                                                                                  | Cash and cash equivalents, end of period       |         | $                        | 178,318 |        |          | $      | 160,848  |        |          | $      | 134,241 |  
|                                      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|Supplemental Cash Flow Information:   |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   | Cash paid during the period for interest                                         |                                                                                  | $                                              | 31,181  |                          |         | $      | 36,753   |        |          | $      | 65,073   |       
|                                      |                                                                                   | Cash paid during the period for income taxes                                     |                                                                                  | $                                              | 19,965  |                          |         | $      | 15,247   |        |          | $      | 9,750    |       
|Non-cash Investing Transactions:      |                                                                                   |                                                                                  |                                                                                  |                                                |         |                          |         |        |          |        |          |       
|                                      |                                                                                   | Loans transferred to other real estate owned                                     |                                                                                  | $                                              | 9,609   |                          |         | $      | 3,515    |        |          | $      | 16,961   |       
|                                      |                                                                                   | Loans to facilitate the sale of other real estate owned                          |                                                                                  | $                                              | 6,098   |                          |         | $      | 2,860    |        |          | $      | 2,050    |       

See accompanying notes to the consolidated financial statements.

43



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003, 2002, AND 2001

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization- ITLA Capital Corporation and subsidiaries (ITLA Capital
or the Company) is primarily engaged in the origination of real estate loans
secured by income producing real estate and, to a lesser extent, the
origination of franchise, film finance, tax refund anticipation, and private
label commercial revolving credit loans. Through our principal operating
subsidiary, Imperial Capital Bank (Imperial or the Bank), the Company
accepts deposits insured by the Federal Deposit Insurance Corporation (FDIC)
which are used primarily to fund the investment in variable rate loans. The
Company also holds 100 percent of the equity and certain collateralized
mortgage obligations (CMOs) of the ICCMAC Multifamily and Commercial Trust
1999-1 (the ICCMAC Trust), through our Imperial Capital Real Estate
Investment Trust (Imperial Capital REIT) subsidiary.

In 2002 we formed ITLA Capital Statutory Trust III (Trust III), ITLA
Capital Statutory Trust IV ( Trust IV), and ITLA Capital Statutory Trust V
(Trust V), and in 2001 and 2000, we formed ITLA Capital Statutory Trust II
(Trust II) and ITLA Capital Statutory Trust I (Trust I), respectively.
Collectively, these trusts are referred to as the Trusts. The Trusts were
established solely for the purpose of issuing Guaranteed Preferred Beneficial
Interests in the Companys Junior Subordinated Deferrable Interest Debentures
(the Trust Preferred securities). As discussed further in the new accounting
pronouncement section below, and in Note 10  Junior subordinated debentures,
the Company deconsolidated the Trusts as of December 31, 2003. As a result,
the Company recorded the $86.6 million of underlying debentures issued by the
Company to the Trusts as Junior subordinated debentures and $2.6 million of
the Companys investment in the Trusts and $2.1 million of deferred debt
issuance costs as Other assets in the consolidated balance sheet at December
31, 2003. The entries recorded in connection with the deconsolidation of the
Trusts are non-cash investing transactions for cash flow purposes.

During 2002, the Company formed ITLA Mortgage Loan Securitization 2002-1,
LLC, a limited liability company to issue certain asset-backed notes in
connection with the securitization of the Companys performing residential loan
portfolio.

In November 2002, the Company entered into a strategic business
relationship with various subsidiaries of Household International, Inc.
(Household) relating to certain tax refund products. In connection with this
relationship, the Bank originates tax refund anticipation loans and sells
Household a non-recourse participation interest representing substantially all
of the outstanding loan balance. Under the agreement, Household supports the
Banks credit administration, compliance, treasury, and accounting functions
with a range of services relating to the administration of this program.
Household also services the loans on behalf of the Bank. Substantially all of
the tax refund lending volume is generated during the first quarter of the
year. The tax refund agreement is for a four-year term, with substantial
break-up fees that apply in the event that Household terminates the agreement
during the first two years of the agreement. The Bank was affirmed by
Household in November 2003, as its strategic lending partner for the 2004 tax
season.

The Company also entered into an agreement in December 2002 with Household
pursuant to which the Bank originates private label commercial revolving credit
loans to small businesses. This agreement is for a two-year term. These loans
are used primarily to fund purchases from major retailers. Pursuant to this
agreement, the Bank sells Household a non-recourse participation interest
representing substantially all of the outstanding loan balance.

As of December 31, 2003 and 2002, the Bank had no tax refund anticipation
loans (RAL) outstanding and $5.8 million and $4.2 million, respectively, of
private label commercial revolving loans outstanding. Fee income earned in
connection with the RAL program, consisted of approximately $9.0 million of net
premiums on the sale of RAL loans and $4.6 million of processing and
administrative fees. Because the RAL program relates to the filing of income
tax returns, transaction activity was concentrated during the tax season. This
resulted in the Company earning substantially all of its RAL program income in
the first quarter of the year.

Imperial began operating as a California industrial bank in 1974, and
became a publicly traded company in October 1995, when its shares were sold in
an initial public offering. Imperial operates six retail branches in California
and one branch in Nevada, along with six lending offices located in California,
Nevada, Arizona, Texas, Washington, and Georgia. From its formation in 1974
until December 31, 1999, Imperial operated under the name Imperial Thrift and
Loan Association. Effective January 1, 2000, Imperial changed its name to
Imperial Capital Bank.

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In December 2002, the Bank received regulatory approval to convert to a
California state chartered commercial bank from a California industrial bank.
In addition, ITLA Capital was approved by the Federal Reserve Bank to become a
bank holding company. The Bank began operating as a commercial bank and ITLA
Capital became a bank holding company in January 2003.

Financial Statement Presentation The accounting and reporting policies
of the Company conform to accounting principles generally accepted in the
United States (GAAP) and to prevailing practices within the financial
services industry. The consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries, and variable interest entities
for which the Company is the primary beneficiary. All material intercompany
transactions and balances have been eliminated. Certain amounts in prior
periods have been reclassified to conform to the presentation in the current
period. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Cash and Cash Equivalents We consider all highly liquid investments with
original maturities of three months or less to be cash equivalents.

Investment Securities Investment securities available for sale are
carried at fair value with unrealized gains or losses reported net of taxes as
a component of other comprehensive income (loss) until realized. Realized gains
and losses are determined using the specific identification method.

Loans Loans, which include real estate loans, franchise loans, film
finance loans, tax refund anticipation loans, commercial revolving credit loans
and real estate loans held in trust, are generally carried at principal amounts
outstanding plus purchase premiums, less charge-offs, net deferred loan
origination fees and other unearned income. Deferred loan origination fees and
other unearned income include deferred unamortized fees net of direct
incremental loan origination costs. Interest income is accrued as earned. Net
purchase premiums or discounts and deferred loan origination fees are amortized
or accreted into interest income using the interest method. Premium on the
sale of loans consists entirely of income earned in connection with the sale of
refund anticipation loans to Household and is recognized as income at the time
the loans are purchased by Household.

Loans are placed on nonaccrual status when they become 90 days or more
contractually delinquent or earlier if the collection of interest is considered
by management to be unlikely. When a loan is placed on nonaccrual status, all
previously accrued but uncollected interest is reversed against current period
operating results. Subsequent cash collections on nonaccrual loans are either
recognized as interest income on a cash basis if the loan is well secured and
in managements judgment the net book value is fully collectible, or recorded
as a reduction of principal.

Loans are considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect all principal
and interest amounts due according to the original contractual terms of the
loan agreement on a timely basis. The Company evaluates impairment on a
loan-by-loan basis. Once a loan is determined to be impaired, the impairment is
measured based on the present value of the expected future cash flows
discounted at the loans effective interest rate or by using the loans most
recent market price or the fair value of the collateral if the loan is
collateral dependent.

When the measurement of an impaired loan is less than the recorded amount
of the loan, a valuation allowance is established by recording a charge to the
provision for loan losses. Subsequent increases or decreases in the valuation
allowance for impaired loans are recorded by adjusting the existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.

Our policy for recognizing interest income on impaired loans is the same
as that for nonaccrual loans.

Allowance for Loan Losses- We maintain an allowance for loan losses at a
level considered adequate to cover probable losses on loans. In evaluating the
adequacy of the allowance for loan losses, management estimates the amount of
the loss for each loan that has been identified as having more than standard
credit risk. Those estimates give consideration to, among other factors,
economic conditions, estimated real estate collateral value and cash flow, and
the financial strength and commitment of the borrower or guarantors, where
appropriate. Additionally, an estimate for loan loss is calculated for the
remaining portion of the portfolio giving consideration to the Companys
historical loss experience in the portfolio, adjusted, as appropriate, for the
estimated effects of current economic conditions and changes in the composition
of the loan portfolio over time. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance, or portion
thereof, has been confirmed.

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Other Real Estate
Owned  Other real estate owned (OREO) represents real
estate acquired through or in lieu of foreclosure. OREO is held for sale and is
initially recorded at fair value less estimated costs of disposition at the
date of foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by management and the assets are carried
at the lower of cost or estimated fair value less costs of disposition. The net
operating results from OREO are recognized as non-interest expense.

Premises and Equipment Premises and equipment are recorded at cost, less
accumulated depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
three to twelve years. Amortization of leasehold improvements is calculated on
the straight-line method over the shorter of the estimated useful lives of the
assets or the corresponding lease term.

Goodwill The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. The
adoption of SFAS No. 142 ceased the amortization of goodwill and requires an
annual assessment for impairment by applying a fair-value-based test. In
connection with acquisitions discussed in Note 2, the Company recognized
approximately $3.1 million of goodwill. In accordance with SFAS No. 142, the
Company assesses the goodwill for impairment on an annual basis, or on an
interim basis if events or circumstances indicate the fair value of the
goodwill has decreased below its carrying value. During 2003 and 2002, the
Company evaluated its goodwill, and determined that no impairment was required.

Income Taxes Provision for income taxes is the amount of estimated tax
due reported on our tax returns and the change in the amount of deferred tax
assets and liabilities. Deferred income taxes represent the estimated net
income tax expense payable (or benefits receivable) for temporary differences
between the carrying amounts for financial reporting purposes and the amounts
used for tax purposes.

Earnings Per Share- Earnings per share (EPS) for all periods presented
in the consolidated statements of income are computed in accordance with the
provisions of SFAS No. 128 -
Earnings Per Share, and are based on the weighted-average number of shares
outstanding during each year. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted EPS includes the effect
of common stock equivalents of the Company, which include only shares issuable
on the exercise of outstanding options. A reconciliation of the computation of
Basic EPS and Diluted EPS is presented in Note 18  Earnings Per Share.

Stock-Based Compensation The Companys stock-based compensation plan is
accounted for in accordance with Accounting Principles Board (APB) Opinion
No. 25  Accounting for Stock Issued to Employees. Under APB Opinion No. 25,
no compensation expense is recognized for a stock option grant if the exercise
price of the stock option at measurement date is equal to or greater than the
fair market value of the common stock on the date of grant. The Company applies
SFAS No. 123 for disclosure purposes only. SFAS No. 123 disclosures include
pro forma net income and earning per share as if the fair value-based method of
accounting had been used. If compensation had been determined based on SFAS
No. 123, the Companys pro forma net income and pro forma per share data would
be as follows:

|                                                                                                                       |                                 |   |                                       |      |      |   |        |      |  |   |        |      | 
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------- | - | ------------------------------------- | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                       |                                 |   | For the Year Ended                   
|                                                                                                                       |                                 |   | December 31,                         
|                                                                                                                       |                                 |   |                                      
|                                                                                                                       |                                 |   | 2003                                  |      | 2002 |   | 2001  
|                                                                                                                       |                                 |   |                                       |      |      |   |       
|                                                                                                                       |                                 |   | (in
thousands, except per share data)
|Net income,
          as reported                                                                                      |                                 | $ | 29,634                                |      |      | $ | 20,005 |      |  | $ | 18,151 |     
|Less:
          Stock-based employee compensation expense determined under the fair
          value method, net of tax |                                 |   | (1,440                                | )    |      |   | (1,076 | )    |  |   |       |     
|                                                                                                                       |                                 |   |                                       |      |      |   |        |      |  |   |        |     
|Pro forma
          net income                                                                                         |                                 | $ | 28,194                                |      |      | $ | 18,929 |      |  | $ | 18,151 |     
|                                                                                                                       |                                 |   |                                       |      |      |   |        |      |  |   |        |     
|Earnings
          per share:                                                                                          |                                 |   |                                       |      |      |   |        |      |  |   |        |     
|                                                                                                                       | Basic
           as reported   |   | $                                     | 4.91 |      |   | $      | 3.35 |  |   | $      | 2.82 | 
|                                                                                                                       | Basic
           pro forma     |   | $                                     | 4.68 |      |   | $      | 3.17 |  |   | $      | 2.82 | 
|                                                                                                                       | Diluted
           as reported |   | $                                     | 4.55 |      |   | $      | 3.16 |  |   | $      | 2.72 | 
|                                                                                                                       | Diluted
           pro forma   |   | $                                     | 4.33 |      |   | $      | 2.99 |  |   | $      | 2.72 | 

Comprehensive Income- Comprehensive income is displayed in the
Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income and consists
entirely of the change in net unrealized holding gain or loss on securities
classified as available for sale, net of the related income tax effect.

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New Accounting Pronouncements In November 2002, Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirement for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions for
FIN 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002. The disclosure requirements of FIN 45 are effective
for financial statements of interim or annual periods ending after December 15,
2002, and were included in the Companys financial statements for the year
ended December 31, 2003. Implementation of the provisions of FIN 45 did not
have a material impact on the Companys financial statements.

In January 2003, FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 establishes the criteria
used to identify variable interest entities and to determine whether or not to
consolidate a variable interest entity. The Company adopted FIN 46 at December
31, 2003. In accordance therewith, the Company deconsolidated the Trusts. The
result was to recognize investments in the Trusts in other assets,
and to report
the amount of subordinated debentures issued by the Company to the Trusts in
the liability section of the Companys consolidated balance sheet. In
addition, beginning January 1, 2004, the Company will recognize the interest
expense on the subordinated debentures in the consolidated statements of
income. Prior to FIN 46, the Company consolidated the Trusts and reported trust
preferred securities in the mezzanine section of the Companys consolidated
balance sheets and recognized the proportionate share of income attributable to
the preferred shareholders as minority interest in income of subsidiary in the
consolidated statements of income. This interpretation was effective
immediately for variable interest entities created after January 31, 2003 and
was initially to be effective for variable interest entities acquired prior to
February 1, 2003, in the quarter ended September 30, 2003. Effective October
9, 2003, the FASB agreed to defer the effective date of FIN 46 for variable
interests held by public companies in all entities that were acquired prior to
February 1, 2003. The deferral required public companies to adopt the
provisions of FIN 46 for periods ended after December 15, 2003. Adoption of
FIN 46, as revised, did not have a material impact on the results of operations
or financial position, but will affect net interest income. As a result of the
adoption of FIN 46 at December 31, 2003, financial information prior to the
adoption has not been restated.

On May 15, 2003, FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 modifies the accounting for certain financial instruments that issuers
could account for as equity. Under SFAS No. 150, those instruments with
characteristics of both liabilities and equity must be classified as
liabilities in the consolidated balance sheets, with the corresponding payments
to holders of the instruments recognized as interest expense.

The reporting
requirements of SFAS No. 150 are effective July 1, 2003. On
October 29, 2003, the FASB agreed to defer provisions related to mandatory
redeemable financial instruments to periods beginning after December 15, 2004.
The adoption of SFAS No. 150 did not have a material impact on the results of
operations or the financial position of the Company.

NOTE 2  ACQUISITIONS

In February 2002, the Bank acquired Asahi Bank of California, a
wholly-owned subsidiary of Asahi Bank Ltd  Japan, for approximately $14.9
million. The acquisition was structured as a statutory merger of Asahi Bank of
California into the Bank. On the date of acquisition, Asahi Bank of California
had total assets of approximately $50.0 million, including $35.0 million of
commercial real estate and business loans and $15.0 million of cash and
securities which were acquired by the Bank at the closing of the transaction.
The Bank recorded $2.3 million of goodwill in connection with this acquisition.
The purpose of this acquisition was to expand the Banks customer base and to
obtain certain commercial banking systems and technology.

On October 25, 2002, the Company acquired the operating assets and the
performing film finance loan portfolio of the Lewis Horwitz Organization
(LHO) in an all cash transaction valued at approximately $93.0 million. The
Bank recorded $0.8 million of goodwill in connection with this acquisition. LHO
is a lender to the independent film and television production industry. LHO
operates as a division of the Bank. The purpose of this acquisition was to
diversify the Banks lending products and expand its customer base.

These acquisitions were accounted for in accordance with SFAS No. 141. The
results of operations related to these entities are included in the
consolidated statements of income from the date of each respective acquisition.

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NOTE 3INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of December
31, 2003 and 2002 are as follows:

|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |   |     |     | 
|------------------ | ----------------------------------------- | -------------------------------------- | ---------------------------------------------- | - | -------------- | ------ | ----- | - | ------ | ------ | ------ | - | ---------------- | --- |  | - | --- | --- | 
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   | Gross Unrealized
|                   |                                           |                                        |                                                |   | Amortized      |        | Fair  |   |       
|                   |                                           |                                        |                                                |   | Cost           |        | Value |   | Gains  |        | Losses
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |       
|                   |                                           |                                        |                                                |   | (in thousands)
|December 31, 2003: |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  
|                   | Investment securities available for sale: |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |   |    
|                   |                                           | U.S. Government Agency                 |                                                | $ | 47,749         |        |       | $ | 47,621 |        |        | $ |                 |     |  | $ | 128 |    
|                   |                                           | Residual interest in securitized loans |                                                |   | 5,055          |        |       |   | 5,368  |        |        |   | 313              |     |  |   |    |    
|                   |                                           | Equity securities                      |                                                |   | 25             |        |       |   | 104    |        |        |   | 88               |     |  |   | 9   |    
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  
|                   |                                           |                                        | Total investment securities available for sale |   | $              | 52,829 |       |   | $      | 53,093 |        |   | $                | 401 |  |   | $   | 137 | 
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  
|December 31, 2002: |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  
|                   | Investment securities available for sale: |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |   |    
|                   |                                           | U.S. Government Agency                 |                                                | $ | 48,698         |        |       | $ | 48,986 |        |        | $ | 353              |     |  | $ | 65  |    
|                   |                                           | Residual interest in securitized loans |                                                |   | 5,305          |        |       |   | 5,619  |        |        |   | 314              |     |  |   |    |    
|                   |                                           | Equity securities                      |                                                |   | 25             |        |       |   | 72     |        |        |   | 62               |     |  |   | 15  |    
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  
|                   |                                           |                                        | Total investment securities available for sale |   | $              | 54,028 |       |   | $      | 54,677 |        |   | $                | 729 |  |   | $   | 80  | 
|                   |                                           |                                        |                                                |   |                |        |       |   |        |        |        |   |                  |     |  |  

At December 31, 2003, the carrying value of U.S. government agency
securities available for sale consisted of $21.0 million of securities that
mature within three years with an average yield of 2.61%, and $26.7 million of
securities that mature after three but within five years with an average yield
of 3.15%. The $21.0 million of securities that mature within three years are
callable as follows: $3.5 million in April 2004, $3.5 million in May 2004, $3.5
million in August 2004, $7.0 million in November 2004, and $3.5 million in
December 2004. The $26.7 million of securities that mature after three but
within five years are callable as follows: $7.6 million are callable in January
2004, $2.1 million are callable in March 2004, $6.1 million are callable in
July 2004, $8.2 million are callable in August 2004, and $2.7 million are
callable in April 2005.

At December 31, 2002, the carrying value of U.S. government agency
securities available for sale consisted of $14.1 million of securities that
mature within three years with an average yield of 4.20%, and $34.6 million of
securities that mature after three but within five years with an average yield
of 4.62%. The $14.1 million of securities that mature within three years are
callable as follows: $3.0 million in February 2003, $2.0 million in March 2003,
$2.0 million in May 2003, and $7.1 million in June 2003. The $34.6 million of
securities that mature after three but within five years are callable as
follows: $3.9 million are callable in February 2003, $6.1 million are callable
in April 2003, $3.0 million are callable in May 2003, $2.1 million are callable
in June 2003, $9.1 million are callable in August 2003, $3.0 million are
callable in October 2003, and $7.4 million are callable in November 2003.

During 2003 and 2002, no securities were sold prior to their maturity or
call date.

There were no gross realized gains or losses on investment securities for
the years ended December 31, 2003, 2002 and 2001.

NOTE 4LOANS

Loans held in the Banks portfolio consist of the following:

|                                             |  |                |           |      |  |   |           |  
|-------------------------------------------- |  | -------------- | --------- | ---- |  | - | --------- | -
|                                             |  | December 31,  
|                                             |  |               
|                                             |  | 2003           |           | 2002
|                                             |  |                |           |     
|                                             |  | (in thousands)
|Real estate loans                            |  | $              | 1,128,851 |      |  | $ | 1,069,434 |  
|Construction loans                           |  |                | 129,540   |      |  |   | 101,422   |  
|Film finance loans                           |  |                | 98,630    |      |  |   | 119,283   |  
|Franchise loans                              |  |                | 102,128   |      |  |   | 54,672    |  
|Commercial and other loans                   |  |                | 6,869     |      |  |   | 4,314     |  
|                                             |  |                |           |      |  |   |           |  
|                                             |  |                | 1,466,018 |      |  |   | 1,349,125 |  
|                                             |  |                |           |      |  |   |           |  
|Unamortized premium                          |  |                | 2,904     |      |  |   | 3,858     |  
|Deferred loan origination fees, net of costs |  |                | (500      | )    |  |   | (5,604    | )
|                                             |  |                |           |      |  |   |           |  
|                                             |  |                | 1,468,422 |      |  |   | 1,347,379 |  
|Allowance for loan losses                    |  |                | (31,573   | )    |  |   | (31,081   | )
|                                             |  |                |           |      |  |   |           |  
|                                             |  | $              | 1,436,849 |      |  | $ | 1,316,298 |  
|                                             |  |                |           |      |  |   |           |  

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At December 31, 2003, approximately 89.9%, 9.9% and 0.2% of the Banks
loans collateralized by real estate were secured by income producing
properties, properties under development and residential one-to-four family
properties, respectively. At December 31, 2003, approximately 72.7% of our
loans secured by real estate were collateralized by properties located in
California.

At December 31, 2002, approximately 92.1%, 7.7% and 0.2% of the Banks
loans collateralized by real estate were secured by income producing properties,
properties under development and residential one-to-four family properties,
respectively. At December 31, 2002, approximately 73.1% of our loans secured by
real estate were collateralized by properties located in California.

At December 31, 2003 and 2002, approximately $791.8 million and $606.9
million, respectively, of loans were pledged to secure a borrowing facility at
the Federal Home Loan Bank (FHLB) of San Francisco.

The following is the activity in the allowance for loan losses on loans
for the periods indicated.

|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |       |        |        |  
|---------------------------- | --------------------------------- | --------------------------- | ----------------- | ----- | ----------------------- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | -
|                             |                                   |                             |                   |       | As of and for the Years
|                             |                                   |                             |                   |       | Ended December 31,     
|                             |                                   |                             |                   |       |                        
|                             |                                   |                             |                   |       | 2003                    |        | 2002   |       | 2001  
|                             |                                   |                             |                   |       |                         |        |        |       |       
|                             |                                   |                             |                   |       | (in thousands)         
|Balance at beginning of year |                                   | $                           | 31,081            |       |                         | $      | 24,722 |       |        | $      | 22,608 |      
|                             | Provision for loan losses         |                             |                   | 7,860 |                         |        |        | 9,030 |        |        |        | 7,225 |       
|                             | Additions related to acquisitions |                             |                   |      |                         |        |        | 2,048 |        |        |        |      |       
|                             | Charge-offs:                      |                             |                   |       |                         |        |        |       |        |        |        |       |       
|                             |                                   | Real estate loans           |                   |       | (5,286                  | )      |        |       | (4,730 | )      |        |       | (2,845 | )     
|                             |                                   | Construction loans          |                   |       |                        |        |        |       |       |        |        |       | (2,419 | )     
|                             |                                   | Commercial/Industrial loans |                   |       | (1,461                  | )      |        |       |       |        |        |       |       |       
|                             |                                   | Consumer loans              |                   |       | (700                    | )      |        |       |       |        |        |       |       |       
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      
|                             |                                   |                             | Total charge-offs |       |                         | (7,447 | )      |       |        | (4,730 | )      |       |        | (5,264 | )
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      
|                             | Recoveries:                       |                             |                   |       |                         |        |        |       |        |        |        |       |       
|                             |                                   | Real estate loans           |                   |       | 14                      |        |        |       | 11     |        |        |       | 153    |       
|                             |                                   | Consumer loans              |                   |       | 65                      |        |        |       |       |        |        |       |       |       
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      
|                             |                                   |                             | Total recoveries  |       |                         | 79     |        |       |        | 11     |        |       |        | 153    |  
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      
|                             |                                   |                             | Net charge-offs   |       |                         | (7,368 | )      |       |        | (4,719 | )      |       |        | (5,111 | )
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      
|Balance at end of year       |                                   | $                           | 31,573            |       |                         | $      | 31,081 |       |        | $      | 24,722 |      
|                             |                                   |                             |                   |       |                         |        |        |       |        |        |        |      

As of December 31, 2003 and 2002, the accrual of income had been suspended
on approximately $7.7 million and $5.9 million, respectively, of bank loans.
Interest income that was contractually due on loans that were on nonaccrual
status that was not recognized during the years ended December 31, 2003, 2002
and 2001 was approximately $608,000, $941,000, and $2.1 million, respectively.

As of December 31, 2003 and 2002, restructured loans totaled $8.4 million
and $7.9 million, respectively. There were no related commitments to lend
additional funds on restructured loans. For the years ended December 31, 2003,
2002 and 2001, $775,000, $905,000, and $376,000, respectively, of gross
interest income would have been recorded had the loans been current in
accordance with their original terms compared to $696,000, $796,000, and
$340,000, respectively, of interest income that was included in net income for
the same periods. The average yield on restructured loans was 6.93% and 8.05%,
respectively at December 31, 2003 and 2002.

The Banks recorded investment in impaired loans, and the related
valuation allowance, were as follows:

|                                |                      |   |                   |        |                   |   |            |       |           |   |       |        |  |   |       |       | 
|------------------------------- | -------------------- | - | ----------------- | ------ | ----------------- | - | ---------- | ----- | --------- | - | ----- | ------ |  | - | ----- | ----- | 
|                                |                      |   | December 31, 2003 |        | December 31, 2002
|                                |                      |   |                   |        |                  
|                                |                      |   | Recorded          |        | Valuation         |   | Recorded   |       | Valuation
|                                |                      |   | Investment        |        | Allowance         |   | Investment |       | Allowance
|                                |                      |   |                   |        |                   |   |            |       |          
|                                |                      |   | (in thousands)   
|Valuation allowance required    |                      | $ | 6,255             |        |                   | $ | 1,242      |       |           | $ | 7,251 |        |  | $ | 1,622 |      
|No valuation allowance required |                      |   | 6,830             |        |                   |   |           |       |           |   | 8,702 |        |  |   |      |      
|                                |                      |   |                   |        |                   |   |            |       |           |   |       |        |  |   |       |      
|                                | Total impaired loans |   | $                 | 13,085 |                   |   | $          | 1,242 |           |   | $     | 15,953 |  |   | $     | 1,622 | 
|                                |                      |   |                   |        |                   |   |            |       |           |   |       |        |  |   |       |      

$3.5 million of the impaired loans with a valuation allowance were on
nonaccrual status at December 31, 2003. The average recorded investment in
impaired loans for the years ended December 31, 2003, 2002 and 2001 was $13.1
million, $11.6 million, and $26.0 million, respectively. Interest income
recognized on impaired loans for the years ended December 31, 2003, 2002 and
2001 was $475,000, $375,000, and $89,000, respectively.

Loans having carrying values of $9.6 million and $3.5 million were
transferred to OREO in 2003 and 2002, respectively.

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NOTE 5ICCMAC MULTIFAMILY AND COMMERCIAL TRUST 1999-1

Real estate loans held in trust consisted of the following:

|                          |  |                |        |      |  |   |         |  
|------------------------- |  | -------------- | ------ | ---- |  | - | ------- | -
|                          |  | December 31,  
|                          |  |               
|                          |  | 2003           |        | 2002
|                          |  |                |        |     
|                          |  | (in thousands)
|Real estate loans         |  | $              | 67,878 |      |  | $ | 119,824 |  
|Unamortized premium       |  |                | 2,525  |      |  |   | 4,040   |  
|                          |  |                |        |      |  |   |         |  
|                          |  |                | 70,403 |      |  |   | 123,864 |  
|Allowance for loan losses |  |                | (1,828 | )    |  |   | (1,928  | )
|                          |  |                |        |      |  |   |         |  
|                          |  | $              | 68,575 |      |  | $ | 121,936 |  
|                          |  |                |        |      |  |   |         |  

The following is the activity in the allowance for loan losses relating to
real estate loans held in the ICCMAC Trust as follows:

|                                      |  |                |       |      |  |   |       | 
|------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                      |  | December 31,  
|                                      |  |               
|                                      |  | 2003           |       | 2002
|                                      |  |                |       |     
|                                      |  | (in thousands)
|Balance at beginning of year          |  | $              | 1,928 |      |  | $ | 1,928 | 
|Reversal of provision for loan losses |  |                | (100  | )    |  |   |      | 
|Charge-offs                           |  |                |      |      |  |   |      | 
|                                      |  |                |       |      |  |   |       | 
|Balance at end of year                |  | $              | 1,828 |      |  | $ | 1,928 | 
|                                      |  |                |       |      |  |   |       | 

At December 31, 2003 and 2002, the recorded investment in impaired loans
of the ICCMAC Trust was $810,000 and $233,000, respectively. There was no
valuation allowance required on these loans. The average recorded investment in
impaired real estate loans of the ICCMAC Trust was $321,000 and $345,000 at
December 31, 2003 and 2002, respectively. There was no interest income recognized on the
ICCMAC Trust impaired loans for the years ended December 31, 2003, 2002 and
2001.

The following is a summary of the outstanding CMOs of the ICCMAC Trust:

|                     |        |              |        |                 |        |                     |        |   |  |             |      |               |  |     |   |  |  | 
|-------------------- | ------ | ------------ | ------ | --------------- | ------ | ------------------- | ------ | - |  | ----------- | ---- | ------------- |  | --- | - |  |  | 
|                     |        |              |        |                 |        |                     |        |   |  |             |      | Interest Rate |  |     |   | 
|                     |        |              |        | Recorded Amount |        | Margin over 6 month |        |   |  |            
|Class                |        | December 31, |        | LIBOR           |        | Rating             
|                     |        |              |        |                 |        |                    
|                     |        |              |        | 2003            |        | 2002                |        |   |  |             |      |               |  |    
|                     |        |              |        |                 |        |                     |        |   |  |             |      |               |  |    
|                     |        |              |        | (in thousands)  |        |                     |        |   |  |             |      |              
|A-2                  |        | $            |       |                 |        | $                   | 24,015 |   |  |             | 0.42 | %             |  | AAA
|S                    |        |              | 190    |                 |        |                     | 1,511  |   |  | zero coupon |      | AAA          
|A-3                  |        |              |       |                 |        |                     | 17,447 |   |  |             | 0.60 | %             |  | AAA
|B                    |        |              | 1,146  |                 |        |                     | 11,631 |   |  |             | 0.88 | %             |  | AA 
|C                    |        |              | 14,539 |                 |        |                     | 14,539 |   |  |             | 1.55 | %             |  |     | A | 
|                     |        |              |        |                 |        |                     |        |   |  |             |      |               |  |     |   | 
|                     | 15,875 |              |        |                 | 69,143 |                     |        |   |  |             |      |               |  |    
|Unamortized Discount |        |              | (7     | )               |        |                     | (66    | ) |  |             |      |               |  |     |   | 
|                     |        |              |        |                 |        |                     |        |   |  |             |      |               |  |     |   | 
|                     |        | $            | 15,868 |                 |        | $                   | 69,077 |   |  |             |      |               |  |     |   | 
|                     |        |              |        |                 |        |                     |        |   |  |             |      |               |  |     |   | 

The interest rate on the variable rate CMOs adjusts monthly and the
repayment of the bonds is based on the cash flows of the underlying loan
portfolio.

NOTE 6OTHER REAL ESTATE OWNED

Other real estate owned was stated as follows:

|                                      |  |                |       |      |  |   |        |  
|------------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | -
|                                      |  | December 31,  
|                                      |  |               
|                                      |  | 2003           |       | 2002
|                                      |  |                |       |     
|                                      |  | (in thousands)
|Other real estate owned held for sale |  | $              | 7,548 |      |  | $ | 13,086 |  
|Less: valuation allowance             |  |                | (500  | )    |  |   | (493   | )
|                                      |  |                |       |      |  |   |        |  
|Other real estate owned, net          |  | $              | 7,048 |      |  | $ | 12,593 |  
|                                      |  |                |       |      |  |   |        |  

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The activity in the valuation allowance for other real estate owned was as
follows:

|                             |                                                  |   |                         |      |      |   |      |      |   |   |     |     |  
|---------------------------- | ------------------------------------------------ | - | ----------------------- | ---- | ---- | - | ---- | ---- | - | - | --- | --- | -
|                             |                                                  |   | As of and for the Years
|                             |                                                  |   | Ended December 31,     
|                             |                                                  |   |                        
|                             |                                                  |   | 2003                    |      | 2002 |   | 2001
|                             |                                                  |   |                         |      |      |   |     
|                             |                                                  |   | (in thousands)         
|Balance at beginning of year |                                                  | $ | 493                     |      |      | $ | 374  |      |   | $ | 127 |    
|                             | Provision for losses on other real estate owned  |   |                         | 870  |      |   |      | 796  |   |   |     | 269 |  
|                             | Charge-offs upon sale of other real estate owned |   |                         | (863 | )    |   |      | (677 | ) |   |     | (22 | )
|                             |                                                  |   |                         |      |      |   |      |      |   |   |     |    
|Balance at end of year       |                                                  | $ | 500                     |      |      | $ | 493  |      |   | $ | 374 |    
|                             |                                                  |   |                         |      |      |   |      |      |   |   |     |    

NOTE 7PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation
and amortization and consist of the following:

|                                          |  |                |        |      |  |   |        |  
|----------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2003           |        | 2002
|                                          |  |                |        |     
|                                          |  | (in thousands)
|Furniture, fixtures and equipment         |  | $              | 9,542  |      |  | $ | 7,383  |  
|Leasehold improvements                    |  |                | 5,351  |      |  |   | 5,039  |  
|Automobiles                               |  |                | 842    |      |  |   | 522    |  
|                                          |  |                |        |      |  |   |        |  
|                                          |  |                | 15,735 |      |  |   | 12,944 |  
|Accumulated depreciation and amortization |  |                | (9,969 | )    |  |   | (8,747 | )
|                                          |  |                |        |      |  |   |        |  
|                                          |  | $              | 5,766  |      |  | $ | 4,197  |  
|                                          |  |                |        |      |  |   |        |  

Depreciation and amortization expense on premises and equipment for the
years ended December 31, 2003, 2002 and 2001 was $1.7 million, $946,000, and
$836,000, respectively.

NOTE 8DEPOSIT ACCOUNTS

Deposit accounts consist of the following:

|                                    |  |                |           |      |  |   |           | 
|----------------------------------- |  | -------------- | --------- | ---- |  | - | --------- | 
|                                    |  | December 31,  
|                                    |  |               
|                                    |  | 2003           |           | 2002
|                                    |  |                |           |     
|                                    |  | (in thousands)
|Non-interest demand accounts        |  | $              | 9,074     |      |  | $ |          | 
|Interest demand accounts            |  |                | 38,518    |      |  |   |          | 
|Money market and passbook accounts  |  |                | 156,505   |      |  |   | 168,525   | 
|Time certificates under $100,000    |  |                | 564,207   |      |  |   | 521,404   | 
|Time certificates $100,000 and over |  |                | 378,713   |      |  |   | 375,982   | 
|                                    |  |                |           |      |  |   |           | 
|                                    |  | $              | 1,147,017 |      |  | $ | 1,065,911 | 
|                                    |  |                |           |      |  |   |           | 

Demand deposit accounts have no contractual maturity. Interest bearing
demand accounts pay interest at rates ranging from 1.29% to 1.90% per annum.
The weighted average contractual interest rate of the Banks interest-bearing
demand deposit accounts was 1.86% at December 31, 2003. Money market and
passbook accounts have no contractual maturity and pay interest at rates
ranging from 0.25% to 3.54% per annum. The weighted average contractual
interest rate of the Banks money market and passbook accounts was 1.63% and
1.67% at December 31, 2003 and 2002, respectively. Additionally, some money
market accounts have limited checking features which allow three check
withdrawals per month. Time certificates have maturities ranging from 30 days
to five years and bear interest at varying rates based on market conditions,
ranging from 0.95% to 6.53% per annum. The weighted average contractual
interest rate of the Banks time certificate accounts was 2.24% and 2.90% at
December 31, 2003 and 2002, respectively.

Interest expense on time certificates $100,000 and over for the years
ended December 31, 2003, 2002 and 2001 amounted to approximately $8.7 million,
$9.0 million, and $16.1 million, respectively.

The Bank is a member of the FDIC and its deposits are insured up to
$100,000 each per insured depositor.

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As of December 31, 2003, the contractual maturities of time certificate
accounts were as follows:

|                 |  |                |         | 
|---------------- |  | -------------- | ------- | 
|Year of Maturity |  | Amount        
|                 |  |               
|                 |  | (in thousands)
|2004             |  | $              | 726,191 | 
|2005             |  |                | 146,761 | 
|2006             |  |                | 43,367  | 
|2007             |  |                | 6,382   | 
|2008             |  |                | 20,219  | 
|                 |  |                |         | 
|                 |  | $              | 942,920 | 
|                 |  |                |         | 

NOTE 9  LINES OF CREDIT

As of December 31, 2003 and 2002, the Bank had uncommitted, unsecured
lines of credit with two banks renewable daily in the amount of $30.0 million.
There were no borrowings against these lines at December 31, 2003 and 2002.

NOTE 10  JUNIOR SUBORDINATED DEBENTURES

The Company has created five trusts, Trust I, Trust II, Trust III, Trust
IV, and Trust V. Trust I issued $14.0 million of 10.60% cumulative trust
preferred securities in September 2000, Trust II issued $15.0 million of 10.20%
cumulative trust preferred securities in February 2001, Trust III issued $20.0
million of variable rate cumulative trust preferred securities, Trust IV issued
$10.0 million of variable rate cumulative trust preferred securities, and Trust
V issued $25.0 million of variable rate cumulative trust preferred securities,
(referred to collectively as the Trust Preferred securities). ITLA Capital
has fully and unconditionally guaranteed the Trust Preferred securities along
with all obligations of each trust under their respective trust agreements.
Each trust was formed for the exclusive purpose of issuing their respective
Trust Preferred securities and common securities and using the proceeds to
acquire ITLA Capitals junior subordinated deferrable interest debentures.
Trust I acquired an aggregate principal amount of $14.4 million of ITLA
Capitals 10.60% junior subordinated deferrable interest debentures due
September 7, 2030 that pays interest each March 7 and September 7 during the
term of this security. Trust II acquired an aggregate principal amount of $15.5
million of ITLA Capitals 10.20% junior subordinated deferrable interest
debentures due February 22, 2031 that pays interest each February 22 and August
22 during the term of this security. Trust III acquired an aggregate principal
amount of $20.6 million of ITLA Capitals variable rate junior subordinated
deferrable interest debentures due October 30, 2032 that pays interest on each
April 30 and October 30 during the term of the security. Trust IV acquired an
aggregate principal amount of $10.3 million of ITLA Capitals variable rate
junior subordinated deferrable interest debentures due December 10, 2032 that
pays interest each June 15 and December 15 during the term of the security.
Trust V acquired an aggregate principal amount of $25.8 million of ITLA
Capitals variable rate junior subordinated deferrable interest
debentures due
December 26, 2032 that pays interest quarterly on March 26, June 26, September
26, and December 26 during the term of the security. The sole assets of each
trust are the debentures it holds. Each of the debentures is redeemable, in
whole or in part, at ITLA Capitals option on or after ten years after issuance
for Trust I and Trust II (at declining premiums for the first ten years and at
par thereafter until maturity), and five years after issuance for Trust III,
Trust IV, and Trust V (at par until maturity). Each of the debentures is also
redeemable, in whole and not in part, at ITLA Capitals option any time prior
to maturity, upon the occurrence of certain special events, which include,
among others, a determination by the Federal Reserve Board that the Trust
Preferred securities do not qualify as Tier 1 capital (discussed below).

The Company used the proceeds from the debentures for general corporate
purposes, including an aggregate of $81.3 million in capital contributions to
the Bank to support future growth. The costs associated with the Trust
Preferred securities issuance were netted with proceeds and are being amortized
using a method that approximates the interest method over a period of five to
ten years. The distributions paid on the Trust Preferred securities are
reflected as Minority interest in income of subsidiary in the Consolidated
Statements of Income. Minority interest in income of subsidiary was $6.1
million, $3.5 million, and $3.0 million for the years ended December 31, 2003,
2002 and 2001, respectively.

Prior to the adoption of FIN 46, the Trust Preferred securities were
reflected on the Consolidated Balance Sheets as Guaranteed Preferred
Beneficial Interests in the Companys Junior Subordinated Deferrable Interest
Debentures. The recorded balance of Trust Preferred securities was $81.6
million at December 31, 2002. At December 31, 2003, upon adoption of FIN 46,
the Company was required to deconsolidate the Trusts from its financial
statements. As a result of the deconsolidation, the debentures are included in
Junior subordinated debentures and the Companys investment interests in the
Trusts and deferred debt issuance costs are included in Other assets on the
Consolidated Balance Sheets.

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The trust preferred securities however, qualify as Tier 1 capital for ITLA
Capital under Federal Reserve Board guidelines. As a result of the issuance of
FIN 46, the Federal Reserve Board is currently evaluating whether
deconsolidation of the trusts will affect the qualification of the trust
preferred securities as Tier 1 capital. As of December 31, 2003, the Company
would meet all requirements to maintain the well capitalized designation
regardless of the inclusion of the capital securities in Tier 1 capital.

NOTE 11  FHLB ADVANCES

FHLB advances represent collateralized obligations with the FHLB of San
Francisco, and are summarized by contractual maturity as follows:

|                 |      |        |                |         | 
|---------------- | ---- | ------ | -------------- | ------- | 
|Year of Maturity |      | Amount
|                 |      |       
|                 |      |        | (in thousands)
|                 | 2004 |        | $              | 307,600 | 
|                 | 2005 |        |                | 1,100   | 
|                 | 2006 |        |                | 32,905  | 
|                 | 2007 |        |                |        | 
|                 | 2008 |        |                | 11,000  | 
|Thereafter       |      |        | 9,530          |        
|                 |      |        |                |        
|                 |      | $      | 362,135        |        
|                 |      |        |                |        

We have pledged real estate loans with a carrying value of $791.8 million,
and cash equivalents and investment securities available for sale with a
carrying value of $47.6 million, for a total of $839.4 million of assets
pledged as collateral for this borrowing facility. The total borrowing capacity
available from the collateral that has been pledged is approximately $531.6
million, of which $169.5 million remained as of December 31, 2003.

The following table represents the maximum month-end balance outstanding,
weighted-average daily balance outstanding, average rates paid during the year,
and the average rates on the balance at year-end for FHLB advances:

|                                           |  |                        |         |      |  |      |         |   |  |   |         |  
|------------------------------------------ |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                           |  | December 31,          
|                                           |  |                       
|                                           |  | 2003                   |         | 2002 |  | 2001
|                                           |  |                        |         |      |  |     
|                                           |  | (dollars in thousands)
|Maximum month-end balance outstanding      |  | $                      | 362,135 |      |  | $    | 338,685 |   |  | $ | 269,285 |  
|Weighted-average daily balance outstanding |  | $                      | 201,419 |      |  | $    | 194,160 |   |  | $ | 103,675 |  
|Average rates paid during the year         |  |                        | 2.57    | %    |  |      | 2.92    | % |  |   | 4.62    | %
|Average rates on balance at year-end       |  |                        | 1.69    | %    |  |      | 1.99    | % |  |   | 2.99    | %
|Balance at year-end                        |  | $                      | 362,135 |      |  | $    | 338,685 |   |  | $ | 269,285 |  

NOTE 12  RESIDUAL INTEREST IN SECURITIZATION

During the first quarter of 2002, the Company formed a qualified special
purpose entity (QSPE) to issue $86.3 million of asset-backed notes in a
securitization of substantially all of the Companys residential loan
portfolio. The Company recognized a gain of $3.7 million on the securitization
of these loans, which was included in other non-interest income within the
consolidated statement of income. Concurrent with recognizing such gain on
sale, the Company recorded a residual interest of $5.6 million, which
represented the present value of future cash flows (spread and fees) that are
estimated to be received over the life of the loans. The residual interest is
recorded on the consolidated balance sheet in Investment securities available
for sale, at fair value. The value of the residual interest is subject to
substantial credit, prepayment, and interest rate risk on the sold residential
loans. In accordance with the provisions of SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, the residual interest is
classified as available for sale and, as such, recorded at fair value with
the resulting changes in fair value recorded as accumulated unrealized gain or
loss in a separate component of shareholders equity entitled Accumulated
other comprehensive income or loss, until realized. Fair value is estimated
on a monthly basis using a discounted cash flow analysis. These cash flows are
estimated over the lives of the receivables using prepayment, default, and
interest rate assumptions that management believes market participants would
use for similar financial instruments.

During 2003, the Company recognized an other than temporary impairment of
$1.0 million on the residual interest. Impairments that are deemed to be other
than temporary are charged to non-interest income. In evaluating impairments
as other than temporary the Company considers credit risk, as well as the
magnitude and trend of default rates and prepayment speeds of the underlying
residential loans.

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At December 31, 2003 and 2002, key economic assumptions and the
sensitivity of the current fair value of the residual interest based on
projected cash flows to immediate adverse changes in those assumptions are as
follows:

|                                                     |  |                   |       |                   |  |   |       |  
|---------------------------------------------------- |  | ----------------- | ----- | ----------------- |  | - | ----- | -
|                                                     |  | December 31, 2003 |       | December 31, 2002
|                                                     |  |                   |       |                  
|Dollars in thousands                                 |  |                   |       |                   |  |   |       |  
|Fair value of retained interest                      |  | $                 | 5,368 |                   |  | $ | 5,619 |  
|Weighted average life (in years)  securities        |  |                   | 0.90  |                   |  |   | 1.49  |  
|Weighted average life (in years)  residual interest |  |                   | 4.47  |                   |  |   | 4.70  |  
|Weighted average annual prepayment speed             |  |                   | 35.0  | %                 |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $                 | (67   | )                 |  | $ | (23   | )
|Impact of 25% adverse change                         |  | $                 | (120  | )                 |  | $ | (59   | )
|Weighted average annual discount rate                |  |                   | 15.0  | %                 |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $                 | (147  | )                 |  | $ | (167  | )
|Impact of 25% adverse change                         |  | $                 | (367  | )                 |  | $ | (404  | )
|Weighted average lifetime credit losses              |  |                   | 3.3   | %                 |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $                 | (313  | )                 |  | $ | (285  | )
|Impact of 25% adverse change                         |  | $                 | (753  | )                 |  | $ | (678  | )

These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in the fair value of the residual interest are
based on a variation in assumptions and generally cannot be extrapolated
because the relationship of the change in assumption to the change in fair
value may not be linear. Also, in the above table, the effect of a variation
in a particular assumption on the fair value of the residual interest is
calculated without changing any other assumption; in reality, changes in one
factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments but increased credit losses),
which might magnify or counteract the sensitivities, and depending on the
severity of such changes, the results of operations may be materially affected.

NOTE 13  BENEFIT PLANS

Salary Savings Plan. The Company has a salary savings plan (the Savings
Plan) that qualifies as a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code. Under the Savings Plan, participating employees may
defer a portion of their pretax earnings, not to exceed the annual limits
established by the Internal Revenue Service. We match 50% of each employees
salary deferral, up to a maximum 6% of the employees salary. Employees vest in
employer contributions and the earnings thereon over a five-year period.
Matching contributions to the Savings Plan were $357,000, $189,000, and
$112,000 in 2003, 2002 and 2001, respectively.

Nonqualified Deferred Compensation Plans. The Company has deferred
compensation plans designed to provide additional retirement benefits for
certain officers and key employees who cannot take full advantage of the
Savings Plan. There were no costs associated with these deferred compensation
plans in 2003, 2002 and 2001.

Long-Term Supplemental Executive Retirement Plan. The Company has adopted
a Long-Term Supplemental Executive Retirement Plan (the SERP) for certain
officers and key employees which provides for participants to be awarded shares
of common stock of the Company on a tax deferred basis from the current
Recognition and Retention Plan (RRP) previously approved by the shareholders.
Such shares vest in three-year cycles or earlier at the discretion of the
Compensation Committee of the Board of Directors, and once vested, may be
distributed to participants upon a change in control or the participants
death, disability, retirement date or date of termination of employment. During
1998, the Company issued shares of common stock, representing the remaining
number of unissued shares authorized to be awarded under the RRP, to a Rabbi
Trust managed by a third-party financial institution. For 2003, 2002 and 2001,
21,158, 20,880 and 30,685 shares, respectively, were allocated to designated
SERP accounts for the future benefit of certain Company executives. The Company
recognized $189,000, $476,000, and $674,000 of compensation expense from the
SERP/RRP in 2003, 2002 and 2001, respectively.

Stock Plans. The Company adopted an employee stock incentive plan and
stock option plan for nonemployee directors (collectively, the Stock Plan)
which provides for the award of up to 1,311,500 shares of common stock to
officers, directors and employees as compensation for future services, not to
exceed a combined 550,000 shares during 1995, the first year of the Stock Plan,
with annual awards thereafter limited to 100,000 additional shares. An
amendment to the Stock Plan increasing the number of shares authorized for
award under the Stock Plan by 311,500 shares was approved by the Companys
shareholders on June 29, 2001. As of December 31, 2003, the Company has granted
an aggregate of 1,554,750 options under the Stock Plan, of which 327,294 have
been exercised and 374,673 have been forfeited. The exercise price per share of
the options granted ranges from $10.00 to $46.69 per share and generally vest
33-1/3% per year, beginning with the first anniversary of the date of each
individual grant.

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The number of options and weighted-average exercise prices of options for
each of the following groups of options, for the periods indicated, are as
follows:

|                                                 |                                   |  |                   |          |                 |  |           |         |      |   |                  |       |  |   |       |       | 
|------------------------------------------------ | --------------------------------- |  | ----------------- | -------- | --------------- |  | --------- | ------- | ---- | - | ---------------- | ----- |  | - | ----- | ----- | 
|                                                 |                                   |  |                   |          |                 |  |           |         |      |   | Weighted-Average
|                                                 |                                   |  | Number of Options |          | Exercise Prices
|                                                 |                                   |  |                   |          |                
|                                                 |                                   |  | 2003              |          | 2002            |  | 2003      |         | 2002
|                                                 |                                   |  |                   |          |                 |  |           |         |     
|Options outstanding at the beginning
of the year |                                   |  | 1,067,000         |          |                 |  | 814,250   |         |      | $ | 16.86            |       |  | $ | 13.07 |      
|                                                 | Options granted during the year   |  |                   | 24,000   |                 |  |           | 298,750 |      |   | $                | 38.37 |  |   | $     | 27.39 | 
|                                                 | Options exercised during the year |  |                   | (220,880 | )               |  |           | (13,665 | )    |   | $                | 13.12 |  |   | $     | 13.49 | 
|                                                 | Options forfeited during the year |  |                   | (17,337  | )               |  |           | (32,335 | )    |   | $                | 24.92 |  |   | $     | 18.31 | 
|                                                 |                                   |  |                   |          |                 |  |           |         |      |   |                  |       |  |   |       |      
|Options outstanding at the end of the
year       |                                   |  | 852,783           |          |                 |  | 1,067,000 |         |      | $ | 18.35            |       |  | $ | 16.86 |      
|                                                 |                                   |  |                   |          |                 |  |           |         |      |   |                  |       |  |   |       |      
|Options exercisable at the end of the
year       |                                   |  | 638,238           |          |                 |  | 713,917   |         |      | $ | 15.17            |       |  | $ | 12.86 |      
|                                                 |                                   |  |                   |          |                 |  |           |         |      |   |                  |       |  |   |       |      

The fair value of each option grant was estimated on the date of grant
using an option pricing model with the following weighted-average assumptions
for option grants:

|                            |  |                                          |              |             |  |             |              |   |  |   |              |  
|--------------------------- |  | ---------------------------------------- | ------------ | ----------- |  | ----------- | ------------ | - |  | - | ------------ | -
|                            |  | Weighted-Average Assumptions for Options
|                            |  | Grants                                  
|                            |  |                                         
|                            |  | 2003                                     |              | 2002        |  | 2001       
|                            |  |                                          |              |             |  |            
|Dividend Yield              |  |                                          | 0.00         | %           |  |             | 0.00         | % |  |   | 0.00         | %
|Expected Volatility         |  |                                          | 38.04        | %           |  |             | 31.36        | % |  |   | 30.41        | %
|Risk-Free Interest Rates    |  |                                          | 3.65%-4.34   | %           |  |             | 4.62%-4.88   | % |  |   | 4.79% - 5.13 | %
|Expected Lives              |  | Seven Years                              |              | Seven Years |  | Seven Years
|Weighted-Average Fair Value |  | $                                        | 14.75-$21.84 |             |  | $           | 10.12-$13.46 |   |  | $ | 7.14-$8.37   |  

NOTE 14  INCOME TAXES

Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities are as
follows:

|                                          |                                                             |                                |                        |        |                |        |      |        |        |        | 
|----------------------------------------- | ----------------------------------------------------------- | ------------------------------ | ---------------------- | ------ | -------------- | ------ | ---- | ------ | ------ | ------ | 
|                                          |                                                             |                                |                        |        | December 31,  
|                                          |                                                             |                                |                        |        |               
|                                          |                                                             |                                |                        |        | 2003           |        | 2002
|                                          |                                                             |                                |                        |        |                |        |     
|                                          |                                                             |                                |                        |        | (in thousands)
|Components of the deferred tax asset:     |                                                             |                                |                        |        |                |        |      |       
|                                          | Allowance for loan losses                                   |                                | $                      | 13,339 |                |        | $    | 13,307 |       
|                                          | Accrued expenses                                            |                                |                        | 2,103  |                |        |      | 3,217  |       
|                                          | State income taxes                                          |                                |                        | 1,262  |                |        |      | 1,266  |       
|                                          | Other real estate owned                                     |                                |                        | 460    |                |        |      | 745    |       
|                                          | Other                                                       |                                |                        | 278    |                |        |      |       |       
|                                          |                                                             |                                |                        |        |                |        |      |       
|                                          |                                                             | Total deferred tax assets      |                        |        | 17,442         |        |      |        | 18,535 |       
|                                          |                                                             |                                |                        |        |                |        |      |       
|Components of the deferred tax liability: |                                                             |                                |                        |        |                |        |      |       
|                                          | Deferred loan origination costs                             |                                |                        | 3,723  |                |        |      | 2,326  |       
|                                          | FHLB stock dividends                                        |                                |                        | 1,999  |                |        |      | 1,886  |       
|                                          | Unrealized gain on investment securities available for sale |                                |                        | 111    |                |        |      | 297    |       
|                                          | Other                                                       |                                |                        |       |                |        |      | 204    |       
|                                          |                                                             |                                |                        |        |                |        |      |       
|                                          |                                                             | Total deferred tax liabilities |                        |        | 5,833          |        |      |        | 4,713  |       
|                                          |                                                             |                                |                        |        |                |        |      |       
|                                          |                                                             |                                | Net deferred tax asset |        | $              | 11,609 |      |        | $      | 13,822 | 
|                                          |                                                             |                                |                        |        |                |        |      |       

The deferred tax asset is considered fully realizable, as when the
temporary differences associated with the deferred tax asset are recognized for
income tax purposes, those deductions are expected to be fully offset, either
by carryback against previously taxed income or by reducing future taxable
income. Accordingly, we have not established a valuation allowance on the
deferred tax asset.

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A summary of the provision for income taxes follows:

|                              |         |   |                          |        |      |   |        |        |   |   |        |        |  
|----------------------------- | ------- | - | ------------------------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                              |         |   | Years Ended December 31,
|                              |         |   |                         
|                              |         |   | 2003                     |        | 2002 |   | 2001  
|                              |         |   |                          |        |      |   |       
|                              |         |   | (in thousands)          
|Current provision:            |         |   |                          |        |      |   |        |        |   |   |        |       
|                              | Federal |   | $                        | 13,131 |      |   | $      | 11,127 |   |   | $      | 9,824  |  
|                              | State   |   |                          | 3,416  |      |   |        | 3,916  |   |   |        | 2,115  |  
|                              |         |   |                          |        |      |   |        |        |   |   |        |       
|                              |         |   | 16,547                   |        |      |   | 15,043 |        |   |   | 11,939 |       
|                              |         |   |                          |        |      |   |        |        |   |   |        |       
|Deferred provision (benefit): |         |   |                          |        |      |   |        |        |   |   |        |       
|                              | Federal |   |                          | 1,835  |      |   |        | (462   | ) |   |        | (1,007 | )
|                              | State   |   |                          | 564    |      |   |        | (1,793 | ) |   |        | 461    |  
|                              |         |   |                          |        |      |   |        |        |   |   |        |       
|                              |         |   | 2,399                    |        |      |   | (2,255 | )      |   |   | (546   | )     
|                              |         |   |                          |        |      |   |        |        |   |   |        |       
|                              |         | $ | 18,946                   |        |      | $ | 12,788 |        |   | $ | 11,393 |       
|                              |         |   |                          |        |      |   |        |        |   |   |        |       

A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:

|                                                    |                           |  |                          |      |      |  |      |      |   |  |      |      |  
|--------------------------------------------------- | ------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                    |                           |  | Years Ended December 31,
|                                                    |                           |  |                         
|                                                    |                           |  | 2003                     |      | 2002 |  | 2001
|                                                    |                           |  |                          |      |      |  |     
|Federal statutory income tax rate                   |                           |  | 35.0                     | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|State income tax, net of federal income
tax benefit |                           |  | 7.0                      | %    |      |  | 7.0  | %    |   |  | 7.0  | %   
|State income tax credit and other benefits          |                           |  | (3.0                     | )%   |      |  | (3.0 | )%   |   |  | (3.4 | )%  
|                                                    |                           |  |                          |      |      |  |      |      |   |  |      |     
|                                                    | Effective income tax rate |  |                          | 39.0 | %    |  |      | 39.0 | % |  |      | 38.6 | %
|                                                    |                           |  |                          |      |      |  |      |      |   |  |      |     

The income tax benefit (expense) component of other comprehensive income
was $186,000, $(302,000), and $21,000 for the years ended December 31, 2003,
2002 and 2001, respectively.

NOTE 15  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

We are a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments consist of commitments to extend credit. These
instruments may involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
contractual amounts of those instruments reflect the extent of involvement we
have in particular classes of financial instruments.

We have exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit. This
exposure is represented by the contractual amount of those instruments and the
Company uses the same lending policies for these instruments as it does for the
loan portfolio. We had outstanding unfunded loan commitments, including the
unfunded portion of construction loans, of approximately $153.5 million and
$91.2 million at December 31, 2003 and 2002, respectively.

Unfunded commitments under commercial lines of credit, revolving credit
lines and overdraft protection agreements are commitments for possible
extensions of future extensions of credit to existing customers. These lines
of credit are typically uncollateralized and usually do not contain a specific
maturity date and may not be drawn upon to the total extent to which the
Company is committed. We had outstanding commercial lines of credit
totaling $66.1 million at December 31, 2003. There were no outstanding
commercial lines of credit at December 31, 2002.

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NOTE 16  COMMITMENTS AND CONTINGENCIES

Commitments

We lease office facilities under noncancelable operating leases. Estimated
future minimum lease payments required under leases with initial or remaining
noncancelable terms in excess of one year at December 31, 2003 are as follows:

|                 |            |      |        |                |       | 
|---------------- | ---------- | ---- | ------ | -------------- | ----- | 
|                 |            |      |        | (in thousands)
|                 |            | 2004 |        | $              | 2,632 | 
|                 |            | 2005 |        |                | 2,657 | 
|                 |            | 2006 |        |                | 2,624 | 
|                 |            | 2007 |        |                | 2,590 | 
|                 |            | 2008 |        |                | 698   | 
|                 | Thereafter |      |        | 181            |      
|                 |            |      |        |               
|Sub-Lease income |            |      | (1,531 | )             
|                 |            |      |        |               
|                 |            | $    | 9,851  |               
|                 |            |      |        |               

Certain leases contain rental escalation clauses based on increases in the
consumer price index, and renewal options of up to ten years, which may be
exercised by the Company. We incurred rent expense of $2.9 million, $2.1
million, and $2.1 million in 2003, 2002 and 2001, respectively.

Contingencies

We are subject to various pending legal actions which arise in the normal
course of business. We maintain reserves for losses from legal actions which
are both probable and estimable. Although the amount of the ultimate exposure,
if any, cannot be determined at this time, in managements opinion, based upon
advice of counsel, the disposition of claims currently pending will not have a
material adverse effect on our financial condition or results of operations.

NOTE 17  REGULATORY REQUIREMENTS

The Company, the Banks holding company, is subject to supervision by the
Federal Reserve Board (FRB). The Bank is subject to supervision and
regulation by the FDIC and the Department of Financial Institutions (DFI) of
the State of California under the provisions of the California Banking Law.
These provisions authorize the Banks issuance of deposits, place limits on the
size of loans the Bank can make, and specify the maintenance of minimum
liquidity levels.

The Company and the Bank are also subject to various capital requirements
administered by the FRB and FDIC, respectively. The FRB and the FDIC have
substantially similar risk-based capital ratio and leverage ratio guidelines
for banking organizations. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary action by
regulators that, if undertaken, could have a direct material effect on the
Companys consolidated financial statements and the Banks operations. Under
the applicable capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Companys and the Banks
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Companys and the Banks capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of Total and Tier 1 capital to risk-weighted
assets, and of Tier 1 capital to average total assets (Leverage Ratio).
Management believes, as of December 31, 2003 and 2002, that the Company and the
Bank meet all applicable capital adequacy requirements.

As of December 31, 2003, the most recent notification from the FDIC
categorized the Bank as well capitalized under the applicable regulatory
framework. Similarly, the Companys capital levels exceeded the levels
necessary to be considered well capitalized. To be categorized as well
capitalized, the Company and the Bank must maintain minimum Total Risk-Based,
Tier 1 Risk-Based and Tier 1 Leverage Ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Companys and the Banks category. The
Company commenced operations as a bank holding company in January 2003, and
therefore, was not subject to the regulatory capital guidelines in 2002.

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The capital securities held by the subsidiary trusts qualify as Tier 1
capital for the Company under Federal Reserve Board guidelines. As a result of
the issuance of FIN 46, the FRB is currently evaluating whether deconsolidation
of the trusts will affect the qualification of the capital securities as Tier 1
capital. If in the future it is determined that the capital securities can no
longer qualify as Tier 1 capital, the Company would still meet all capital
adequacy requirements to which it is subject.

ITLA Capital and the Banks actual regulatory capital amounts and ratios
are presented in the following table:

|                                         |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  |  |      |  
|---------------------------------------- | ----------------------- | --------------------- |  | ---------------------- | ------- | -------- |  | ----------- | ---- | ----- |  | -------------------- | ------- | ------------------ |  |  | --- | - |  | ---------------- | ------- |  |  |  | ---- | -
|                                         |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  | Capital Required
|                                         |                         |                       |  |                        |         |          |  |             |      |       |  | Minimum Requirement  |         | to Maintain       
|                                         |                         |                       |  |                        |         |          |  |             |      |       |  | for Capital Adequacy |         | "Well Capitalized"
|                                         |                         |                       |  | Actual                 |         | Purposes |  | Designation
|                                         |                         |                       |  |                        |         |          |  |            
|                                         |                         |                       |  | Amount                 |         | Ratio    |  | Amount      |      | Ratio |  | Amount               |         | Ratio             
|                                         |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                   
|                                         |                         |                       |  | (dollars in thousands)
|                                         | As of December 31, 2003 |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  |  |     
|Total capital (to risk-weighted
assets)  |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | ITLA Capital          |  | $                      | 284,952 |          |  |             | 18.2 | %     |  | $                    | 125,444 |                    |  |  | 8.0 | % |  | $                | 156,805 |  |  |  | 10.0 | %
|                                         |                         | Imperial Capital Bank |  | $                      | 233,746 |          |  |             | 15.6 | %     |  | $                    | 120,170 |                    |  |  | 8.0 | % |  | $                | 150,213 |  |  |  | 10.0 | %
|Tier I capital (to risk-weighted
assets) |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | ITLA Capital          |  | $                      | 244,745 |          |  |             | 15.6 | %     |  | $                    | 62,722  |                    |  |  | 4.0 | % |  | $                | 94,083  |  |  |  | 6.0  | %
|                                         |                         | Imperial Capital Bank |  | $                      | 214,813 |          |  |             | 14.3 | %     |  | $                    | 60,085  |                    |  |  | 4.0 | % |  | $                | 90,128  |  |  |  | 6.0  | %
|Tier I capital (to average total
assets) |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | ITLA Capital          |  | $                      | 244,745 |          |  |             | 14.2 | %     |  | $                    | 69,081  |                    |  |  | 4.0 | % |  | $                | 86,351  |  |  |  | 5.0  | %
|                                         |                         | Imperial Capital Bank |  | $                      | 214,813 |          |  |             | 13.2 | %     |  | $                    | 64,964  |                    |  |  | 4.0 | % |  | $                | 81,205  |  |  |  | 5.0  | %
|                                         | As of December 31, 2002 |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  |  |     
|Total capital (to risk-weighted
assets)  |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | Imperial Capital Bank |  | $                      | 202,623 |          |  |             | 14.4 | %     |  | $                    | 112,238 |                    |  |  | 8.0 | % |  | $                | 140,298 |  |  |  | 10.0 | %
|Tier I capital (to risk-weighted
assets) |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | Imperial Capital Bank |  | $                      | 184,910 |          |  |             | 13.2 | %     |  | $                    | 56,119  |                    |  |  | 4.0 | % |  | $                | 84,179  |  |  |  | 6.0  | %
|Tier I capital (to average total
assets) |                         |                       |  |                        |         |          |  |             |      |       |  |                      |         |                    |  |  |     |   |  |                  |         |  |  | 
|                                         |                         | Imperial Capital Bank |  | $                      | 184,910 |          |  |             | 13.1 | %     |  | $                    | 63,848  |                    |  |  | 4.0 | % |  | $                | 71,013  |  |  |  | 5.0  | %

Additionally, Federal and state banking regulations place certain
restrictions on dividends paid and loans or advances made by the Bank to the
Company. The total amount of dividends which may be paid at any date is
generally limited to the retained earnings of the Bank, and loans or advances
are limited to 10 percent of the Banks capital stock and surplus on a secured
basis.

At December 31, 2003, the Banks retained earnings available for the
payment of dividends was $83.8 million. Accordingly, $134.1 million of the
Companys equity in the net assets of the Bank was restricted at December 31,
2003. Funds available for loans or advances by the Bank to the Company
amounted to $13.4 million. In addition, dividends paid by the Bank to the
Company would be prohibited if the effect thereof would cause the Banks
capital to be reduced below applicable minimum capital requirements.

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NOTE 18EARNINGS PER SHARE

The following is a reconciliation of the amounts used in the calculation
of Basic earnings per share and Diluted earnings per share.

|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |       |  
|---------------------------- | -------------------------------- |  | ------------------------------------- | ------ | ----------- |  | --------- | ----- | --------- |  | - | ----- | -
|                             |                                  |  |                                       |        |             |  | Weighted- |       |           |  |  
|                             |                                  |  |                                       |        |             |  | Average   |       |           |  |  
|                             |                                  |  |                                       |        |             |  | Shares    |       | Per Share
|                             |                                  |  | Net Income                            |        | Outstanding |  | Amount   
|                             |                                  |  |                                       |        |             |  |          
|                             |                                  |  | (in thousands, except per share data)
|Year ended December 31, 2003 |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Basic earnings per share         |  | $                                     | 29,634 |             |  |           | 6,030 |           |  | $ | 4.91  |  
|                             | Dilutive effect of stock options |  |                                       |       |             |  |           | 480   |           |  |   | (0.36 | )
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Diluted earnings per share       |  | $                                     | 29,634 |             |  |           | 6,510 |           |  | $ | 4.55  |  
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|Year ended December 31, 2002 |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Basic earnings per share         |  | $                                     | 20,005 |             |  |           | 5,979 |           |  | $ | 3.35  |  
|                             | Dilutive effect of stock options |  |                                       |       |             |  |           | 360   |           |  |   | (0.19 | )
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Diluted earnings per share       |  | $                                     | 20,005 |             |  |           | 6,339 |           |  | $ | 3.16  |  
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|Year ended December 31, 2001 |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Basic earnings per share         |  | $                                     | 18,151 |             |  |           | 6,427 |           |  | $ | 2.82  |  
|                             | Dilutive effect of stock options |  |                                       |       |             |  |           | 241   |           |  |   | (0.10 | )
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      
|                             | Diluted earnings per share       |  | $                                     | 18,151 |             |  |           | 6,668 |           |  | $ | 2.72  |  
|                             |                                  |  |                                       |        |             |  |           |       |           |  |   |      

NOTE 19DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are based on judgments regarding credit risk,
expectations of future economic conditions, normal cost of administration of
these instruments and other risk characteristics, including interest rate risk
and prepayment risk. These estimates are subjective in nature, involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates. The fair value estimates presented do not include the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments.

We use the following methods and assumptions to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
value:

Cash and Cash Equivalents The carrying values reported in the balance
sheet approximate fair values due to the short-term nature of the assets.

Investment Securities Fair values are based on bid prices and quotations
published and/or received from established securities dealers.

Stock in Federal Home Loan Bank The carrying value approximates fair
value based on the redemption provisions of the FHLB.

Loans and Real Estate Loans Held in Trust The fair value is estimated using
the present value of future cash flows, discounted using the current rate at
which similar loans would be made to borrowers with similar credit ratings and
for the same maturities and giving consideration to estimated prepayment risk
and credit risk.

Accrued Interest Receivable The carrying values reported in the balance
sheet approximate the fair values due to the short-term nature of the asset.

Deposit Accounts The fair value of demand deposit, money market and
passbook accounts is estimated to be the amount payable on demand due to the
short-term nature of these deposits. The fair values for time certificates,
both over and under $100,000, are estimated by discounting the expected cash
flows at current market rates over expected maturities.

Federal Home Loan Bank Advances The fair value is estimated by
discounting the expected cash flows at current market rates over contractual
maturities.

Junior Subordinated Debentures The fair value is estimated using the
present value of future cash flows, discounted using the current rate at which
a similar debenture would be issued.

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The carrying amounts and estimated fair values of our financial
instruments are as follows:

|                                                                                                              |                                      |  |   |                |  |            |   |           |  |            |        |           |  |  |        |           |  | 
|------------------------------------------------------------------------------------------------------------- | ------------------------------------ |  | - | -------------- |  | ---------- | - | --------- |  | ---------- | ------ | --------- |  |  | ------ | --------- |  | 
|                                                                                                              |                                      |  |   | December 31,  
|                                                                                                              |                                      |  |   |               
|                                                                                                              |                                      |  |   | 2003           |  | 2002      
|                                                                                                              |                                      |  |   |                |  |           
|                                                                                                              |                                      |  |   | Cost or        |  |            |   |           |  | Cost or    |        |           |  | 
|                                                                                                              |                                      |  |   | Carrying       |  | Estimated  |   | Carrying  |  | Estimated 
|                                                                                                              |                                      |  |   | Amount         |  | Fair Value |   | Amount    |  | Fair Value
|                                                                                                              |                                      |  |   |                |  |            |   |           |  |           
|                                                                                                              |                                      |  |   | (in thousands)
|Financial assets:                                                                                             |                                      |  |   |                |  |            |   |           |  |            |        |           |  |  |        |          
|                                                                                                              | Cash and cash equivalents            |  | $ | 178,318        |  |            | $ | 178,318   |  |            | $      | 160,848   |  |  | $      | 160,848   | 
|                                                                                                              | Investment securities                |  |   | 53,093         |  |            |   | 53,093    |  |            |        | 54,677    |  |  |        | 54,677    | 
|                                                                                                              | Stock in Federal Home Loan Bank      |  |   | 17,966         |  |            |   | 17,966    |  |            |        | 16,934    |  |  |        | 16,934    | 
|                                                                                                              | Loans, net                           |  |   | 1,436,849      |  |            |   | 1,447,107 |  |            |        | 1,316,298 |  |  |        | 1,334,574 | 
|                                                                                                              | Real estate loans held in trust, net |  |   | 68,575         |  |            |   | 69,067    |  |            |        | 121,936   |  |  |        | 126,127   | 
|                                                                                                              | Accrued interest receivable          |  |   | 8,958          |  |            |   | 8,958     |  |            |        | 9,158     |  |  |        | 9,158     | 
|Financial liabilities:                                                                                        |                                      |  |   |                |  |            |   |           |  |            |        |           |  |  |        |          
|                                                                                                              | Deposit accounts                     |  | $ | 1,147,017      |  |            | $ | 1,144,019 |  |            | $      | 1,065,911 |  |  | $      | 1,064,491 | 
|                                                                                                              | Federal Home Loan Bank advances      |  |   | 362,135        |  |            |   | 361,783   |  |            |        | 338,685   |  |  |        | 338,729   | 
|                                                                                                              | Collateralized mortgage obligations  |  |   | 15,868         |  |            |   | 15,872    |  |            |        | 69,077    |  |  |        | 69,139    | 
|                                                                                                              | Junior subordinated debentures       |  |   | 86,600         |  |            |   | 88,000    |  |            |        |          |  |  |        |          | 
|Guaranteed preferred beneficial
interests in the Companys junior
subordinated deferrable interest
debentures |                                      |  |  |                |  |            |  |           |  |            | 81,595 |           |  |  | 84,670 |          

NOTE 20BUSINESS SEGMENT INFORMATION

SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information requires disclosure of segment information in a manner consistent
with the management approach. The management approach is based on the way the
chief operating decision-maker organizes segments within a company for making
operating decisions and assessing performance.

The main factors used to identify operating segments were the specific
product and business lines of the various operating segments of the Company.
Operating segments are organized separately by product and service offered. We
have identified one operating segment that meets the criteria of being a
reportable segment in accordance with the provisions of SFAS No. 131. This
reportable segment is the Companys lending operations, which by its legal
form, is identified as operations of the Bank and Imperial Capital REIT. This
segment derives the majority of its revenue by originating and purchasing
loans. Other operating segments of the Company that did not meet the criteria
of being a reportable segment in accordance with SFAS No. 131 have been
aggregated and reported as All Other. Transactions from all of our operating
segments occur primarily in the United States. The Company has no transactions
with a single external customer that exceeds ten percent of the Companys
consolidated revenues.

Transactions between the reportable segment of the Company and its other
operating segments are made at terms which approximate arms-length
transactions and in accordance with GAAP. There is no significant difference
between the measurement of the reportable segments assets and profits and
losses disclosed below and the measurement of assets and profits and losses in
our consolidated balance sheets and statements of income. Accounting
allocations are made in the same manner for all operating segments.

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Required reported segment information for 2003, 2002 and 2001 is detailed
below:

|                                              |                                                 |  |                    |           |           |  |              |         |              |  |   |          |   |  |   |           | 
|--------------------------------------------- | ----------------------------------------------- |  | ------------------ | --------- | --------- |  | ------------ | ------- | ------------ |  | - | -------- | - |  | - | --------- | 
|                                              |                                                 |  | Lending Operations |           | All Other |  | Eliminations |         | Consolidated
|                                              |                                                 |  |                    |           |           |  |              |         |             
|As of or for the Year Ended December 31, 2003 |                                                 |  |                    |           |           |  |              |         |              |  |   |          |   |  |   |          
|                                              | Revenues from external customers                |  | $                  | 130,851   |           |  | $            | 1,162   |              |  | $ | (796     | ) |  | $ | 131,217   | 
|                                              | Total interest income                           |  |                    | 115,452   |           |  |              | 7,404   |              |  |   | (6,879   | ) |  |   | 115,977   | 
|                                              | Total interest expense                          |  |                    | 31,546    |           |  |              | 6,200   |              |  |   | (6,879   | ) |  |   | 30,867    | 
|                                              | Depreciation and amortization expense           |  |                    | 1,343     |           |  |              | 379     |              |  |   |         |   |  |   | 1,722     | 
|                                              | Provision for income taxes                      |  |                    | 20,627    |           |  |              | (1,681  | )            |  |   |         |   |  |   | 18,946    | 
|                                              | Capital expenditures                            |  |                    | 2,787     |           |  |              | 504     |              |  |   |         |   |  |   | 3,291     | 
|                                              | Deferred income taxes                           |  |                    | 9,607     |           |  |              | 1,981   |              |  |   | 21       |   |  |   | 11,609    | 
|                                              | Total assets                                    |  |                    | 1,741,092 |           |  |              | 350,013 |              |  |   | (272,890 | ) |  |   | 1,818,215 | 
|                                              | Income (loss) before provision for income taxes |  |                    | 56,472    |           |  |              | (7,892  | )            |  |   |         |   |  |   | 48,580    | 
|As of or for the Year Ended December 31, 2002 |                                                 |  |                    |           |           |  |              |         |              |  |   |          |   |  |   |          
|                                              | Revenues from external customers                |  | $                  | 105,522   |           |  | $            | 9,835   |              |  | $ | (4,376   | ) |  | $ | 110,981   | 
|                                              | Total interest income                           |  |                    | 104,652   |           |  |              | 10,332  |              |  |   | (4,376   | ) |  |   | 110,608   | 
|                                              | Total interest expense                          |  |                    | 35,694    |           |  |              | 6,004   |              |  |   | (4,376   | ) |  |   | 37,322    | 
|                                              | Depreciation and amortization expense           |  |                    | 479       |           |  |              | 467     |              |  |   |         |   |  |   | 946       | 
|                                              | Provision for income taxes                      |  |                    | 11,542    |           |  |              | 1,246   |              |  |   |         |   |  |   | 12,788    | 
|                                              | Capital expenditures                            |  |                    | 2,612     |           |  |              | 354     |              |  |   |         |   |  |   | 2,966     | 
|                                              | Deferred income taxes                           |  |                    | 10,480    |           |  |              | 3,242   |              |  |   | 100      |   |  |   | 13,822    | 
|                                              | Total assets                                    |  |                    | 1,543,502 |           |  |              | 511,759 |              |  |   | (333,296 | ) |  |   | 1,721,965 | 
|                                              | Income (loss) before provision for income taxes |  |                    | 36,069    |           |  |              | (3,276  | )            |  |   |         |   |  |   | 32,793    | 
|As of or for the Year Ended December 31, 2001 |                                                 |  |                    |           |           |  |              |         |              |  |   |          |   |  |   |          
|                                              | Revenues from external customers                |  | $                  | 125,154   |           |  | $            | 3,329   |              |  | $ | (4,329   | ) |  | $ | 124,154   | 
|                                              | Total interest income                           |  |                    | 124,109   |           |  |              | 3,315   |              |  |   | (4,329   | ) |  |   | 123,095   | 
|                                              | Total interest expense                          |  |                    | 65,303    |           |  |              | 2,889   |              |  |   | (4,329   | ) |  |   | 63,863    | 
|                                              | Depreciation and amortization expense           |  |                    | 411       |           |  |              | 425     |              |  |   |         |   |  |   | 836       | 
|                                              | Provision for income taxes                      |  |                    | 9,172     |           |  |              | 2,221   |              |  |   |         |   |  |   | 11,393    | 
|                                              | Capital expenditures                            |  |                    | 321       |           |  |              | 431     |              |  |   |         |   |  |   | 752       | 
|                                              | Deferred income taxes                           |  |                    | 10,840    |           |  |              | 929     |              |  |   | 100      |   |  |   | 11,869    | 
|                                              | Total assets                                    |  |                    | 1,519,440 |           |  |              | 200,639 |              |  |   | (211,771 | ) |  |   | 1,508,308 | 
|                                              | Income (loss) before provision for income taxes |  |                    | 33,064    |           |  |              | (3,520  | )            |  |   |         |   |  |   | 29,544    | 

NOTE 21PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

The parent company only financial statements of ITLA Capital are as
follows:

Condensed Balance Sheets

|                                                        |                                               |   |                |         |      |   |         |         | 
|------------------------------------------------------- | --------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                                                        |                                               |   | December 31,  
|                                                        |                                               |   |               
|                                                        |                                               |   | 2003           |         | 2002
|                                                        |                                               |   |                |         |     
|                                                        |                                               |   | (in thousands)
|Assets                                                  |                                               |   |                |         |      |   |         |        
|Cash and cash equivalents                               |                                               | $ | 1,613          |         |      | $ | 2,338   |        
|Investment securities available for sale, at fair value |                                               |   | 5,472          |         |      |   | 5,691   |        
|Investments in wholly-owned subsidiaries:               |                                               |   |                |         |      |   |         |        
|                                                        | Imperial Capital Bank                         |   |                | 217,891 |      |   |         | 188,328 | 
|                                                        | Imperial Capital Real Estate Investment Trust |   |                | 36,099  |      |   |         | 36,887  | 
|                                                        | Other subsidiaries                            |   |                | 253     |      |   |         | 2,879   | 
|Investments in unconsolidated subsidiaries              |                                               |   | 2,600          |         |      |   |        |        
|Other assets                                            |                                               |   | 16,606         |         |      |   | 10,951  |        
|                                                        |                                               |   |                |         |      |   |         |        
|                                                        | Total assets                                  |   | $              | 280,534 |      |   | $       | 247,074 | 
|                                                        |                                               |   |                |         |      |   |         |        
|Liabilities and Shareholders Equity                    |                                               |   |                |         |      |   |         |        
|Junior subordinated debentures                          |                                               | $ | 86,600         |         |      | $ | 86,600  |        
|Other liabilities                                       |                                               |   | 7,035          |         |      |   | 3,783   |        
|Shareholders equity                                    |                                               |   | 186,899        |         |      |   | 156,691 |        
|                                                        |                                               |   |                |         |      |   |         |        
|                                                        | Total liabilities and shareholders equity    |   | $              | 280,534 |      |   | $       | 247,074 | 
|                                                        |                                               |   |                |         |      |   |         |        

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Condensed Statements of Income

|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |       |        | 
|--------------------------------------------------------------------------------- | ---------------------------------- | ---------- | ------ | ------------------------ | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                                                  |                                    |            |        | Years Ended December 31,
|                                                                                  |                                    |            |        |                         
|                                                                                  |                                    |            |        | 2003                     |        | 2002 |        | 2001 
|                                                                                  |                                    |            |        |                          |        |      |        |      
|                                                                                  |                                    |            |        | (in thousands)          
|Interest income                                                                   |                                    | $          | 1,321  |                          |        | $    | 1,059  |       |        | $ | 302    |      
|Interest expense                                                                  |                                    |            | 6,200  |                          |        |      | 3,356  |       |        |   | 2,889  |      
|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |      
|Net interest expense                                                              |                                    |            | (4,879 | )                        |        |      | (2,297 | )     |        |   | (2,587 | )    
|Provision (reversal of provision) for loan losses                                 |                                    |            | 150    |                          |        |      | 5      |       |        |   | (1,200 | )    
|Non-interest expense:                                                             |                                    |            |        |                          |        |      |        |       |        |   |        |      
|                                                                                  | Loss on sale of real estate owned  |            |        | 21                       |        |      |        |      |        |   |        |      |       
|                                                                                  | General and administrative expense |            |        | 2,589                    |        |      |        | 2,367 |        |   |        | 2,062 |       
|                                                                                  | Other                              |            |        | 159                      |        |      |        | 707   |        |   |        |      |       
|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |      
|Total non-interest expense                                                        |                                    |            | 2,769  |                          |        |      | 3,074  |       |        |   | 2,062  |      
|Loss before income tax (benefit) expense and
equity in net income of subsidiaries |                                    |            | (7,798 | )                        |        |      | (5,376 | )     |        |   | (3,449 | )    
|Income tax (benefit) expense                                                      |                                    |            | (1,642 | )                        |        |      | 420    |       |        |   | 2,260  |      
|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |      
|Loss before equity in net income of subsidiaries                                  |                                    |            | (6,156 | )                        |        |      | (5,796 | )     |        |   | (5,709 | )    
|Equity in net income of subsidiaries                                              |                                    |            | 35,790 |                          |        |      | 25,801 |       |        |   | 23,860 |      
|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |      
|                                                                                  |                                    | NET INCOME |        | $                        | 29,634 |      |        | $     | 20,005 |   |        | $     | 18,151 | 
|                                                                                  |                                    |            |        |                          |        |      |        |       |        |   |        |      

Condensed Statements of Cash Flows

|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |        |         |         |        |  
|------------------------------------- | -------------------------- | --------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------------- | ------ | ------------------------ | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | -
|                                      |                            |                                                                       |                                                    |                                                      |        | Years Ended December 31,
|                                      |                            |                                                                       |                                                    |                                                      |        |                         
|                                      |                            |                                                                       |                                                    |                                                      |        | 2003                     |        | 2002   |         | 2001   
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |        
|                                      |                            |                                                                       |                                                    |                                                      |        | (in thousands)          
|Cash Flows From Operating Activities: |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      | Net income                 |                                                                       | $                                                  | 29,634                                               |        |                          | $      | 20,005 |         |         | $       | 18,151 |        
|                                      | Adjustments to net income: |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |        |        
|                                      |                            |                                                                       | Equity in undistributed net income of subsidiaries |                                                      |        | (35,790                  | )      |        |         | (25,807 | )       |        |         | (23,856 | )     
|                                      |                            |                                                                       | Provision for loan losses                          |                                                      |        | 150                      |        |        |         | 5       |         |        |         | (1,200  | )     
|                                      |                            |                                                                       | Other, net                                         |                                                      |        | 506                      |        |        |         |        |         |        |         |        |       
|                                      |                            | (Increase) decrease in other assets                                   |                                                    |                                                      | (5,494 | )                        |        |        | (4,887  | )       |         |        | 1,043   |        
|                                      |                            | Increase in liabilities                                               |                                                    |                                                      | 3,252  |                          |        |        | 5,423   |         |         |        | 656     |        
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            |                                                                       |                                                    | Net cash used in operating activities                |        |                          | (7,742 | )      |         |         | (5,261  | )      |         |         | (5,206 | )
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|Cash Flows From Investing Activities: |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            | Proceeds from securitization and sale of real estate loans            |                                                    |                                                      |       |                          |        |        | 98,155  |         |         |        |        |        
|                                      |                            | Purchase of loans from Imperial Capital Bank                          |                                                    |                                                      |       |                          |        |        | (98,602 | )       |         |        |        |        
|                                      |                            | Purchases of investment securities available for sale                 |                                                    |                                                      |       |                          |        |        | (5,305  | )       |         |        |        |        
|                                      |                            | Capital contribution to Imperial Capital Bank                         |                                                    |                                                      |       |                          |        |        | (53,348 | )       |         |        | (14,549 | )      
|                                      |                            | Cash paid for common equity of Trust Preferred Securities             |                                                    |                                                      |       |                          |        |        | (1,691  | )       |         |        | (475    | )      
|                                      |                            | Dividends received from Imperial Capital Bank                         |                                                    |                                                      | 2,500  |                          |        |        | 9,000   |         |         |        | 15,600  |        
|                                      |                            | Dividends received from Imperial Capital Real Estate
Investment Trust |                                                    |                                                      | 4,236  |                          |        |        | 7,070   |         |         |        | 5,050   |        
|                                      |                            | Other, net                                                            |                                                    |                                                      | (383   | )                        |        |        | (143    | )       |         |        | 539     |        
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            |                                                                       |                                                    | Net cash provided by (used in) investing activities  |        |                          | 6,353  |        |         |         | (44,864 | )      |         |         | 6,165  |  
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|Cash Flows From Financing Activities: |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            | Proceeds from issuance of trust preferred securities                  |                                                    |                                                      |       |                          |        |        | 53,389  |         |         |        | 14,549  |        
|                                      |                            | Proceeds from exercise of employee stock options                      |                                                    |                                                      | 2,897  |                          |        |        | 184     |         |         |        | 74      |        
|                                      |                            | Cash paid to acquire treasury stock                                   |                                                    |                                                      | (2,233 | )                        |        |        | (2,343  | )       |         |        | (14,759 | )      
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            |                                                                       |                                                    | Net cash provided by (used in) financing activities  |        |                          | 664    |        |         |         | 51,230  |        |         |         | (136   | )
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            |                                                                       |                                                    | Net (decrease) increase in cash and cash equivalents |        |                          | (725   | )      |         |         | 1,105   |        |         |         | 823    |  
|                                      |                            |                                                                       |                                                    | Cash and cash equivalents at beginning of period     |        |                          | 2,338  |        |         |         | 1,233   |        |         |         | 410    |  
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       
|                                      |                            |                                                                       |                                                    | Cash and cash equivalents at end of period           |        | $                        | 1,613  |        |         | $       | 2,338   |        |         | $       | 1,233  |  
|                                      |                            |                                                                       |                                                    |                                                      |        |                          |        |        |         |         |         |       

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NOTE 22SUBSEQUENT EVENT

In January 2004, the Company entered into an agreement with an
unaffiliated bank for two revolving lines of credit of $25.0 million each. The
lines of credit mature on March 31, 2004 and January 1, 2005, respectively.
Interest accrues at a variable rate based on the one month LIBOR rate and the
lines are secured by the outstanding capital stock of the Bank. The primary
purpose of the lines is to provide additional capital funding in connection
with the strategic business relationship with Household relating to certain tax
refund products.

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

On May 29, 2002, the Board of Directors of the Company dismissed the
Companys independent auditors, Arthur Andersen LLP, and upon recommendation by
its Audit Committee, approved the engagement of Ernst & Young LLP as the
Companys independent auditors for the year ending December 31, 2002.

The reports of Arthur Andersen LLP on the Companys financial statements
as of and for the years ended December 31, 2001 and 2000, did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.

During the Companys fiscal years ended December 31, 2001 and 2000, and
the subsequent interim period from January 1, 2002 through May 29, 2002, there
were no disagreements with Arthur Andersen LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Arthur Andersen LLP
would have caused Arthur Andersen LLP to make reference to the matter in their
report. There were no reportable events as that term is defined in Item
304(a)(1)(v) of Regulation S-K.

Prior to the dismissal of Arthur Andersen LLP, the Company did not consult
with Ernst & Young LLP regarding: (i) the application of accounting principles
to a specified transaction, either completed or proposed; (ii) the type of
audit opinion that might be rendered on the Companys financial statement; or
(iii) a reportable event (as defined in paragraph 304(a)(1)(v) of Regulation
S-K).

The Company requested Arthur Andersen LLP to furnish it with a letter
addressed to the Commission stating whether it agreed with the above
statements. A copy of that letter, dated June 4, 2002, is filed as Exhibit 16
to the Current Report on Form 8-K filed by the Company on June 5, 2002.




Item 9A. Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures: An evaluation of
the Companys disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Act)) was carried out as of
December 31, 2003 under the supervision and with the participation of the
Companys Chief Executive Officer, Chief Financial Officer and several other
members of the Companys senior management. The Companys Chief Executive
Officer and Chief Financial Officer concluded that as of December 31, 2003, the
Companys disclosure controls and procedures were effective in ensuring that
the information required to be disclosed by the Company in the reports it files
or submits under the Act is (i) accumulated and communicated to the Companys
management (including the Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms.

(b)  Changes in Internal Controls: During the quarter ended December 31,
2003, no change occurred in the Companys internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.

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PART III




Item 10. Directors and Executive Officers of the Registrant

Executive Officers and Directors of the Registrant

The executive officers of the Registrant are identified below.

|                     |  |     |    |          |  |                                                                                            
|-------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|George W. Haligowski |  |     | 49 |          |  | Chairman of the Board, President and Chief
Executive Officer of ITLA Capital and the Bank  
|Norval L. Bruce      |  |     | 62 |          |  | Vice Chairman of the Board and Chief Credit
Officer of ITLA Capital and the Bank           
|Timothy M. Doyle     |  |     | 47 |          |  | Senior Managing Director and Chief Financial
Officer of ITLA Capital and the Bank          
|Don Nickbarg         |  |     | 51 |          |  | Senior Managing Director and Chief Banking Officer
of ITLA Capital and the Bank            
|William A. Schack    |  |     | 42 |          |  | Managing Director  Deputy Chief Credit
Officer-Administration of ITLA Capital and the
Bank
|William K. Callam    |  |     | 47 |          |  | Managing Director  Deputy Chief Credit
Officer-Production of ITLA Capital and the Bank    
|Scott A. Wallace     |  |     | 41 |          |  | Managing Director  Chief Administrative Officer
of ITLA Capital and the Bank              
|Anthony A. Rusnak    |  |     | 40 |          |  | Deputy Managing Director  General Counsel of ITLA Capital and the Bank                    

George W. Haligowskihas served as ITLA Capitals Chairman of the Board,
President and Chief Executive Officer since inception. He has also served as
the Banks Chairman of the Board and Chief Executive Officer since 1992, and
was the Banks President from 1992 to October 1997. In 2000 he was again
appointed as President of the Bank. From 1990 to the present, he has also
served as President, Chief Executive Officer and Principal of Halivest
International, Ltd., an international finance and asset management company. He
was previously employed as a Vice President by Shearson Lehman Hutton (1988 to
1990) and Prudential-Bache Securities (1983 to 1988), and by Avco Financial
Services as Regional Director of its Japanese branch operations (1976 to 1981),
as Training Coordinator for Avco Thrift and Loan (1976) and as a Branch Manager
(1974 to 1976).

Norval L. Brucehas served as the Vice Chairman and Chief Credit Officer
for ITLA Capital and the Bank since June of 1999. He was previously President
and Chief Operating Officer of the Bank from October 1997 to June 1999, and
previously was the Executive Vice President and Chief Credit Officer of the
Bank from 1990 to October 1997. Mr. Bruce was appointed a director of the Bank
and the Company in January 1997 and September 1997, respectively. From 1988 to
1989, he served as Executive Vice President and Chief Credit Officer of
Security Pacific Bank, Nevada. He was previously employed by Security Pacific
Bank from 1965 to 1988 in a variety of positions including management positions
in which he was responsible for both loan origination and credit quality.

Timothy M. Doylehas served as Senior Managing Director and Chief
Financial Officer of ITLA Capital and the Bank since May 2000. He was
previously Managing Director and Chief Administrative Officer of ITLA Capital
and the Bank since 1996. Before joining the Bank, he was the Controller and
Director of Operations at Northeastern Plastics from 1995 to 1996; Assistant
Controller of Alpha Wire Corporation from 1992 to 1994; and Vice President and
Chief Financial Officer of Halivest International, Ltd. from 1989 to 1991. From
1982 to 1988, he was the Corporate Controller of the Shepaug Corporation.

Don Nickbarghas served as Senior Managing Director and Chief Banking
Officer of ITLA Capital and the Bank since November 2002. He has served in
several other capacities, including Senior Managing Director and Chief
Operating Officer, Managing Director of Asset Acquisition and New Business
Development, Chief Administrative Officer as well as Treasurer. Prior to
joining ITLA Capital in 1998, he was a consultant with Centennial International
LLC from 1996 to 1998; Chief Financial Officer of AIOC Corporation from 1994 to
1996; Vice President and Team Leader at The Chase Manhattan Bank from 1991 to
1994; Vice President and Treasurer of Drexel Burnham Lambert Holdings, Ltd.
from 1986 to 1990; Vice President with The Hong Kong and Shanghi Banking
Company from 1980 to 1986; and Assistant Treasurer with the Swiss Bank
Corporation from 1976 to 1980.

William A. Schackhas served as Managing Director  Deputy Chief Credit
Officer-Administration of ITLA Capital and the Bank since November 2002. Prior
to that he was Managing Director  Director of Operations of the Bank from
August 2001 to November 2002 and First Vice President  Director of Portfolio
Management and Loan Administration of the Bank from April 2001 to August 2001.
Prior to joining ITLA Capital he was Senior Vice President Chief Operating
Officer of First Bank of Beverly Hills from 1999

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through 2001 and served in various senior management capacities with First
Bank since 1997. He has also held senior managerial positions with First Los
Angeles Bank and Western Federal Savings Bank from 1990 through 1995.

Scott A. Wallacehas served as Managing Director  Chief Administrative
Officer of ITLA Capital and the Bank since November 2001. He was previously
Deputy Managing Director and Chief Accounting Officer of ITLA Capital and the
Bank from October 1999 until October 2001 and was Vice President Controller of
the Bank from September 1996 until October 1999. Prior to joining the Bank in
September 1996, he was Vice President  Finance of Westfield Corporation, Inc.
in 1996 and was Vice President  Controller of First Los Angeles Bank in 1995.
From 1984 to 1994, he was a senior manager with Kenneth Leventhal & Company.

William K. Callamhas served as Managing Director  Deputy Chief Credit
Officer  Production of ITLA Capital and the Bank since November 2002. He was
previously First Vice President and Director of Loan Operations, and Vice
President and Chief Appraiser, since joining the Bank in December 1999. Prior
to joining the Bank, he was Vice President  Team Leader with Bank of America,
and its predecessor, Security Pacific National Bank, from 1989 to 1999, with an
interim position as Vice-President and Chief Appraiser of First Los Angeles
Bank in 1994 to 1995.

Anthony A. Rusnakhas served as ITLA Capital and the Banks Deputy
Managing Director  General Counsel and Corporate Secretary since November
1997. Prior to joining us, he was in private practice for seven years
representing financial institutions, businesses, corporations and individuals
in business, real estate transactions and litigation. Previously, he worked for
law firms in the San Diego area, as well as for San Diego Gas and Electrics
corporate in-house counsel.

The directors of the Company, excluding Mr. Haligowski and Mr. Bruce, are
identified below.

Preston Martin,age 80, is the former Vice Chairman of the Federal Reserve
Board of Governors. Mr. Martin previously served as a Senior Advisory Director
to the Board. Mr. Martin is currently Chairman of the Board of Martin
Associates, a San Francisco based financial services company. Mr. Martin was
Chairman and Chief Executive Officer of Seraro Corporation, a Sears Roebuck
enterprise, PMI Mortgage Insurance Corporation and PMI Mortgage Corporation.
Mr. Martin was also Professor of Finance and Director of Executive Programs at
the University of Southern California.

Jeffrey L. Lipscomb, age 50, is an Investment Advisory Associate with AXA
Advisors and formerly was a Registered Principal and Assistant Manager of the
San Diego office of Equitable Financial Companies since 1986, handling
corporate group benefits and personal financial planning, and also was with
Kidder Peabody from 1983 to 1986.

Sandor X. Mayuga, age 56, is a member of the California State Bar and has
been a member of the law firm of Tisdale & Nicholson since 1994. He conducted
his own law practice from 1983 to 1994 and was a partner in the Financial
Institutions Department of Finley, Kumble, Wagner, Heine, Underberg, Manly &
Casey, a New York-based national law firm, from 1980 to 1983. Previously, he
served as Assistant General Counsel of Hunt-Wesson Foods, Inc., a subsidiary of
Norton Simon, Inc., and was associated with two large regional law firms in Los
Angeles County. Since 1980, Mr. Mayugas practice has focused on the
representation of financial institutions and other finance-related businesses
in corporate, transactional and regulatory matters.

Hirotaka Oribe, age 69, is a licensed architect with international
experience in real estate development and urban planning. Since 1993, Mr. Oribe
has served as an advisor to Kajima Development Resources, Inc. From 1979 to
1993, Mr. Oribe was Executive Vice President, Chief Operating Officer and a
Director of Kajima Development Corporation, a firm engaged in development and
construction of single-family and multi-family housing, office buildings,
retail space and land development. Mr. Oribe previously held other positions
with affiliates of Kajima Corporation of Japan from 1973 to 1979 and was a
practicing architect from 1962 to 1973.

Robert R. Reed, age 67, is retired from Household International where he
was employed in various positions from 1960 to 1992. Mr. Reed served as Vice
President of Household Bank from 1980 to 1992. Mr. Reed was previously employed
in management positions with Household Financial Corporation from
1962 to 1980. From 1995 to 2000, Mr. Reed served as a director
of the Santa Ana City Cable Television Review Board.

Audit Committee Membership

The Audit Committee of ITLA Capitals Board of Directors consists of
Directors Martin (Chairman), Lipscomb and Reed. The Board of Directors has
determined that Mr. Martin is an audit committee financial expert, as defined
in the SECs rules, and that Mr. Martin is independent, as independence is
defined for audit committee members in the listing standards of the NASDAQ
Stock Market.

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Code of Ethics

We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer, and persons
performing similar functions, and to all of our other employees and our
directors. A copy of our code of ethics is available on our website, located
at www.itlacapital.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires ITLA
Capitals directors and executive officers, and persons who own more than 10%
of a registered class of our equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of ITLA Capital. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish ITLA Capital with
copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were
required, during the fiscal year ended December 31, 2003, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except for the inadvertent failure to timely file a Form 3 by Joseph Ursino, a former officer of ITLA Capital.




Item 11. Executive Compensation

The following table sets forth the compensation of the Chief Executive
Officer and the four other highest earning executive officers of ITLA Capital
and the Bank with salary and bonus greater than $100,000 for the year ended
December 31, 2003 (the named executives).

|                            |                                       |      |      |      |  |     |                     |         |                        |     |         |         |              |  |   |        |  |   |         |         | 
|--------------------------- | ------------------------------------- | ---- | ---- | ---- |  | --- | ------------------- | ------- | ---------------------- | --- | ------- | ------- | ------------ |  | - | ------ |  | - | ------- | ------- | 
|                            |                                       |      |      |      |  |     | Annual Compensation |         | Long-Term Compensation |     |         |         |             
|                            |                                       |      |      |      |  |     |                     |         |                        |     |         |         |             
|                            |                                       |      |      |      |  |     |                     |         |                        |     |         |         |              |  |   |        |  |   | All    
|                            |                                       |      |      |      |  |     |                     |         |                        |     |         |         |              |  |   |        |  |   | Other  
|                            |                                       |      |      |      |  |     | Salary              |         | Bonus                  |     | Options |         | Compensation
|Name and Principal Position |                                       | Year |      | ($)  |  | ($) |                     | (#) (1) |                        | ($)
|                            |                                       |      |      |      |  |     |                     |         |                        |    
|George W. Haligowski        |                                       |      | 2003 |      |  | $   | 496,202             |         |                        | $   | 998,775 | (2)     |              |  |  |        |  | $ | 231,081 | (3)    
|                            | Chairman of the Board, President      |      |      | 2002 |  |     | $                   | 443,350 |                        |     | $       | 579,000 | (2)          |  |   | 37,500 |  |   | $       | 309,583 | 
|                            | and Chief Executive Officer           |      |      | 2001 |  |     | $                   | 397,515 |                        |     | $       | 457,125 | (2)          |  |   |       |  |   | $       | 780,761 | 
|Norval L. Bruce             |                                       |      | 2003 |      |  | $   | 230,769             | (8)     |                        | $   | 159,504 | (8)     |              |  |  |        |  | $ | 47,642  | (4)    
|                            | Vice Chairman of the Board, and Chief |      |      | 2002 |  |     | $                   | 217,469 | (8)                    |     | $       | 115,265 | (8)          |  |   | 20,000 |  |   | $       | 83,654  | 
|                            | Credit Officer                        |      |      | 2001 |  |     | $                   | 200,538 | (8)                    |     | $       | 96,502  | (8)          |  |   |       |  |   | $       | 132,872 | 
|Timothy M. Doyle            |                                       |      | 2003 |      |  | $   | 193,917             |         |                        | $   | 141,004 |         |              |  |  |        |  | $ | 32,607  | (5)    
|                            | Senior Managing Director and          |      |      | 2002 |  |     | $                   | 180,726 |                        |     | $       | 98,314  |              |  |   | 15,000 |  |   | $       | 63,707  | 
|                            | Chief Financial Officer               |      |      | 2001 |  |     | $                   | 166,633 |                        |     | $       | 80,186  |              |  |   |       |  |   | $       | 107,919 | 
|Don Nickbarg                |                                       |      | 2003 |      |  | $   | 175,528             |         |                        | $   | 103,003 | (9)     |              |  |  |        |  | $ | 26,767  | (6)    
|                            | Senior Managing Director and          |      |      | 2002 |  |     | $                   | 163,004 |                        |     | $       | 64,990  | (9)          |  |   | 15,000 |  |   | $       | 69,555  | 
|                            | Chief Banking Officer                 |      |      | 2001 |  |     | $                   | 130,946 |                        |     | $       | 62,550  | (9)          |  |   | 10,000 |  |   | $       | 23,547  | 
|Scott Wallace               |                                       |      | 2003 |      |  | $   | 149,084             |         |                        | $   | 69,503  |         |              |  |  |        |  | $ | 23,457  | (7)    
|                            | Managing Director and                 |      |      | 2002 |  |     | $                   | 139,545 |                        |     | $       | 63,005  |              |  |   | 5,000  |  |   | $       | 24,613  | 
|                            | Chief Administrative Officer          |      |      | 2001 |  |     | $                   | 124,515 |                        |     | $       | 40,000  |              |  |   | 3,000  |  |   | $       | 8,387   | 



---

|(1) |  | Options were granted on various dates and vest one-third on each of the
three subsequent anniversary dates of issuance.                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | $400,000 of the 2003 bonus was deferred at the election of the named
executive officer under ITLA Capitals Nonqualified Deferred Compensation
plan. The respective amounts were $400,000 and $200,000 in 2002 and 2001.                                                                                                                                                                                                                                                                                                    
|   
|   
|   
|   
|(3) |  | Consists of (a) $23,000 in auto related benefits, (b) $30,000 in
supplemental housing payments, (c) $56,845 in life insurance premiums, (d)
$6,000 in employer contributions to ITLA Capitals 401(k) plan, (e)
$32,940 in preferential interest on employee savings accounts in 2003, and (f) an allocation of
9,144 shares of restricted stock under the Supplemental Executive Retirement Plan ("SERP") valued at
$9.00 per share (see "Supplemental Executive Retirement Plan" below) for an aggregate value of $82,296.
|   
|   
|   
|   
|(4) |  | Consists of (a) $2,379 in auto related benefits, (b) $3,233 in life
insurance premiums, (c) $6,000 in employer contributions to ITLA Capitals
401(k) plan, (d) $13,026 in preferential interest on employee savings
accounts in 2003, and (e) an allocation of 2,556 shares of
restricted stock under the Supplemental Executive Retirement Plan
("SERP") valued at $9.00 per share (see "Supplemental Executive
Retirement Plan" below) for an aggregate value of $23,004.                                                

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|(5) |  | Consists of (a) $1,851 in auto related benefits, (b) $6,000 in employer
contributions to ITLA Capitals 401(k) plan, (c) $5,253 in life
insurance benefits in 2003, and (d) an allocation of 2,167 shares of restricted stock under the Supplemental Executive
Retirement Plan ("SERP") valued at $9.00 per share (see
"Supplemental Executive Retirement Plan" below) for an aggregate
value of $19,503.                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(6) |  | Consists of (a) $1,818 in
auto related benefits, (b) $6,000 in employer
contributions to ITLA Capitals 401(k) plan, (c) $824 in life insurance
benefits in 2003, (d) $629 in preferential interest on employee savings
accounts in 2003, and (e) an allocation of 1,944 shares of restricted stock under the Supplemental Executive
Retirement Plan ("SERP") valued at $9.00 per share (see
"Supplemental Executive Retirement Plan" below) for an aggregate
value of $17,496.
|   
|   
|   
|   
|(7) |  | Consists of (a) $1,583 in
auto related benefits, (b) $6,000 in employer
contributions to ITLA Capitals 401(k) plan, (c) $298 in life insurance
benefits in 2003, (d) $573 in preferential interest on employee savings
accounts in 2003, and (e) an allocation of 1,667 shares of restricted stock under the Supplemental Executive
Retirement Plan ("SERP") valued at $9.00 per share (see
"Supplemental Executive Retirement Plan" below) for an aggregate
value of $15,003.
|   
|   
|   
|   
|(8) |  | $115,385 of the 2003 salary and none of the 2003 bonus was deferred at
the election of the named executive officer under ITLA Capitals
Nonqualified Deferred Compensation plan. The respective amounts were
$108,735 and $57,633 in 2002 and $100,269 and $48,251 in 2001.                                                                                                                                                                                                    
|   
|   
|   
|   
|(9) |  | $20,000 of the 2003 bonus was deferred at the election of the named
executive officer under ITLA Capitals Nonqualified Deferred Compensation
plan. The respective amounts were $10,000 in 2002 and none in 2001.                                                                                                                                                                                                                                                              

Option Grants for 2003

No stock options or stock appreciation rights have been granted to the
named executive officers in 2003 pursuant to the Stock Option Plan.

Option Exercises and Values at December 31, 2003

The following table sets forth certain information concerning the number
and value of stock options at December 31, 2003 held by the named executive
officers.

Option Values at December 31, 2003

|                     |  |             |         |          |  |                     |           |                           |  |                        |         |                      |  |  |        |  |  |   |            |  |  |   |         | 
|-------------------- |  | ----------- | ------- | -------- |  | ------------------- | --------- | ------------------------- |  | ---------------------- | ------- | -------------------- |  |  | ------ |  |  | - | ---------- |  |  | - | ------- | 
|                     |  |             |         |          |  |                     |           |                           |  | Number of Unexercised  |         | Value of Unexercised
|                     |  | Shares      |         |          |  |                     |           | Option at                 |  | "In-the-Money" Options
|                     |  | Acquired on |         | Value    |  | Fiscal Year-End (#) |           | at Fiscal Year-End (1)($)
|                     |  | Exercise    |         | Realized |  |                     |           |                          
|Name                 |  | (#)         |         | ($)      |  | Exercisable         |           | Unexercisable             |  | Exercisable            |         | Unexercisable       
|                     |  |             |         |          |  |                     |           |                           |  |                        |         |                     
|George W. Haligowski |  |             | 100,000 |          |  | $                   | 3,992,800 |                           |  |                        | 272,500 |                      |  |  | 25,000 |  |  | $ | 10,274,750 |  |  | $ | 667,500 | 
|Norval L. Bruce      |  |             | 60,968  |          |  |                     | 2,200,514 |                           |  |                        | 40,698  |                      |  |  | 13,334 |  |  |   | 1,435,659  |  |  |   | 361,351 | 
|Timothy M. Doyle     |  |             |        |          |  |                     | n/a       |                           |  |                        | 65,000  |                      |  |  | 10,000 |  |  |   | 2,243,325  |  |  |   | 271,000 | 
|Don Nickbarg         |  |             |        |          |  |                     | n/a       |                           |  |                        | 26,666  |                      |  |  | 13,334 |  |  |   | 919,911    |  |  |   | 383,989 | 
|Scott Wallace        |  |             |        |          |  |                     | n/a       |                           |  |                        | 20,666  |                      |  |  | 4,334  |  |  |   | 700,217    |  |  |   | 97,403  | 



---

|(1) |  | The difference between the aggregate option exercise price and the
closing price of $50.10 of the underlying shares at December 31, 2003.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

Agreements with Mr. Haligowski

We have entered into an employment agreement with Mr. Haligowski. The
employment agreement provides for an initial employment term of five years,
with the agreement automatically annually extending for an additional one-year
period each year unless either party provides the other with at least 90 days
notice of the non-extension or termination. The employment agreement provides
that we may terminate Mr. Haligowski for cause, as defined in the employment
agreement. In the event Mr. Haligowski is involuntarily terminated, as
defined in the employment agreement, including following a change of control,
as defined in the employment agreement, Mr. Haligowski will be entitled to
receive during the remaining term of the agreement his base salary calculated
at the highest annual rate during the three years prior to his involuntary
termination and the average amount of cash bonus and incentive compensation
paid for the two years prior to his involuntary termination, if any, the
continuation of all employment

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related benefits for the 60 months following the date of termination and
the immediate vesting of any stock options and restricted stock awards
previously granted and outstanding. As a result of a change of control, Mr.
Haligowski will also be retained as a consultant for an eighteen month period
following the change in control at a monthly consulting fee equal to 75% of his
base salary and an additional contribution to his account in our Supplemental
Executive Retirement Plan equal to 3.95 times his base salary. In addition, the
terms of the employment agreement shall be extended 60 months and stock options
and restricted stock awards previously granted and outstanding, salary
continuation plans, equity club memberships and other fringe benefits shall
immediately vest following a change of control. The annual base salary for Mr.
Haligowski under the employment agreement is currently $447,500 (which may be
increased from time to time by the Board of Directors). The employment
agreement also provides for, among other things, annual incentive compensation,
disability pay, participation in stock benefit and salary continuation plans,
and other fringe benefits, including a supplemental housing payment of not less
than $2,500 per month, an automobile allowance of not less than $1,950 per
month, and life insurance coverage in an amount not less than four times Mr.
Haligowskis annual salary. In addition we shall maintain health, dental and
life insurance benefits for the 60 months following an involuntary termination
and transfer title to our owned vehicle currently used by Mr. Haligowski. In
March 2000, we adopted a Salary Continuation Plan for the benefit of Mr.
Haligowski. Under the terms of this plan, Mr. Haligowski will be entitled to
receive monthly payments, based on 75% of his average monthly base salary for
the three years preceding the year in which the plan benefits become payable,
for a 15 year period. The benefits under the plan become payable on the earlier
of Mr. Haligowskis retirement upon reaching age 65, or his death, disability,
or involuntary termination (other than a termination for cause, as defined in
the agreement). If Mr. Haligowski voluntarily terminates his employment prior
to reaching age 65, the benefit payable to him under the plan will be prorated
based on the ratio of the actual period that he worked while the plan is in
effect to the scheduled period of time that he would have worked if he had
continued to work until reaching age 65. If we undergo a change of control, the
vesting of plan benefits accelerates and become payable monthly over a ten-year
period, with an increased monthly payment to reflect the shorter payment
period.

Change of Control Agreements

We have entered into change of control agreements with Messrs. Bruce,
Doyle, Nickbarg and Wallace. The change in control agreements have initial
terms of one year and shall automatically extend for additional one-year
periods upon a change of control, as defined in the agreement, or upon their
anniversary date, unless either party provides the other with at least 90 days
notice of termination. These agreements provide that in the event the officer
is involuntarily terminated within 24 months following a change of control, as
defined in the agreement, the officer shall be entitled to receive upon such
termination an amount equal to the greater of the annualized salary as in
effect on the date of the change of control or the date of termination for a
period of up to 18 months and a pro rata portion of his bonus from the previous
year. In addition we will maintain health, dental and life insurance benefits
for up to the next 18 months for each officer and transfer title to our owned
vehicle currently used by the officer or, in the event the officer receives a
monthly cash car allowance in lieu of the use of our vehicle, we shall pay an
amount equal to up to 18 times the monthly allowance. Stock options and
restricted stock awards previously granted and outstanding will also
immediately vest. The annual base salary for Messrs. Bruce, Doyle, Nickbarg and
Wallace is currently $230,000, $195,000, $175,000 and $150,000, respectively.

Both Mr. Haligowskis employment agreement and the change of control
agreements also provide that to the extent any payments made may be considered
excess parachute payments under Section 280G of the Internal Revenue Code that
are subject to excise tax, we will pay an additional amount needed to insure
that the amount of payments and value of benefits received equals the same
amount in the absence of any excise tax.

Supplemental Executive Retirement Plan (SERP)

The SERP provides that the compensation committee may make restricted
stock awards under ITLA Capitals Recognition and Retention Plan (RRP) on a tax
deferred basis through the SERP. The SERP further provides that Mr. Haligowski
shall receive an allocation annually, subject to the performance terms of the
RRP, of a restricted stock award equal to one-third of his base salary and all
other participants shall receive an award equal to one-fifth of base salary
subject to the approval of the compensation committee, which may also allocate
a greater or lesser award or no award in its discretion. For this purpose, each
share of common stock has been valued at $9.00 per share, the fair market value
of the common stock on the date of issuance to the SERP. A participant shall
only have a vested right to amounts allocated to his or her account if the
participant is employed on the last day of a three year vesting cycle or
earlier at the discretion of the compensation committee. Upon a change in
control (as defined in the SERP), the participant shall have an accelerated
vesting of all shares allocated to his or her account. The participant shall
only have a right to vested shares in his or her account upon normal
retirement, death, disability or termination. The last day of the next vesting
cycle for shares allocated to the SERP accounts for the benefit of the
participants for the years 2003, 2004 and 2005 is December 31, 2005. For
additional discussion, please see Benefits  Recognition and Retention Plan.

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Benefits

Insurance Plans.All full-time employees, after approximately three months
employment with us, are covered under group plans providing major medical,
dental, and vision benefits, and long-term disability, travel accident,
accidental death and dismemberment insurance, and group term life insurance.

Salary Savings Plan.The ITLA Capital Salary Savings Plan is a cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code (the
Code) designed to provide employees with the opportunity to accumulate
retirement funds (the 401(k) Plan). Permanent employees age 21 or older are
eligible to participate in the 401(k) Plan as of January 1 or July 1 first
following their hire date. Under the 401(k) Plan, subject to limitations
imposed under Section 401(k) and Section 415 of the Code, a participant may
elect to defer compensation by directing us to
contribute such amount to the 401(k) Plan on such employees behalf. We
currently make matching contributions to the 401(k) Plan equal to 50% of the
first 6% of the participants monthly contribution. The Board reviews the match
on an annual basis, and we may also make discretionary contributions to the
401(k) Plan. Compensation for purposes of the 401(k) Plan is defined as a
participants compensation from us as reported annually on Form W-2, including
contributions to the 401(k) Plan by the employee, and contributions by us in
the employees behalf to any other pension, insurance, welfare or other
employee benefit plan. Under the 401(k) Plan, a separate account is established
for each participant. Participants are always 100% vested in their
contributions and the earnings thereon. Participants become vested in employer
contributions and the earnings thereon at the rate of 20% per year commencing
with the first full year of service (defined as completion of 12 consecutive
months of work). Participants become fully vested in employer contributions and
the earnings thereon on their fifth anniversary of employment, or in the event
of death, permanent disability or attainment of age 65 while employed by us.
The 401(k) Plan provides for in-service hardship distributions of elective
deferrals, as well as loans of a portion of vested account balances.
Distributions from the 40l(k) Plan are made upon termination of service in a
lump sum or in annual installments over a period of years at the election of
the participant with the right to take a lump sum payment at any time during
such period.

Nonqualified Deferred Compensation Plans. The ITLA Capital Corporation
Supplemental Salary Savings Plan (the Supplemental Plan) and Nonqualified
Deferred Compensation Plan (the Deferral Plan) are designed to provide
additional retirement benefits for certain officers and highly compensated
employees. The Supplemental Plan provides participating employees with an
opportunity to make up benefits not available under the 401(k) Plan due to any
application of limitations on compensation and maximum benefits under the
401(k) Plan. Benefits under the Supplemental Plan are provided at the same time
and in the same form as benefits under the 401(k) Plan, and become taxable to
the participant at that point. The Deferral Plan allows a participant to defer
receipt of, and current taxation upon, designated portions of the participants
direct cash compensation until a future date specified by the participant. Both
of these plans are unfunded plans, meaning that all benefits payable there
under are payable from our general assets, and funds available to pay benefits
are subject to the claims of our general creditors. We have established a Rabbi
Trust with a third party FDIC insured financial institution which holds the
contributions to the Supplemental Plan and Deferral Plan, for the purpose of
providing the benefits set forth under the terms of the plans. Participants
only have the rights of unsecured creditors with respect to the Rabbi Trust
assets.

Stock Plans. We have adopted the 1995 Employee Stock Incentive Plan and
the 1995 Stock Option Plan for Nonemployee Directors (collectively, the Stock
Option Plan) pursuant to which officers, directors and our employees are
eligible to receive options to purchase Common Stock. The purpose of the Stock
Option Plan is to enable us to attract, retain and motivate employees by
providing for or increasing their proprietary interests in ITLA Capital, and in
the case of nonemployee directors, to attract such directors and further align
their interests with our interests. Every one of our employees is eligible to
be considered for the grant of awards under the Stock Option Plan. An amendment
to the Stock Plan increasing the number of shares authorized for awards under
the Stock Plan by 311,500 shares was approved by the Companys shareholders on
June 29, 2001. The maximum number of shares of Common Stock that may be issued
pursuant to awards granted under the Stock Option Plan is 1,311,500 shares of
which a maximum of 550,000 shares may be awarded during the first year of the
Stock Option Plan, with annual awards thereafter limited to 100,000 additional
shares during each of the next five years of the Stock Option Plan (with the
shares subject to the Stock Option Plan and all grants there under being
subject to adjustments to prevent dilution).

The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors, except that grants to nonemployee directors are made by the
Board of Directors pursuant to a predetermined formula, as described below. The
Committee consists of two or more nonemployee directors of ITLA Capital, and
has full and final authority to select the employees to receive awards and to
grant such awards. Subject to provisions of the Stock Option Plan, the
Committee has a wide degree of flexibility in determining the terms and
conditions of awards and the number of shares to be issued pursuant thereto.
The expenses of administering the Stock Option Plan are borne by us.

70



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##### Table of Contents



The Stock Option Plan authorizes the Committee to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of Common Stock or any other security or benefit with a
value derived from the value of Common Stock. Awards to employees are not
restricted to any specified form or structure. Stock options to purchase 5,000
shares of Common Stock were automatically granted to the nonemployee directors
upon the completion of our initial public offering and upon their election to
the Board of Directors, and options to purchase an additional 1,000 shares are
granted annually for the following five years, provided such individuals
continue to serve as directors.

Awards may not be granted under the Stock Option Plan after the tenth
anniversary of the adoption of the Stock Option Plan. We have granted an
aggregate of 1,554,750 options under the Stock Option Plan, of which 397,500
have been granted to Mr. Haligowski, 115,000, 75,000, 40,000 and 25,000 have
been granted to Messrs. Bruce, Doyle, Nickbarg, and Wallace, respectively,
46,000 have been granted to non-employee directors, and 856,250 have been
granted to other employees, of which 327,294 have been exercised and 374,673
have been forfeited. The exercise price per share of the options granted range
from $10.00 to $46.69 per share and will generally vest 33-1/3% per year,
beginning with the first anniversary of the date of the grant.

Recognition and Retention Plan. We have adopted the Recognition and
Retention Plan (RRP), the purpose of which is to promote our long-term
interests and our shareholders by providing a means for attracting and
retaining officers and employees of ITLA Capital and its affiliates. Under the
RRP, awards of restricted shares of our common stock may be made to employees
as additional long-term incentive compensation. Every one of our employees is
eligible to be considered for the grant of awards under the RRP. The maximum
number of shares of common stock which may be issued pursuant to the RRP is
300,000 shares over the ten year life of the plan. No RRP shares may be granted
in any fiscal year in which the Bank fails to maintain an adequately
capitalized designation under the FDIC regulations and ITLA Capital fails to
achieve a return on average assets of at least 50 basis points for the fiscal
year. The RRP was approved by the shareholders and is administered by the
Compensation Committee of the Board of Directors which has a wide degree of
flexibility, within the provisions of the RRP, in determining the terms and
conditions of awards and the number of shares to be issued pursuant thereto.
The RRP shares granted to date have been allocated through the Supplemental
Executive Retirement Plan as discussed above.

Directors Compensation

Directors Fees. During 2003, each non-employee director was paid a monthly
fee of $2,250 for serving on our Board of Directors and $750 for each Board or
Committee meeting attended for service on such committee. In addition, Director
Reed received an honorarium of $5,000 for his active assistance in legislative
matters during 2003 and Director Oribe received an honorarium of $15,000 for
his time and assistance with Japanese business matters and his extensive work
with the Executive Committee. In 2003, Director Martin received a monthly
retainer fee of $1,250 for his service as Chairman of the Audit Committee.

Voluntary Retainer Stock and Deferred Compensation Plan. In 1996, we
adopted the Voluntary Retainer Stock and Deferred Compensation Plan for Outside
Directors (the Outside Director Plan). The Outside Director Plan provides for
the deferral of compensation earned by non-employee directors in the form of
Stock Units (Stock Units) in a Stock Unit account (Stock Unit Account).
Directors may elect to have up to 100% of their fees converted into stock
units.

For dividends paid with respect to our common stock, each non-employee
director has credited to his Stock Unit Account an additional number of Stock
Units in an amount determined under the Outside Director Plan. Each
non-employee directors Stock Unit Account will be settled by delivering to the
non-employee director (or his beneficiary) the number of shares of our common
stock equal to the number of whole Stock Units then credited to the
non-employee directors Stock Unit Account, in either (i) a lump sum or (ii)
substantially equal annual installments over a period not to exceed ten years.

To date, no amounts have been deferred under the Outside Director Plan.

Directors Stock Option Plans. Directors are also eligible to receive stock
option grants as described above. On October 30, 2003, Preston Martin was
granted an option to purchase 1,000 shares of common stock with an exercise
price of $46.69 per share. The option vests in full on October 30, 2004 and
will expire on October 30, 2013. No other options were granted to Directors
during 2003.

Compensation Committee Interlocks and Insider Participation

During 2003, the Compensation Committee was comprised of Directors
Lipscomb and Oribe.

71



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##### Table of Contents






Item 12. Security Ownership of Certain Beneficial Owners and Management

At March 8,
2004, we had 6,268,673 shares of common stock outstanding.

The following table sets forth, as of March 8, 2004, certain information
as to those persons who were known by management to be beneficial owners of
more than five percent of our common stock outstanding.

|                                                             |  |                           |         |                  |  |  |      |  
|------------------------------------------------------------ |  | ------------------------- | ------- | ---------------- |  |  | ---- | -
|Beneficial Owner                                             |  | Shares Beneficially Owned |         | Percent of Class
|                                                             |  |                           |         |                 
|Eubel Brady & Suttman Asset Management Inc.                  |  |                           | 511,107 | (1)              |  |  | 8.15 | %
|7777 Washington Village Drive, Suite 210
Dayton, Ohio 45459  |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Franklin Mutual Advisors, LLC                                |  |                           | 466,396 | (2)              |  |  | 7.44 | %
|51 John F. Kennedy Parkway
Short Hills, NJ 07078             |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Friedman, Billings, Ramsey Group, Inc.                       |  |                           | 446,800 | (3)              |  |  | 7.13 | %
|1001 19th Street North
Arlington, VA 22209                   |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|George W. Haligowski                                         |  |                           | 461,468 | (4)              |  |  | 7.04 | %
|888 Prospect Street, Suite 110
La Jolla, CA 92037            |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Dimensional Fund Advisors                                    |  |                           | 425,600 | (5)              |  |  | 6.79 | %
|1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401 |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Thomson Horstmann & Bryant, Inc.                             |  |                           | 375,200 | (6)              |  |  | 5.98 | %
|Park 80 West, Plaza Two
Saddle Brook, NJ 07663               |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Wellington Management Company, LLP                           |  |                           | 368,400 | (7)              |  |  | 5.87 | %
|75 State Street
Boston, MA 02109                             |  |                           |         |                  |  |  |      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Barclays Global Investors, NA                                |  |                           | 325,497 | (8)              |  |  | 5.19 | %
|45 Fremont Street
San Francisco, CA 94105                    |  |                           |         |                  |  |  |      |  



---

|(1) |  | As reported by Eubel Brady & Suttman Asset Management, Inc. (Suttman)
on a Schedule 13G amendment filed on February 17, 2004 with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended. Suttman reported sole voting and dispositive power as to none of
the 511,107 shares, and shared voting and dispositive power as to all of
the 511,107 shares covered by the report.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | As reported by Franklin
Mutual Advisors, LLC (Franklin) on a Schedule 13G
amendment filed on February 9, 2004 with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Franklin
reported sole voting and dispositive powers as to all of the 466,396
shares, and shared voting and dispositive powers as to none of the 466,396
shares covered by the report.            
|   
|   
|   
|   
|(3) |  | As reported by Friedman, Billings, Ramsey Group, Inc. (FBR) on a
Schedule 13G amendment filed on February 17, 2004 with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.
FBR reported sole voting and dispositive powers as to none of the 446,800
shares, and shared voting and dispositive powers as to all of the 446,800
shares covered by the report.            
|   
|   
|   
|   
|(4) |  | Includes 285,000 shares underlying stock options which are currently
exercisable or which will become exercisable within 60 days of March 8,
2004.                                                                                                                                                                                                                                                                   
|   
|   
|   
|   
|(5) |  | As reported by Dimensional Fund Advisors (Dimensional) on a Schedule
13G amendment filed on February 6, 2004 and filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.
Dimensional reported sole voting and dispositive powers as to all of the
425,600 shares, and shared voting and dispositive powers as to none of the
425,600 shares covered by the report.

72



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##### Table of Contents



|(6) |  | As reported by Thomson Horstmann & Bryant, Inc. (Thomson) on a Schedule
13G amendment filed on January 21, 2004 with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Thomson
reported shared voting and dispositive power as to none of the 375,200
shares, sole voting power as to 181,600 shares, and sole dispositive power
as to all of the 375,200 shares covered by the report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(7) |  | As reported by Wellington Management Company, LLP (WMC) on a Schedule
13G amendment filed on February 12, 2004 with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. WMC
reported sole voting and dispositive powers as to none of the 368,400
shares, shared voting power as to 167,800 shares, and shared dispositive
power as to all of the 368,400 shares covered by the report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(8) |  | As reported by Barclays Global Investors, NA., Barclays Global Fund
Advisors, Barclays Global Investors, Ltd., Barclays Global Investors Japan
Trust and Banking Company Limited, Barclays Life Assurance Company
Limited, Barclays Bank PLC., Barclays Capital Securities Limited, Barclays
Capital Inc., Barclays Private Bank & Trust (Isle of Man) Limited,
Barclays Private Bank and Trust (Jersey) Limited, Barclays Bank Trust
Company Limited, Barclays Bank (Suisse) SA., and Barclays Private Bank
Limited, on a Schedule 13G filed on February 17, 2004 with the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended. With respect to the 325,497 shares listed, Barclays
Global Investors, NA., reported sole voting and dispositive powers as to
245,329 shares, and shared voting and dispositive powers as to none
of such shares, and Barclays Global Fund Advisors reported sole voting and
dispositive powers as to 46,093 shares, and shared voting and dispositive
powers as to none of such shares.

The following table
sets forth, as of March 8, 2004, certain information
as to the shares of common stock beneficially owned by the directors and named
executive officers and by all directors and executive officers of ITLA Capital
as a group.

|                                                             |  |              |         |            |  |  |       |  
|------------------------------------------------------------ |  | ------------ | ------- | ---------- |  |  | ----- | -
|                                                             |  | Shares       |         |            |  | 
|                                                             |  | Beneficially |         |            |  | 
|                                                             |  | Owned        |         | Percent of
|Beneficial Owner                                             |  | (1)          |         | Class     
|                                                             |  |              |         |           
|George W. Haligowski                                         |  |              | 461,468 |            |  |  | 7.04  | %
|Timothy M. Doyle                                             |  |              | 96,943  |            |  |  | 1.53  |  
|Norval L. Bruce                                              |  |              | 92,663  |            |  |  | 1.47  |  
|Don Nickbarg                                                 |  |              | 40,427  |            |  |  | 0.64  |  
|Scott Wallace                                                |  |              | 24,238  |            |  |  | 0.39  |  
|Sandor X. Mayuga                                             |  |              | 10,800  |            |  |  | 0.17  |  
|Jeffrey L. Lipscomb                                          |  |              | 10,400  |            |  |  | 0.17  |  
|Hirotaka Oribe                                               |  |              | 10,200  |            |  |  | 0.16  |  
|Robert R. Reed                                               |  |              | 10,200  |            |  |  | 0.16  |  
|Preston Martin                                               |  |              | 5,666   |            |  |  | 0.09  |  
|All Directors and Executive Officers as a Group (13
Persons) |  |              | 809,533 |            |  |  | 11.89 |  



---

|(1) |  | Includes shares held
directly, as well as an aggregate of 539,195 shares
which are subject to immediately exercisable options and options
exercisable within 60 days of March 8, 2004, under ITLA Capitals Stock
Option Plan, vested shares held by the SERP, and shares held in retirement
accounts or by certain members of the named individuals families or
corporations for which an individual is an officer or director or held by
trust of which an individual is trustee or a substantial beneficiary, over
which shares the individual may be deemed to have sole or shared voting
and/or dispositive power. The above named individuals held exercisable
options and options exercisable within 60 days of March 8, 2004 as
follows: Chairman Haligowski  285,000 shares; Director Lipscomb  10,000
shares; Director Mayuga  10,000 shares; Director Oribe  10,000 shares;
Director Reed  10,000 shares; Director Martin  5,000
shares; Norval L. Bruce  47,365 shares; Timothy M.
Doyle  70,000 shares; Don Nickbarg  31,666 shares and Scott Wallace 
20,667 shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

73



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##### Table of Contents



The following table sets forth information as of December 31, 2003 with
respect to compensation plans under which shares of our common stock may be
issued:

Equity Compensation Plan Information

|                                                       |  |                     |         |                   |  |                    |       |                     |  |                     |         | 
|------------------------------------------------------ |  | ------------------- | ------- | ----------------- |  | ------------------ | ----- | ------------------- |  | ------------------- | ------- | 
|                                                       |  |                     |         |                   |  |                    |       |                     |  | Number of Shares   
|                                                       |  |                     |         |                   |  |                    |       |                     |  | Remaining Available
|                                                       |  | Number of Shares to |         |                   |  |                    |       | for Future Issuance
|                                                       |  | be issued upon      |         | Weighted Average  |  | Under Equity      
|                                                       |  | Exercise of         |         | Exercise Price of |  | Compensation Plans
|                                                       |  | Outstanding         |         | Outstanding       |  | (Excluding Shares 
|                                                       |  | Options, Warrants   |         | Options, Warrants |  | Reflected in the  
|Plan Category                                          |  | and Rights          |         | and Rights        |  | First Column) (1) 
|                                                       |  |                     |         |                   |  |                   
|Equity compensation
plans approved by
stockholders     |  |                     | 852,783 |                   |  | $                  | 15.17 |                     |  |                     | 256,423 | 
|Equity compensation
plans not approved
by stockholders |  |                     | N/A     |                   |  |                    | N/A   |                     |  |                     | N/A     | 
|                                                       |  |                     |         |                   |  |                    |       |                     |  |                     |         | 
|Total                                                  |  |                     | 852,783 |                   |  | $                  | 15.17 |                     |  |                     | 256,423 | 
|                                                       |  |                     |         |                   |  |                    |       |                     |  |                     |         | 



---

|(1) |  | This amount includes 125,000 shares issuable under our 1996 Voluntary
Retainer Stock and Deferred Compensation Plan for Outside Directors,
described under Item 11. Executive Compensation  Directors
Compensation. Under the Companys 1995 Employee Stock Option and
Incentive Plan, up to all of the 126,423 shares remaining available for
issuance under that plan as of December 31, 2003 could be issued to plan
participants pursuant to awards of restricted stock, performance shares
and/or performance units.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 13. Certain Relationships and Related Transactions

During the year, we utilized the services of Tisdale & Nicholson. Director
Mayuga is a partner in that law firm. During 2003, this law firm received
$155,218 in legal fees from ITLA Capital and the Bank.




Item 14. Principal Accountant Fees and Services

During the fiscal years ended December 31, 2003 and 2002, Ernst & Young
LLP provided various audit, audit related and non-audit services to the
Company. Set forth below are the aggregate fees billed for these services:



| | (a) |  | Audit Fees: Aggregate fees billed for professional services
rendered for the audit of the Companys annual financial statements
and reviews of financial statements included in the Companys
Quarterly Reports on Form 10-Q for those fiscal years: $225,250 -
2003; $181,000 - 2002.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Audit Related Fees: Aggregate fees billed for professional
services rendered related to audits of employee benefit plans, and
consultation on accounting matters: $70,000 - 2003; $17,250 - 2002.                                                                                     
|
| | (c) |  | Tax Fees: Aggregate fees billed for professional services
rendered related to tax compliance, tax advice and tax return
preparation: $101,000 - 2003; $91,600 - 2002.                                                                                                                 
|
| | (d) |  | All other fees: None - 2003; None - 2002.                                                                                                                                                                                                                                             

The audit committee preapproves all audit and permissible non-audit
services to be provided by Ernst & Young LLP and the estimated fees for these
services.

74



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##### Table of Contents






PART IV




Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1) Financial Statements:



| |  | Our consolidated financial statements, and Report of Independent Public
Accountants thereon, are included in this Form 10-K at the pages listed
below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                         |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                         |  | Page
|                                                                                                                                         |  |     
|Report of Independent Auditors                                                                                                           |  |      | 38 | 
|Report of Predecessor Independent Public Accountant                                                                                      |  |      | 39 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                             |  |      | 40 | 
|Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001                                                   |  |      | 41 | 
|Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for
the Years Ended December 31, 2003, 2002 and 2001 |  |      | 42 | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001                                               |  |      | 43 | 
|Notes to Consolidated Financial Statements                                                                                               |  |      | 44 | 

(a)(2) Financial Statement Schedules:



| |  | All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Notes to
Consolidated Financial Statements.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

75



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##### Table of Contents



(a)(3) Exhibits:

|               |  |                                                                                                                                                                                                                |  |                   
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|               |  |                                                                                                                                                                                                                |  | Reference to Prior
|               |  |                                                                                                                                                                                                                |  | Filling or Exhibit
|Regulation S-K |  |                                                                                                                                                                                                                |  | Number Attached   
|Exhibit Number |  | Document                                                                                                                                                                                                       |  | Hereto            
|               |  |                                                                                                                                                                                                                |  |                   
|3.1            |  | Certificate of Incorporation                                                                                                                                                                                   |  | **                
|3.2            |  | Bylaws, as amended                                                                                                                                                                                             |  | ******            
|4              |  | Instruments Defining the Rights of Security Holders, Including Indentures                                                                                                                                      |  | None              
|10.1           |  | 1995 Stock Option Plan For Nonemployee Directors                                                                                                                                                               |  | *                 
|10.2           |  | 1995 Employee Stock Incentive Plan                                                                                                                                                                             |  | *******           
|10.3a          |  | Nonqualified (Non-Employer Securities) Deferred Compensation Plan                                                                                                                                              |  | ********          
|10.3b          |  | Nonqualified (Employer Securities Only) Deferred Compensation
Plan                                                                                                                                             |  | ********          
|10.4           |  | Supplemental Salary Savings Plan                                                                                                                                                                               |  | *                 
|10.5           |  | Data Processing Agreement                                                                                                                                                                                      |  | *                 
|10.6           |  | Employment Agreement with George W. Haligowski                                                                                                                                                                 |  | *                 
|10.7           |  | Change of Control Agreements                                                                                                                                                                                   |  | ***               
|10.8           |  | Recognition and Retention Plan                                                                                                                                                                                 |  | **                
|10.9           |  | Voluntary Retainer Stock and Deferred Compensation Plan for Outside Directors                                                                                                                                  |  | **                
|10.10          |  | Supplemental Executive Retirement Plan                                                                                                                                                                         |  | ********          
|10.11          |  | ITLA Capital Corporation Rabbi Trust Agreement                                                                                                                                                                 |  | ***               
|10.12          |  | Salary Continuation Plan                                                                                                                                                                                       |  | ****              
|10.13          |  | Licensing Agreement, dated October 30, 2002, between Imperial
Capital Bank and Beneficial Franchise Company, Inc.                                                                                              |  | ********          
|10.14          |  | Amended and Restated Sale and Servicing Agreement for RALs and
RACs, dated as of January 3, 2003, between Imperial Capital
Bank, Household Tax Masters Inc., and Household Tax Masters Acquisition Corporation |  | ********          
|11             |  | Statement Regarding Computation of Per Share Earnings                                                                                                                                                          |  | None              
|13             |  | Annual Report to Security Holders                                                                                                                                                                              |  | None              
|18             |  | Letter Regarding Change in Accounting Principles                                                                                                                                                               |  | None              
|19             |  | Report furnished to Security Holders                                                                                                                                                                           |  | None              
|21             |  | Subsidiaries of the Registrant                                                                                                                                                                                 |  | 21                
|22             |  | Published Report Regarding Matters Submitted to Vote of Security Holders                                                                                                                                       |  | None              
|23.1           |  | Consent of Ernst & Young LLP                                                                                                                                                                                   |  | 23.1              
|23.2           |  | Statement regarding consent of Arthur Andersen LLP                                                                                                                                                             |  | 23.2              
|24             |  | Power of Attorney                                                                                                                                                                                              |  | None              
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                              |  | 31.1              
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                              |  | 31.2              
|32             |  | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer                                                                                                                             |  | 32                



---

|*        |  | Filed as an exhibit to Imperials Registration Statement on Form
S-1 (File No. 33-96518) filed with the Commission on September 1,
1995, pursuant to Section 5 of the Securities Act of 1933.                                            
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|        
|        
|        
|**       |  | Filed as an exhibit to the Companys Registration Statement on
Form S-4 (File No. 333-03551) filed with the Commission on May 10,
1996, pursuant to Section 5 of the Securities Act of 1933.                                             
|        
|        
|        
|        
|***      |  | Filed as an exhibit to the Companys Form 10-K for the year
ended December 31, 1999 (File No. 0-26960).                                                                                                                                  
|        
|        
|        
|        
|****     |  | Filed as an exhibit to the Companys Registrants Form 10-K
for the year ended December 31, 2000 (File No. 0-26960).                                                                                                                     
|        
|        
|        
|        
|*****    |  | Filed as an exhibit to the Companys Registrants Form 10-K
for the year ended December 31, 2001 (File No. 0-26960).                                                                                                                     
|        
|        
|        
|        
|******   |  | Filed as an exhibit to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 (File No. 0-26960).                                                                                                          
|        
|        
|        
|        
|*******  |  | Filed as an appendix to the Companys definitive proxy
materials filed on September 29, 2001.                                                                                                                                            
|        
|        
|        
|        
|******** |  | Filed as an exhibit to the Current Report on Form 8-K
filed by the Company on February 5, 2003 (File No. 0-26960). Portions of
this exhibit have been omitted pursuant to a request for confidential
treatment granted by the Commission.

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|********* |  | Filed as an exhibit to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003 (File No. 0-26960).                       
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|          | 
|(b)       |  | Reports on Form 8-K. Set forth below is a description of the Current
Reports on Form 8-K that we furnished during the quarter ended December
31, 2003:

On October 29, 2003, we furnished a Current Report on Form 8-K disclosing under
Item 9 material prepared for presentation at an industry conference.

On November 3, 2003, we furnished a Current Report on Form 8-K disclosing under
Item 12 the issuance of our press release announcing our 2003 third quarter
earnings.

On November 5, 2003, we furnished a Current Report on Form 8-K disclosing under
Item 9 material prepared for presentation at an industry conference.

On December 1, 2003, we furnished a Current Report on Form 8-K disclosing under
Item 9 material prepared for presentation at an industry conference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 15, 2004 |  | By:                      |  | /s/ George W. Haligowski                                                                                         
|                     |  |                          |  |                                                                                                                  
|                     |  |                          |  | George W. Haligowski
Chairman of the Board, President
and Chief Executive Officer(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                                               |  |                                                                                                   |  |               
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                             |  | Date          
|                                               |  |                                                                                                   |  |               
|/s/ George W. Haligowski

George W. Haligowski |  | Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)        |  | March 15, 2004
|                                              
|/s/ Timothy M. Doyle

Timothy M. Doyle         |  | Senior Managing Director and
Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 15, 2004
|                                              
|/s/ Norval L. Bruce

Norval L. Bruce           |  | Director                                                                                          |  | March 15, 2004
|                                              
|/s/ Jeffrey L. Lipscomb

Jeffrey L. Lipscomb   |  | Director                                                                                          |  | March 15, 2004
|                                              
|/s/ Sandor X. Mayuga

Sandor X. Mayuga         |  | Director                                                                                          |  | March 15, 2004
|                                              
|/s/ Robert R. Reed

Robert R. Reed             |  | Director                                                                                          |  | March 15, 2004
|                                              
|/s/ Hirotaka Oribe

Hirotaka Oribe             |  | Director                                                                                          |  | March 15, 2004
|                                              
|/s/ Preston Martin

Preston Martin             |  | Director                                                                                          |  | March 15, 2004

78