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

FORM 10-Q

(Mark One)

|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|[x]                                           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                             
|For the Quarterly Period Ended March 31, 2004
|                                             
|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

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(Exact Name of Registrant as Specified in its Charter)


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

(858) 551-0511

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(Registrants Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [   ].

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

Number of shares of common stock of the registrant: 6,255,769 outstanding as of May 3, 2004.



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TABLE OF CONTENTS



|                             |                                                                                               |                                                          |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|                             | PART I  FINANCIAL INFORMATION                                                               
|                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                             
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                       
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                   
|                             |                                                                                               | NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                             | Item 4. Controls and Procedures                                                              
|PART II   OTHER INFORMATION
|                             | Item 1. Legal Proceedings                                                                    
|                             | Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities   
|                             | Item 3. Defaults Upon Senior Securities                                                      
|                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                             | Item 5. Other Information                                                                    
|                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                  
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32                  



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##### Table of Contents



ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2004

TABLE OF CONTENTS

|                                                                                              |                                                                                                |  |    |    | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  | -- | -- | 
|PART I  FINANCIAL INFORMATION                                                                |                                                                                                |  |    |   
|Item 1. Financial Statements                                                                  |                                                                                                |  | 3  |   
|                                                                                              | Consolidated Balance Sheets  March 31, 2004 (Unaudited) and December 31, 2003                 |  |    | 3  | 
|                                                                                              | Consolidated Statements of Income  Three Months Ended March 31, 2004 and 2003 (Unaudited)     |  |    | 4  | 
|                                                                                              | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2004 and 2003 (Unaudited) |  |    | 5  | 
|                                                                                              | Notes
to the Unaudited Consolidated Financial Statements                                       |  |    | 6  | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                |  | 12 |   
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                |  | 23 |   
|Item 4. Controls and Procedures                                                               |                                                                                                |  | 23 |   
|PART II  OTHER INFORMATION                                                                   |                                                                                                |  |    |   
|Item 1. Legal Proceedings                                                                     |                                                                                                |  | 24 |   
|Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities    |                                                                                                |  | 24 |   
|Item 3. Defaults Upon Senior Securities                                                       |                                                                                                |  | 24 |   
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                |  | 24 |   
|Item 5. Other Information                                                                     |                                                                                                |  | 24 |   
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                |  | 24 |   
|                                                                                              | Signatures                                                                                     |  |    | 25 | 
|                                                                                              | Certifications                                                                                 |  |    | 27 | 

Forward Looking Statements

Safe Harbor statement under the Private Securities Litigation Reform Act
of 1995: This Form 10-Q contains forward-looking statements that are subject
to risks and uncertainties, including, but not limited to, changes in economic
conditions in 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 portfolio 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.

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |           |         |           | 
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | --------- | ----------------------------------- | --------- | ------------ | --------- | ------- | --------- | 
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           | March 31,                           |           |              |           |        
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           | 2004                                |           | December 31,
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           | (unaudited)                         |           | 2003        
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |             
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           | (in thousands except share amounts)
|Assets                                                                                                                        |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|Cash and cash equivalents                                                                                                     |                                                                                                                                                                           | $                          | 285,441                                    |           |                                     | $         | 178,318      |          
|Investment securities available for sale, at fair value                                                                       |                                                                                                                                                                           |                            | 49,594                                     |           |                                     |           | 53,093       |          
|Stock in Federal Home Loan Bank                                                                                               |                                                                                                                                                                           |                            | 18,262                                     |           |                                     |           | 17,966       |          
|Loans, net (net of allowance for loan losses of $33,057 and $31,573
as of March 31, 2004 and December 31, 2003, respectively) |                                                                                                                                                                           |                            | 1,452,676                                  |           |                                     |           | 1,436,849    |          
|Real estate loans held in trust, net (net of allowance for loan
losses of $1,828 as of March 31, 2004 and December 31, 2003)  |                                                                                                                                                                           |                            | 55,604                                     |           |                                     |           | 68,575       |          
|Loans held for sale                                                                                                           |                                                                                                                                                                           |                            | 9,309                                      |           |                                     |           |             |          
|Interest receivable                                                                                                           |                                                                                                                                                                           |                            | 8,581                                      |           |                                     |           | 8,958        |          
|Other real estate owned, net                                                                                                  |                                                                                                                                                                           |                            | 5,261                                      |           |                                     |           | 7,048        |          
|Premises and equipment, net                                                                                                   |                                                                                                                                                                           |                            | 5,827                                      |           |                                     |           | 5,766        |          
|Deferred income taxes                                                                                                         |                                                                                                                                                                           |                            | 11,532                                     |           |                                     |           | 11,609       |          
|Goodwill                                                                                                                      |                                                                                                                                                                           |                            | 3,118                                      |           |                                     |           | 3,118        |          
|Other assets                                                                                                                  |                                                                                                                                                                           |                            | 30,147                                     |           |                                     |           | 26,915       |          
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              |                                                                                                                                                                           |                            | Total assets                               |           | $                                   | 1,935,352 |              |           | $       | 1,818,215 | 
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|Liabilities and Shareholders Equity                                                                                          |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|Liabilities:                                                                                                                  |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              | Deposit accounts                                                                                                                                                          |                            | $                                          | 1,222,089 |                                     |           | $            | 1,147,017 |        
|                                                                                                                              | Federal Home Loan Bank advances                                                                                                                                           |                            |                                            | 298,135   |                                     |           |              | 362,135   |        
|                                                                                                                              | Collateralized mortgage obligations                                                                                                                                       |                            |                                            | 3,175     |                                     |           |              | 15,868    |        
|                                                                                                                              | Accounts payable and other liabilities                                                                                                                                    |                            |                                            | 125,846   |                                     |           |              | 19,696    |        
|                                                                                                                              | Junior subordinated debentures                                                                                                                                            |                            |                                            | 86,600    |                                     |           |              | 86,600    |        
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              |                                                                                                                                                                           |                            | Total liabilities                          |           |                                     | 1,735,845 |              |           |         | 1,631,316 | 
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|Commitments and contingencies                                                                                                 |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|Shareholders equity:                                                                                                         |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              | Preferred stock, 5,000,000 shares authorized, none issued                                                                                                                 |                            |                                            |          |                                     |           |              |          |        
|                                                                                                                              | Contributed capital  common stock, $.01 par value; 20,000,000
shares authorized, 8,506,205 and 8,447,294 issued as of March
31, 2004 and December 31, 2003, respectively |                            |                                            | 62,752    |                                     |           |              | 61,704    |        
|                                                                                                                              | Retained earnings                                                                                                                                                         |                            |                                            | 179,191   |                                     |           |              | 165,407   |        
|                                                                                                                              | Accumulated other comprehensive income, net                                                                                                                               |                            |                                            | 272       |                                     |           |              | 155       |        
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              |                                                                                                                                                                           |                            | 242,215                                    |           |                                     |           | 227,266      |          
|                                                                                                                              | Less treasury stock, at cost 2,524,789 and 2,475,689 shares as
of March 31, 2004 and December 31, 2003, respectively                                                      |                            |                                            | (42,708   | )                                   |           |              | (40,367   | )      
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              |                                                                                                                                                                           | Total shareholders equity |                                            |           | 199,507                             |           |              |           | 186,899 |          
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          
|                                                                                                                              |                                                                                                                                                                           |                            | Total liabilities and shareholders equity |           | $                                   | 1,935,352 |              |           | $       | 1,818,215 | 
|                                                                                                                              |                                                                                                                                                                           |                            |                                            |           |                                     |           |              |          

See accompanying notes to the unaudited consolidated financial statements.

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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |        |        |        |        | 
|-------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------ | -------------------------- | ---------------------------------------------------- | ------ | --------------------------------------- | ------ | ------ | ------ | ------ | ------ | 
|                                                                                       |                                                 |                                      |                            |                                                      |        | For the Three Months Ended             
|                                                                                       |                                                 |                                      |                            |                                                      |        | March 31,                              
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                        
|                                                                                       |                                                 |                                      |                            |                                                      |        | (in thousands except per share amounts)
|                                                                                       |                                                 |                                      |                            |                                                      |        | 2004                                    |        | 2003  
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Interest income:                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | Loans, including fees                           |                                      | $                          | 28,914                                               |        |                                         | $      | 28,614 |       
|                                                                                       | Real estate loans held in trust                 |                                      |                            | 726                                                  |        |                                         |        | 2,173  |       
|                                                                                       | Cash and investment securities                  |                                      |                            | 2,443                                                |        |                                         |        | 2,737  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 | Total interest income                |                            |                                                      | 32,083 |                                         |        |        | 33,524 |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Interest expense:                                                                      |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | Deposit accounts                                |                                      |                            | 6,514                                                |        |                                         |        | 6,848  |       
|                                                                                       | Federal Home Loan Bank advances                 |                                      |                            | 1,081                                                |        |                                         |        | 1,195  |       
|                                                                                       | Collateralized mortgage obligations             |                                      |                            | 62                                                   |        |                                         |        | 390    |       
|                                                                                       | Junior subordinated debentures                  |                                      |                            | 1,489                                                |        |                                         |        |       |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 | Total interest expense               |                            |                                                      | 9,146  |                                         |        |        | 8,433  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 |                                      |                            | Net interest income before provision for loan losses |        |                                         | 22,937 |        |        |        | 25,091 | 
|Provision for loan losses                                                              |                                                 |                                      | 1,400                      |                                                      |        |                                         | 4,500  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 |                                      |                            | Net interest income after provision for loan losses  |        |                                         | 21,537 |        |        |        | 20,591 | 
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Non-interest income:                                                                   |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | Premium on sale of loans, net                   |                                      |                            | 9,024                                                |        |                                         |        | 8,718  |       
|                                                                                       | Late and collection fees                        |                                      |                            | 101                                                  |        |                                         |        | 67     |       
|                                                                                       | Other                                           |                                      |                            | 4,269                                                |        |                                         |        | 3,751  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 | Total non-interest income            |                            |                                                      | 13,394 |                                         |        |        | 12,536 |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Non-interest expense:                                                                  |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | Compensation and benefits                       |                                      |                            | 6,156                                                |        |                                         |        | 5,352  |       
|                                                                                       | Occupancy and equipment                         |                                      |                            | 1,328                                                |        |                                         |        | 1,076  |       
|                                                                                       | Other                                           |                                      |                            | 3,868                                                |        |                                         |        | 3,689  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 | Total general and administrative     |                            |                                                      | 11,352 |                                         |        |        | 10,117 |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | Real estate owned expense, net                  |                                      |                            | 96                                                   |        |                                         |        | 142    |       
|                                                                                       | Provision for losses on other real estate owned |                                      |                            | 1,000                                                |        |                                         |        | 330    |       
|                                                                                       | Gain on sale of other real estate owned, net    |                                      |                            | (39                                                  | )      |                                         |        | (329   | )     
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 | Total real estate owned expense, net |                            |                                                      | 1,057  |                                         |        |        | 143    |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       |                                                 |                                      | Total non-interest expense |                                                      |        | 12,409                                  |        |        |        | 10,260 |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Income before provision for income taxes and
minority interest in income of subsidiary |                                                 |                                      | 22,522                     |                                                      |        |                                         | 22,867 |       
|Minority interest in income of subsidiary                                              |                                                 |                                      |                           |                                                      |        |                                         | 1,520  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|Income before provision for income taxes                                               |                                                 |                                      | 22,522                     |                                                      |        |                                         | 21,347 |       
|Provision for income taxes                                                             |                                                 |                                      | 8,738                      |                                                      |        |                                         | 8,326  |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | NET INCOME                                      |                                      | $                          | 13,784                                               |        |                                         | $      | 13,021 |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | BASIC EARNINGS PER SHARE                        |                                      | $                          | 2.21                                                 |        |                                         | $      | 2.17   |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       
|                                                                                       | DILUTED EARNINGS PER SHARE                      |                                      | $                          | 2.07                                                 |        |                                         | $      | 2.02   |       
|                                                                                       |                                                 |                                      |                            |                                                      |        |                                         |        |       

See accompanying notes to the unaudited consolidated financial statements.

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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |             |        |          |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------- | ------ | -------------------------- | ------- | ----------- | ------ | -------- | ------- | -
|                                      |                                                                                   |                                                           |                                                     |                                                      |        | For the Three Months Ended
|                                      |                                                                                   |                                                           |                                                     |                                                      |        | March 31,                 
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                           
|                                      |                                                                                   |                                                           |                                                     |                                                      |        | 2004                       |         | 2003       
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           |                                                     |                                                      |        | (in thousands)            
|Cash Flows From Operating Activities: |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      | Net Income                                                                        |                                                           | $                                                   | 13,784                                               |        |                            | $       | 13,021      |       
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                           |                                                     |                                                      |        |                            |         |             |       
|                                      |                                                                                   | Depreciation and amortization of premises and equipment   |                                                     |                                                      | 477    |                            |         |             | 388    |         
|                                      |                                                                                   | Amortization of premium on purchased loans                |                                                     |                                                      | 692    |                            |         |             | 505    |         
|                                      |                                                                                   | Accretion of deferred loan origination fees, net of costs |                                                     |                                                      | (628   | )                          |         |             | (839   | )       
|                                      |                                                                                   | Provision for loan losses                                 |                                                     |                                                      | 1,400  |                            |         |             | 4,500  |         
|                                      |                                                                                   | Provision for losses on other real estate owned           |                                                     |                                                      | 1,000  |                            |         |             | 330    |         
|                                      |                                                                                   | Premium on sale of RAL loans, net                         |                                                     |                                                      | (9,024 | )                          |         |             | (8,718 | )       
|                                      |                                                                                   | Other, net                                                |                                                     |                                                      | (25    | )                          |         |             | 1      |         
|                                      | Decrease in interest receivable                                                   |                                                           |                                                     | 377                                                  |        |                            |         | 5           |       
|                                      | Increase in other assets                                                          |                                                           |                                                     | (3,298                                               | )      |                            |         | (9,566      | )     
|                                      | Increase in accounts payable and other liabilities                                |                                                           |                                                     | 106,150                                              |        |                            |         | 54,011      |       
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           | Net cash provided by operating activities           |                                                      |        | 110,905                    |         |             |        | 53,638   |        
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|Cash Flows From Investing Activities: |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      | Purchases of investment securities available for sale                             |                                                           |                                                     |                                                     |        |                            |         | (18,149     | )     
|                                      | Proceeds from the maturity and calls of investment securities available for sale  |                                                           |                                                     | 3,633                                                |        |                            |         | 12,941      |       
|                                      | Purchase of stock in Federal Home Loan Bank                                       |                                                           |                                                     | (138                                                 | )      |                            |         | (222        | )     
|                                      | Purchase of loans                                                                 |                                                           |                                                     |                                                     |        |                            |         | (1,914      | )     
|                                      | Origination of RAL loans                                                          |                                                           |                                                     | (12,800,573                                          | )      |                            |         | (11,585,047 | )     
|                                      | Proceeds from the participation in RAL loans                                      |                                                           |                                                     | 12,797,195                                           |        |                            |         | 11,584,877  |       
|                                      | (Increase) decrease in loans, net                                                 |                                                           |                                                     | (14,644                                              | )      |                            |         | 50,740      |       
|                                      | Repayment of real estate loans held in trust                                      |                                                           |                                                     | 12,505                                               |        |                            |         | 6,922       |       
|                                      | Proceeds from sale of other real estate owned                                     |                                                           |                                                     | 1,738                                                |        |                            |         | 4,742       |       
|                                      | Other investing activities, net                                                   |                                                           |                                                     | (538                                                 | )      |                            |         | (569        | )     
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           | Net cash (used in) provided by investing activities |                                                      |        | (822                       | )       |             |        | 54,321   |        
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|Cash Flows From Financing Activities: |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      | Proceeds from exercise of employee stock options                                  |                                                           |                                                     | 1,004                                                |        |                            |         | 8           |       
|                                      | Cash paid to acquire treasury stock                                               |                                                           |                                                     | (2,341                                               | )      |                            |         |            |       
|                                      | Principal payments on collateralized mortgage obligations                         |                                                           |                                                     | (12,695                                              | )      |                            |         | (7,316      | )     
|                                      | Increase in deposit accounts                                                      |                                                           |                                                     | 75,072                                               |        |                            |         | 3,603       |       
|                                      | Net repayments of short-term borrowings from the Federal Home Loan Bank           |                                                           |                                                     | (41,000                                              | )      |                            |         | (187,000    | )     
|                                      | Proceeds from long-term borrowings from the Federal Home Loan Bank                |                                                           |                                                     | 10,000                                               |        |                            |         | 16,000      |       
|                                      | Repayments from long-term borrowings from the Federal Home Loan Bank              |                                                           |                                                     | (33,000                                              | )      |                            |         | (1,700      | )     
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           | Net cash used in financing activities               |                                                      |        | (2,960                     | )       |             |        | (176,405 | )      
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           |                                                     | Net increase (decrease) in cash and cash equivalents |        |                            | 107,123 |             |        |          | (68,446 | )
|                                      |                                                                                   |                                                           |                                                     | Cash and cash equivalents at beginning of period     |        |                            | 178,318 |             |        |          | 160,848 |  
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   |                                                           |                                                     | Cash and cash equivalents at end of period           |        | $                          | 285,441 |             |        | $        | 92,402  |  
|                                      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|Supplemental Cash Flow Information:   |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   | Cash paid during the period for interest                  |                                                     | $                                                    | 9,476  |                            |         | $           | 8,028  |         
|                                      |                                                                                   | Cash paid during the period for income taxes              |                                                     | $                                                    |       |                            |         | $           | 5,010  |         
|Non-cash Investing Transactions:      |                                                                                   |                                                           |                                                     |                                                      |        |                            |         |            
|                                      |                                                                                   | Loans transferred to other real estate owned              |                                                     | $                                                    | 912    |                            |         | $           | 3,012  |         

See accompanying notes to the unaudited consolidated financial statements.

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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION

The unaudited consolidated financial statements of ITLA Capital
Corporation (the Company) included herein reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present
fairly the results of operations and financial position of the Company, as of
and for the interim periods indicated. The unaudited consolidated financial
statements include the accounts of ITLA Capital Corporation and its
wholly-owned subsidiaries, Imperial Capital Bank (the Bank), and Imperial
Capital Real Estate Investment Trust (Imperial Capital REIT).

On December 31, 2003, the Company adopted FASB Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities, which addresses
consolidation by business enterprises of variable interest entities having
certain characteristics. In connection with the Companys adoption of FIN 46,
ITLA Capital Statutory Trust I (Trust I), ITLA Capital Statutory Trust II
(Trust II), ITLA Capital Statutory Trust III (Trust III), ITLA Capital
Statutory Trust IV (Trust IV), and ITLA Capital Statutory Trust V (Trust
V), collectively referred to as the Trusts, were not consolidated as of
December 31, 2003. The result of the deconsolidation was to recognize the
Companys investment 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, effective
January 1, 2004, the Company recognized interest expense on the subordinated
debentures in the consolidated statements of income. Prior to FIN 46, the
Company consolidated the Trusts and reported the trust preferred securities
issued by the Trusts 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. The trust preferred securities currently
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 proposed a rule on May 6, 2004 related to the
qualification of the trust preferred securities as Tier 1 capital.
Under the proposed rule, the Companys trust preferred
securities would still qualify as Tier 1 capital. As of March
31, 2004, the Company would meet all requirements to maintain its well
capitalized designation under applicable regulatory guidelines
regardless of the inclusion of the trust preferred securities
in Tier 1 capital. Financial information prior to the adoption of FIN 46 has
not been restated.

All intercompany transactions and balances have been eliminated. Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. Certain amounts in prior periods
have been reclassified to conform to the presentation in the current period.
The results of operations for the three months ended March 31, 2004 are not
necessarily indicative of the results of operations for the remainder of the
year.

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These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31,
2003.

NOTE 2  ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has stock-based compensation plans. These plans are accounted
for under APB Opinion No. 25, Accounting for Stock Issued to Employees, and
accordingly, no compensation costs have been recognized in the accompanying
unaudited consolidated statements of income. The Company applies Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, for disclosure purposes only. SFAS No. 123 disclosures include
pro forma net income and earning per share as if compensation expense had been
recognized using the fair value of the options at the date of grant. 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 Three Months Ended           
|                                                                                                   |                       |   | March 31,                            
|                                                                                                   |                       |   |                                      
|                                                                                                   |                       |   | 2004                                  |      | 2003
|                                                                                                   |                       |   |                                       |      |     
|                                                                                                   |                       |   | (in thousands, except per share data)
|Net income, as reported                                                                            |                       | $ | 13,784                                |      |      | $ | 13,021 |     
|Less: Stock-based employee
compensation expense determined
under the fair value method, net
of tax |                       |   | 337                                   |      |      |   | 341    |     
|                                                                                                   |                       |   |                                       |      |      |   |        |     
|Pro forma net income                                                                               |                       | $ | 13,447                                |      |      | $ | 12,680 |     
|                                                                                                   |                       |   |                                       |      |      |   |        |     
|Earnings per share:                                                                                |                       |   |                                       |      |      |   |        |     
|                                                                                                   | Basic  as reported   |   | $                                     | 2.21 |      |   | $      | 2.17 | 
|                                                                                                   | Basic  pro forma     |   | $                                     | 2.15 |      |   | $      | 2.11 | 
|                                                                                                   | Diluted  as reported |   | $                                     | 2.07 |      |   | $      | 2.02 | 
|                                                                                                   | Diluted  pro forma   |   | $                                     | 2.02 |      |   | $      | 1.97 | 

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 Option
|                            |  | Grants                
|                            |  |                       
|                            |  | 2004                   |             | 2003       
|                            |  |                        |             |            
|Dividend Yield              |  |                        | 0.00%       |             |  |  | 0.00%       | 
|Expected Volatility         |  |                        | 38.04%      |             |  |  | 31.36%      | 
|Risk-Free Interest Rates    |  |                        | 3.65%-4.34% |             |  |  | 4.62%-4.88% | 
|Expected Lives              |  | Seven Years            |             | Seven Years
|Weighted-Average Fair Value |  |                        | 12.37       |             |  |  | 11.36       | 

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NOTE 3  EARNINGS PER SHARE

Basic Earnings Per Share (Basic EPS) is computed by dividing net income
by the weighted-average number of common shares outstanding for the period.
Diluted Earnings Per Share (Diluted EPS) reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock which shared in the Companys earnings.

The following is a reconciliation of the calculation of Basic EPS and Diluted
EPS:

|                                 |  |                                       |        |                |  |           |       |     |  |   |       |  
|-------------------------------- |  | ------------------------------------- | ------ | -------------- |  | --------- | ----- | --- |  | - | ----- | -
|                                 |  | For the Three Months Ended March 31, 
|                                 |  |                                      
|                                 |  |                                       |        |                |  | Weighted- |       | Per
|                                 |  | Net                                   |        | Average Shares |  | Share    
|                                 |  | Income                                |        | Outstanding    |  | Amount   
|                                 |  |                                       |        |                |  |          
|                                 |  | (in thousands, except per share data)
|2004                             |  |                                       |        |                |  |           |       |     |  |   |       |  
|Basic EPS                        |  | $                                     | 13,784 |                |  |           | 6,240 |     |  | $ | 2.21  |  
|Effect of dilutive stock options |  |                                       |       |                |  |           | 432   |     |  |   | (0.14 | )
|                                 |  |                                       |        |                |  |           |       |     |  |   |       |  
|Diluted EPS                      |  | $                                     | 13,784 |                |  |           | 6,672 |     |  | $ | 2.07  |  
|                                 |  |                                       |        |                |  |           |       |     |  |   |       |  
|2003                             |  |                                       |        |                |  |           |       |     |  |   |       |  
|Basic EPS                        |  | $                                     | 13,021 |                |  |           | 6,011 |     |  | $ | 2.17  |  
|Effect of dilutive stock options |  |                                       |       |                |  |           | 437   |     |  |   | (0.15 | )
|                                 |  |                                       |        |                |  |           |       |     |  |   |       |  
|Diluted EPS                      |  | $                                     | 13,021 |                |  |           | 6,448 |     |  | $ | 2.02  |  
|                                 |  |                                       |        |                |  |           |       |     |  |   |       |  

NOTE 4  COMPREHENSIVE INCOME

Comprehensive income, which encompasses net income and the net change in
unrealized gains (losses) on investment securities available for sale, is
presented below:

|                                   |                                                                                                                                                                                              |   |                    |     |      |   |        |      |  
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | --- | ---- | - | ------ | ---- | -
|                                   |                                                                                                                                                                                              |   | Three Months Ended
|                                   |                                                                                                                                                                                              |   | March 31,         
|                                   |                                                                                                                                                                                              |   |                   
|                                   |                                                                                                                                                                                              |   | 2004               |     | 2003
|                                   |                                                                                                                                                                                              |   |                    |     |     
|                                   |                                                                                                                                                                                              |   | (in thousands)    
|Net Income                         |                                                                                                                                                                                              | $ | 13,784             |     |      | $ | 13,021 |     
|Other comprehensive income (loss): |                                                                                                                                                                                              |   |                    |     |      |   |        |     
|                                   | Change in unrealized gain (loss) on investment
securities available for sale, net of tax
expense (benefit) of $75 and ($76) for the
three months ended March 31, 2004 and 2003, respectively |   |                    | 117 |      |   |        | (120 | )
|                                   |                                                                                                                                                                                              |   |                    |     |      |   |        |     
|Comprehensive income               |                                                                                                                                                                                              | $ | 13,901             |     |      | $ | 12,901 |     
|                                   |                                                                                                                                                                                              |   |                    |     |      |   |        |     

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NOTE 5  IMPAIRED LOANS RECEIVABLE

As of March 31, 2004 and December 31, 2003, the recorded investment in
impaired loans and impaired real estate loans held in trust was $20.0 million
and $13.1 million, respectively. The average recorded investment in impaired
loans was $15.6 million for the three months ended March 31, 2004 and $17.1
million for the same period last year. Interest income recognized on impaired
loans totaled $97,000 for the three months ended March 31, 2004 as compared to
$141,000 for the same period last year.

NOTE 6  RESIDUAL INTEREST IN SECURITIZATION

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 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, 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 resultant 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 based on 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 each of the quarters ended March 31, 2004 and 2003, the Company
recognized an other than temporary impairment of $250,000 in connection with
its residual interest. Impairments that are deemed to be other than temporary
are charged to income as other expense. 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 March 31, 2004 and December 31, 2003, 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:

|                                                     |  |           |       |              |  |   |       |  
|---------------------------------------------------- |  | --------- | ----- | ------------ |  | - | ----- | -
|                                                     |  | March 31, |       | December 31,
|                                                     |  | 2004      |       | 2003        
|                                                     |  |           |       |             
|Dollars in thousands                                 |  |           |       |              |  |   |       |  
|Fair value of retained interest                      |  | $         | 5,368 |              |  | $ | 5,368 |  
|Weighted average life (in years)  securities        |  |           | 0.90  |              |  |   | 1.00  |  
|Weighted average life (in years)  residual
interest |  |           | 4.05  |              |  |   | 4.47  |  
|Weighted average annual prepayment speed             |  |           | 35.0  | %            |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $         | (24   | )            |  | $ | (67   | )
|Impact of 25% adverse change                         |  | $         | (67   | )            |  | $ | (120  | )
|Weighted average annual discount rate                |  |           | 15.0  | %            |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $         | (284  | )            |  | $ | (147  | )
|Impact of 25% adverse change                         |  | $         | (686  | )            |  | $ | (367  | )
|Weighted average lifetime credit losses              |  |           | 3.3   | %            |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $         | (147  | )            |  | $ | (313  | )
|Impact of 25% adverse change                         |  | $         | (369  | )            |  | $ | (753  | )

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 7  NEW ACCOUNTING PRONOUNCEMENTS

On March 31, 2004, the Financial Accounting Standards Board (FASB)
issued the Exposure Draft, Share-Based Payment, which is a proposed amendment
to SFAS No. 123, Accounting For Stock-Based Compensation. In this draft, the
FASB formally proposed to require companies to recognize the fair value of
stock options and other stock-based compensation to employees for future
reporting periods in the income statement based on their fair values. The final
standard is expected in late 2004 and, as currently written, would be effective
for public companies for recognition and disclosure purposes for fiscal years
beginning after December 15, 2004. The Company is in the process of evaluating
the impact that expensing stock options and other stock-based compensation will
have on the results of operations and financial position.

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NOTE 8  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 origination and purchase of loans, 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. Substantially all of the transactions
from the Companys operating segments occur in the United States.

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.

|                                     |                                  |  |                |        |           |  |              |        |              |  |   |         |   |  |   |        | 
|------------------------------------ | -------------------------------- |  | -------------- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------- | - |  | - | ------ | 
|                                     |                                  |  | Lending        |        |           |  |              |        |              |  |   |         |   |  |  
|                                     |                                  |  | Operations     |        | All Other |  | Eliminations |        | Consolidated
|                                     |                                  |  |                |        |           |  |              |        |             
|                                     |                                  |  | (in thousands)
|For the three months ended March 31, |                                  |  |                |        |           |  |              |        |              |  |   |         |   |  |   |       
|                                     | 2004                             |  |                |        |           |  |              |        |              |  |   |         |   |  |   |        | 
|                                     | Revenues from external customers |  | $              | 45,411 |           |  | $            | 66     |              |  | $ |        |   |  | $ | 45,477 | 
|                                     | Total interest income            |  |                | 31,966 |           |  |              | 314    |              |  |   | (197    | ) |  |   | 32,083 | 
|                                     | Total interest expense           |  |                | 7,681  |           |  |              | 1,662  |              |  |   | (197    | ) |  |   | 9,146  | 
|                                     | Net income                       |  | $              | 15,662 |           |  | $            | 13,776 |              |  | $ | (15,654 | ) |  | $ | 13,784 | 
|                                     | 2003                             |  |                |        |           |  |              |        |              |  |   |         |   |  |   |        | 
|                                     | Revenues from external customers |  | $              | 46,209 |           |  | $            |       |              |  | $ |        |   |  | $ | 46,209 | 
|                                     | Total interest income            |  |                | 33,626 |           |  |              | 1,601  |              |  |   | (1,703  | ) |  |   | 33,524 | 
|                                     | Total interest expense           |  |                | 8,594  |           |  |              | 42     |              |  |   | (203    | ) |  |   | 8,433  | 
|                                     | Net income                       |  | $              | 15,320 |           |  | $            | 12,983 |              |  | $ | (15,282 | ) |  | $ | 13,021 | 

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to identify the major
factors that affected the financial condition and results of operations for the
three months ended March 31, 2004.

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
(GAAP) and to general practices within the financial services industry.
The preparation of financial statements in conformity with
GAAP 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.

The Company considers 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.
Additionally, the Company considers its accounting policies in regards to its
tax refund lending program and other real estate owned to be critical
accounting policies.

For additional information regarding critical accounting policies, refer
to Note 1  Organization and Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements and the sections captioned
Application of Critical Accounting Policies and Accounting Estimates and
Allowance for Possible Loan Losses and Nonperforming Assets in Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in the Companys Form 10-K for the year ended December 31, 2003.
There have been no significant changes in the Companys application of
accounting policies since December 31, 2003.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Executive Summary

Consolidated net income was $13.8 million and $13.0 million for the three
months ended March 31, 2004 and 2003, respectively. Diluted EPS was $2.07 for
the three months ended March 31, 2004 compared to $2.02 for the same period
last year, an increase of $0.05 per diluted share. The increase in net income
was primarily due to increases in net interest income after provision for loan
losses and non-interest income, partially offset by an increase in non-interest
expense.

Net interest income before provision for loan losses decreased from the
prior year period primarily as a result of the increase in interest expense,
which, pursuant to the adoption of FIN 46, included for the first time the
interest payments on the junior subordinated debentures, and the decrease in
net interest income earned by the REIT. The return on average assets was 2.11% for the three months ended March
31, 2004 compared to 1.81% for the same period last year. The return on
average shareholders equity was 28.17% for the three months ended March 31,
2004, compared to 31.72% for the same period last year.

Total loan production was $155.1 million for the quarter ended March 31,
2004 compared to $101.7 million for the same period last year. Loan production
during the current quarter consisted of originations of $118.3 million of
commercial real estate loans, $20.4 million of film finance loans and $16.4
million of franchise loans. Loan production for the same period last year
consisted of originations of $84.5 million of commercial real estate loans,
$15.3 million of film finance loans and $1.8 million of franchise loans.

The increase in non-interest income was primarily due to income earned in
connection with the Banks refund anticipation loan (RAL) program and its
strategic relationship with Household International, Inc. (Household).
Substantially all RAL loans originated during the quarter were sold to
Household. At March 31, 2004, the Company held $3.1 million in RAL
participation interests and $9.3 million of RAL loans held for sale. Because
the origination of loans under the RAL program results from the filing of
individual income tax returns, transaction activity is concentrated most
heavily during the tax season. This results in the Company earning most of its
RAL program income in the first quarter of the year. We expect that our
financial results for the remaining quarters of 2004 will not be significantly
impacted by the RAL program due to the seasonal nature of the business.

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Net Interest Income and Margin

The following table presents, for the three months ended March 31, 2004
and 2003, 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.

|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |      |      |  
|------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------- | --------- | ------------------------------------ | --------- | ------- | ------ | ------ | ----- | ------- | ---- | ------- | ---- | ------ | --------- | --------- | --------- | - | ------ | ------ | ----- |  | ---- | ---- | ---- | -
|                                                                                                              |                                            |                        |           | For the Three Months Ended March 31,
|                                                                                                              |                                            |                        |           |                                     
|                                                                                                              |                                            |                        |           | 2004                                 |           | 2003   
|                                                                                                              |                                            |                        |           |                                      |           |        
|                                                                                                              |                                            |                        |           | Average                              |           | Income/ |        | Yield/ |       | Average |      | Income/ |      | Yield/
|                                                                                                              |                                            |                        |           | Balance                              |           | Expense |        | Rate   |       | Balance |      | Expense |      | Rate  
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |       
|                                                                                                              |                                            |                        |           | (dollars in thousands)              
|Assets                                                                                                        |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Cash and investments                                                                                          |                                            | $                      | 909,613   |                                      |           | $       | 2,443  |        |       |         | 1.08 | %       |      | $      | 726,718   |           |           | $ | 2,737  |        |       |  | 1.53 | %   
|Loans receivable:                                                                                             |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|                                                                                                              | Loans                                      |                        |           | 1,477,207                            |           |         |        | 28,914 |       |         |      | 7.87    | %    |        |           | 1,343,338 |           |   |        | 28,614 |       |  |      | 8.64 | %   
|                                                                                                              | Real estate loans held in trust            |                        |           | 62,168                               |           |         |        | 726    |       |         |      | 4.70    | %    |        |           | 121,008   |           |   |        | 2,173  |       |  |      | 7.28 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Total loans receivable                                                                                        |                                            |                        | 1,539,375 |                                      |           |         | 29,640 |        |       |         | 7.74 | %       |      |        | 1,464,346 |           |           |   | 30,787 |        |       |  | 8.53 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Total interest-earning assets                                                                                 |                                            |                        | 2,448,988 |                                      |           | $       | 32,083 |        |       |         | 5.27 | %       |      |        | 2,191,064 |           |           | $ | 33,524 |        |       |  | 6.21 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Non-interest-earning assets                                                                                   |                                            |                        | 217,822   |                                      |           |         |        |        |       |         |      |         |      |        | 85,410    |           |           |   |        |        |       |  |      |     
|Allowance for loan losses                                                                                     |                                            |                        | (34,165   | )                                    |           |         |        |        |       |         |      |         |      |        | (34,139   | )         |           |   |        |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|                                                                                                              | Total assets                               |                        | $         | 2,632,645                            |           |         |        |        |       |         |      |         |      |        | $         | 2,242,335 |           |   |        |        |       |  |      |      |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Liabilities and
Shareholders Equity                                                                          |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Deposit accounts:                                                                                             |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|                                                                                                              | Savings and passbook accounts              |                        | $         | 145,462                              |           |         | $      | 598    |       |         |      | 1.65    | %    |        | $         | 152,739   |           |   | $      | 454    |       |  |      | 1.21 | %   
|                                                                                                              | Demand accounts                            |                        |           | 65,706                               |           |         |        | 247    |       |         |      | 1.51    | %    |        |           | 6,632     |           |   |        | 17     |       |  |      | 1.04 | %   
|                                                                                                              | Time certificates                          |                        |           | 980,761                              |           |         |        | 5,669  |       |         |      | 2.32    | %    |        |           | 870,801   |           |   |        | 6,377  |       |  |      | 2.97 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|                                                                                                              |                                            | Total deposit accounts |           |                                      | 1,191,929 |         |        |        | 6,514 |         |      |         | 2.20 | %      |           |           | 1,030,172 |   |        |        | 6,848 |  |      |      | 2.70 | %
|Collateralized mortgage obligations                                                                           |                                            |                        | 9,662     |                                      |           |         | 62     |        |       |         | 2.58 | %       |      |        | 59,899    |           |           |   | 390    |        |       |  | 2.64 | %   
|FHLB advances and other borrowings                                                                            |                                            |                        | 147,679   |                                      |           |         | 1,081  |        |       |         | 2.94 | %       |      |        | 166,625   |           |           |   | 1,195  |        |       |  | 2.91 | %   
|Junior subordinated debentures                                                                                |                                            |                        | 86,600    |                                      |           |         | 1,489  |        |       |         | 6.92 | %       |      |        |          |           |           |   |       |        |       |  |     |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Total interest-bearing liabilities                                                                            |                                            |                        | 1,435,870 |                                      |           | $       | 9,146  |        |       |         | 2.56 | %       |      |        | 1,256,696 |           |           | $ | 8,433  |        |       |  | 2.72 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Non-interest-bearing liabilities                                                                              |                                            |                        | 999,992   |                                      |           |         |        |        |       |         |      |         |      |        | 737,545   |           |           |   |        |        |       |  |      |     
|Guaranteed preferred beneficial
interests in the Companys junior
subordinated
deferrable interest debentures |                                            |                        |          |                                      |           |         |        |        |       |         |      |         |      |        | 81,625    |           |           |   |        |        |       |  |      |     
|Shareholders equity                                                                                          |                                            |                        | 196,783   |                                      |           |         |        |        |       |         |      |         |      |        | 166,469   |           |           |   |        |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|                                                                                                              | Total liabilities
and shareholders equity |                        | $         | 2,632,645                            |           |         |        |        |       |         |      |         |      |        | $         | 2,242,335 |           |   |        |        |       |  |      |      |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Net interest spread                                                                                           |                                            |                        |           |                                      |           |         |        |        |       |         | 2.71 | %       |      |        |           |           |           |   |        |        |       |  | 3.49 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Net interest income before provision
for loan losses                                                          |                                            |                        |           |                                      |           | $       | 22,937 |        |       |         |      |         |      |        |           |           |           | $ | 25,091 |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     
|Net interest margin                                                                                           |                                            |                        |           |                                      |           |         |        |        |       |         | 3.77 | %       |      |        |           |           |           |   |        |        |       |  | 4.64 | %   
|                                                                                                              |                                            |                        |           |                                      |           |         |        |        |       |         |      |         |      |        |           |           |           |   |        |        |       |  |      |     

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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 absolute dollar
amounts of each.

|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |        |        |  
|------------------------------ | ----------------------------------- | --------------------------------------------- | - | --------------------------- | ------ | ------ | - | ----- | ----- |  | - | ------ | ------ | -
|                               |                                     |                                               |   | For the Three Months Ended 
|                               |                                     |                                               |   | March 31, 2004 and 2003    
|                               |                                     |                                               |   | Increase (Decrease) Due to:
|                               |                                     |                                               |   |                            
|                               |                                     |                                               |   | Rate                        |        | Volume |   | Total
|                               |                                     |                                               |   |                             |        |        |   |      
|                               |                                     |                                               |   | (In thousands)             
|Interest and fees earned from: |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|                               | Cash and investment securities      |                                               | $ | (796                        | )      |        | $ | 502   |       |  | $ | (294   | )     
|                               | Loans                               |                                               |   | (1,963                      | )      |        |   | 2,263 |       |  |   | 300    |       
|                               | Real estate loans held in trust     |                                               |   | (767                        | )      |        |   | (680  | )     |  |   | (1,447 | )     
|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|                               |                                     | Total increase (decrease) in interest income  |   |                             | (3,526 | )      |   |       | 2,085 |  |   |        | (1,441 | )
|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|Interest paid on:              |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|                               | Deposit accounts                    |                                               |   | (1,244                      | )      |        |   | 910   |       |  |   | (334   | )     
|                               | Collateralized mortgage obligations |                                               |   | (9                          | )      |        |   | (319  | )     |  |   | (328   | )     
|                               | FHLB advances                       |                                               |   | 13                          |        |        |   | (127  | )     |  |   | (114   | )     
|                               | Junior subordinated debentures      |                                               |   |                            |        |        |   | 1,489 |       |  |   | 1,489  |       
|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|                               |                                     | Total increase (decrease) in interest
expense |   |                             | (1,240 | )      |   |       | 1,953 |  |   |        | 713    |  
|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |       
|                               |                                     | Increase (decrease) in net interest income    |   | $                           | (2,286 | )      |   | $     | 132   |  |   | $      | (2,154 | )
|                               |                                     |                                               |   |                             |        |        |   |       |       |  |   |       

Total interest income decreased $1.4 million to $32.1 million in the first
quarter of 2004 as compared to $33.5 million for the same period last year. The
net decrease in interest income was primarily attributable to the decrease of
94 basis points in the yields earned on interest earning assets, partially
offset by an increase of $257.9 million in interest earning assets.

The average balance of loans held by the Bank was $1.5 billion and $1.3
billion for the three months ended March 31, 2004 and 2003, respectively.
Loans secured by income producing properties and construction loans had an
average balance of $1.3 billion during the quarter ended March 31, 2004
compared to $1.2 billion during the same period last year. The average balance
of franchise loans was $105.6 million and $56.7 million during the quarters
ended March 31, 2004 and 2003, respectively. The average balance of film
finance loans was $97.6 million and $115.0 million during the quarters ended
March 31, 2004 and 2003, respectively.

The average balance of real estate loans held in trust decreased to $62.2
million for the three months ended March 31, 2004 as compared to $121.0 million
for the same period last year. This decrease was due to loan prepayments and
principal amortization.

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The average balance of cash and investments increased to $909.6 million in
the first quarter of 2004 compared to $726.7 million during the same period
last year. The increase in average cash and investments was attributable to
the increased liquidity that was maintained in connection with the Banks RAL
program, as well as the timing of the funding and corresponding settlement of
RAL production at March 31, 2004. The decline in the average yield earned on
cash and investments from 1.53% during the first quarter of 2003 to 1.08%
during the first quarter of 2004 was primarily caused by lower yields earned on
short-term and overnight investments.

The average yield earned on total loans decreased to 7.74% in the quarter
ended March 31, 2004 as compared to 8.53% in the same period last year. The
decline in our yield was primarily caused by higher yielding loans being repaid
and replaced by new loan production at lower current market interest rates.
Our commercial real estate loan portfolio is primarily comprised of adjustable
rate mortgages indexed to six month LIBOR. Approximately 95.5% of our real
estate loans (including real estate loans held in trust) were adjustable rate
mortgages at March 31, 2004. These adjustable rate mortgages generally reprice
on a quarterly basis. At March 31, 2004, approximately $1.2 billion or 91.7%
of our real estate loans contained interest rate floors, below which the loans
contractual interest rate may not adjust. At March 31, 2004, the weighted
average floor interest rate of these loans was 5.6%. At that date,
approximately $1.1 billion or 95.4% of those loans were at the floor interest
rate, approximately $56.5 million or 4.5% were within 50 basis points of their
floor interest rate, and approximately $0.5 million or 0.1% were greater than
50 but less than 100 basis points from their floor interest rate.

Total interest expense increased by $0.7 million to $9.1 million in the
first quarter of 2004, compared to $8.4 million for the same period last year.
This increase was attributable to the adoption of FIN 46, which required that
beginning January 1, 2004, the Company recognize interest expense incurred on
its junior subordinated debentures issued to the Trusts in the consolidated
statements of income. For the three months ended March 31, 2004, the junior
subordinated debentures had an average balance of $86.6 million and an average
cost of 6.92%.

Excluding the impact of the adoption of FIN 46, interest expense decreased
by $0.8 million. This decrease was caused by lower interest rates paid on all
interest bearing liabilities and lower average balances on our Collateralized
Mortgage Obligations (CMOs) and Federal Home Loan Bank (FHLB) advances
partially offset by higher average balances on deposit accounts.

Our average cost of funds decreased to 2.56% during the three month period
ended March 31, 2004, compared to 2.72% for the same period last year. This
decrease in funding costs was due primarily to lower rates being paid on our
deposit accounts as compared to the same period last year as a result of the
general decline in market interest rates. The average rate paid on deposit
accounts was 2.20% during the three months ended March 31, 2004 as compared to
2.70% for the same period last year. The average rate paid on the CMOs was
2.58% during the three months ended March 31, 2004 compared to 2.64% for the
same period last year. The average balance of deposit accounts increased $161.8
million to $1.2 billion for the three months ended March 31, 2004 as compared
to $1.0 billion for the same period last year. The average balance of our CMOs
was $9.7 million during the first quarter of 2004, compared to $59.9

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million for the same period last year reflecting the decline in the
related real estate loans held in trust. FHLB advances averaged $147.7 million
in the current quarter, compared to $166.6 million for the same period last
year.

Net interest margin decreased to 3.77% for the three months ended March
31, 2004 as compared to 4.64% for the same period last year primarily due to
the adoption of FIN 46 and to higher yielding loans within the Banks loan
portfolio being repaid and replaced by new loan production at lower current
market rates.

Provision for Loan Losses

Management periodically assesses the adequacy of the allowance for loan
losses by reference to many factors, which may be weighted differently at
various times depending on prevailing conditions. These factors include, among
other elements:



| |  |  | general portfolio trends relative to asset and portfolio size;            
| | - |  | --------------------------------------------------------------------------
|
| |  |  | asset categories;                                                         
|
| |  |  | credit and geographic concentrations;                                     
|
| |  |  | delinquency trends and nonaccrual loan levels;                            
|
| |  |  | historical loss experience; and                                           
|
| |  |  | risks associated with changes in economic, social and business conditions.

Accordingly, the calculation of the adequacy of the allowance for loan
losses is not based solely on the level of nonperforming assets. Management
believes that the allowance for loan losses as of March 31, 2004 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 the Banks regulators, as part of the routine
examination process, which may result in the establishment of additional
reserves based upon their judgment of information available to them at the time
of their examination.

The consolidated provision for loan losses totaled $1.4 million for the
first quarter of 2004, compared to $4.5 million for the same period last year.
The current period provision for loan losses was recorded to provide for
reserves adequate to absorb known and inherent risks of losses in the loan
portfolio. Our assessment of the provision for loan losses includes evaluation
of certain nonperforming loans and other loans of concern. The prior year
provision included specific reserves related to certain nonperforming loans and
other loans of concern. The allowance for loan losses was 2.26% of total loans
and real estate loans held in trust at March 31, 2004 as compared to 2.17% at
December 31, 2003. During the quarter ended March 31, 2004, we had net loan
recoveries of $84,000 as compared to net loan charge-offs of $5.0 million
during the same period last year. See also  Financial Condition  Credit
Risk.

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Non-Interest Income

Non-interest income increased to $13.4 million for the three months ended
March 31, 2004, compared to $12.5 million for the same period last year.
Substantially all of the increase was due to income earned in connection with
the RAL program, consisting of $9.0 million of net premiums earned on the sale
of RAL loans and $4.2 million of processing and administrative fees. During
the same period last year, amounts earned related to the RAL program were $8.7
million and $3.6 million, respectively.

Non-Interest Expense

Non-interest expense totaled $12.4 million for the three months ended
March 31, 2004, compared to $10.3 million for the same period last year. The
increase was caused by our expansion of Imperial Capital Express (ICE), the
Banks small balance commercial real estate lending platform, and certain
infrastructure and personnel costs related to the Banks charter conversion.
Additionally, non-interest expense increased due to a $1.0 million charge-off
of an other real estate owned property. The charge-off was recorded to reflect
a decline in the estimated fair value of the property that was identified
during the period. Our efficiency ratio (defined as recurring general and
administrative expenses as a percentage of net revenue) was 31.2 percent in the
first quarter of 2004 as compared to 26.9 percent for the same period in 2003.

FINANCIAL CONDITION

Total assets increased to $1.9 billion at March 31, 2004 as compared to
$1.8 billion at December 31, 2003. At March 31, 2004, loans, net totaled $1.5
billion, including approximately $1.3 billion of commercial real estate loans,
$115.7 million of franchise loans and $94.1 million of film finance loans.
During the three months ended March 31, 2004, the Banks loan portfolio
increased $15.8 million and the REITs portfolio decreased $13.0 million. The
decrease in the REITs loan portfolio reflects the continued loan prepayments
experienced during the three months ended March 31, 2004. Additionally, cash
and cash equivalents increased $107.1 million primarily as a result of
increased liquidity caused by the timing of the funding and corresponding
settlement of RAL production at March 31, 2004. Loans held for sale consist of
the RAL loans funded by the Bank on March 31, 2004 that were subsequently sold
the following day to Household. Total deposit accounts increased to $1.2
billion at March 31, 2004 from $1.1 billion at December 31, 2003. FHLB
advances decreased $64.0 million to $298.1 million at March 31, 2004, compared
to $362.1 million at December 31, 2003. Management believes that a
significant portion of deposits will remain with us upon maturity based on our
historical experience regarding retention of deposits. CMOs decreased $12.7
million to $3.2 million at March 31, 2004 compared to $15.9 million at December
31, 2003 reflecting the decline in real estate loans held in trust. Accounts
payable and other liabilities increased $106.2 million primarily as a result of
outstanding checks and other liabilities related to the RAL program.

Residual Interest

In the first quarter of 2002, we formed a limited liability company to
issue $86.3 million of asset-backed notes in a securitization of substantially
all of our residential loan portfolio. These notes were rated AAA by Standard
& Poors, Aaa by Moodys, and are insured by Financial Security Assurance. In
the securitization, residential loans were sold to the limited

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liability company for a cash purchase price and an interest in the loans
securitized in the form of the excess spread. The cash purchase price was
raised through an offering of asset-backed notes issued by the limited
liability company. Note holders are entitled to receive the principal
collected on the loans and the stated interest rate on the notes. We are
entitled to receive the excess spread. The excess spread generally represents,
over the estimated life of the loans, the excess of the weighted average coupon
on the loans sold over the sum of the note interest rate less other expenses
including a trustee fee and an insurance fee. Valuation of the excess spread
includes an estimate of annual future credit losses related to the loans
securitized. These estimated cash flows are discounted when computing the value
of the residual interest.

We recognized a gain on the sale of these loans, although cash
(representing the excess spread and servicing fees) is received by us over the
lives of the loans. Concurrent with recognizing such gain on sale, we recorded
the excess spread as a residual interest, which is included in our consolidated
balance sheets as 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, we classified our residual interest
as an available-for-sale asset and, as such, they are recorded at fair value
with the resultant 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. We estimate
fair value on a monthly basis based on a discounted cash flow analysis. These
cash flows are estimated 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 each of the three months ended March 31, 2004 and 2003, we
recognized an other than temporary impairment of $250,000 in connection with
our residual interest. Impairments that are deemed to be other than temporary
are charged to income, as other expense. In evaluating impairments as other
than temporary we consider 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 March 31, 2004 and December 31, 2003, 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 is as
follows:

|                                                     |  |           |       |              |  |   |       |  
|---------------------------------------------------- |  | --------- | ----- | ------------ |  | - | ----- | -
|                                                     |  | March 31, |       | December 31,
|                                                     |  | 2004      |       | 2003        
|                                                     |  |           |       |             
|Dollars in thousands                                 |  |           |       |              |  |   |       |  
|Fair value of retained interest                      |  | $         | 5,368 |              |  | $ | 5,368 |  
|Weighted average life (in years)  securities        |  |           | 0.90  |              |  |   | 1.00  |  
|Weighted average life (in years)  residual
interest |  |           | 4.05  |              |  |   | 4.47  |  
|Weighted average annual prepayment speed             |  |           | 35.0  | %            |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $         | (24   | )            |  | $ | (67   | )
|Impact of 25% adverse change                         |  | $         | (67   | )            |  | $ | (120  | )
|Weighted average annual discount rate                |  |           | 15.0  | %            |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $         | (284  | )            |  | $ | (147  | )
|Impact of 25% adverse change                         |  | $         | (686  | )            |  | $ | (367  | )
|Weighted average lifetime credit losses              |  |           | 3.3   | %            |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $         | (147  | )            |  | $ | (313  | )
|Impact of 25% adverse change                         |  | $         | (369  | )            |  | $ | (753  | )

These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in the fair value of our 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.

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CREDIT RISK

Nonperforming Assets, Other Loans of Concern and Allowance for Loan Losses

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

|                                                                    |              |                                         |        |                        |        |              |        |       |        | 
|------------------------------------------------------------------- | ------------ | --------------------------------------- | ------ | ---------------------- | ------ | ------------ | ------ | ----- | ------ | 
|                                                                    |              |                                         |        | March 31,              |        | December 31,
|                                                                    |              |                                         |        | 2004                   |        | 2003        
|                                                                    |              |                                         |        |                        |        |             
|                                                                    |              |                                         |        | (dollars in thousands)
|Nonaccrual loans:                                                   |              |                                         |        |                        |        |              |        |      
|                                                                    | Real estate  |                                         | $      | 5,213                  |        |              | $      | 4,686 |       
|                                                                    | Franchise    |                                         |        | 4,008                  |        |              |        | 799   |       
|                                                                    | Film finance |                                         |        | 6,537                  |        |              |        | 3,030 |       
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | Total nonaccrual loans                  |        |                        | 15,758 |              |        |       | 8,515  | 
|Other real estate owned, net                                        |              |                                         | 5,261  |                        |        |              | 7,048  |      
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | Total nonperforming assets              |        |                        | 21,019 |              |        |       | 15,563 | 
|                                                                    |              | Performing troubled debt restructurings |        |                        | 1,978  |              |        |       | 4,709  | 
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | $                                       | 22,997 |                        |        | $            | 20,272 |      
|                                                                    |              |                                         |        |                        |        |              |        |      
|Nonaccrual loans to total loans
and real estate loans held in trust |              |                                         | 1.02   | %                      |        |              | 0.55   | %    
|Allowance for loan losses to nonaccrual loans                       |              |                                         | 221.38 | %                      |        |              | 392.26 | %    
|Nonperforming assets to total assets                                |              |                                         | 1.09   | %                      |        |              | 0.86   | %    

At March 31, 2004, other real estate owned consisted of three properties
totaling $5.3 million. Management periodically evaluates the estimated fair
value of its other real estate owned properties. During the quarter ended March
31, 2004, we recorded a $1.0 million charge-off to write-down the value of
other real estate owned. Subsequent to the quarter ended March 31, 2004, the
Bank sold one of these other real estate owned properties in April 2004 and the
remaining two properties are in escrow and are expected to close during the
second quarter of 2004.

As of March 31, 2004 and December 31, 2003, other loans of concern totaled
$24.5 million and $31.3 million, respectively. Other loans of concern consist
of loans 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 nonaccrual category. The decrease in
other loans of concern for the three months ended March 31, 2004 was primarily
due to $3.9 million of loans being paid-off, $5.3 million of loans migrating to
nonaccrual status, $1.7 million of loans being upgraded and $880,000 of loans
being transferred to other real estate owned, partially offset by $5.0 million
of new other loans of concern.

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

|                                                                                |                          |   |                        |        |              |   |        |        | 
|------------------------------------------------------------------------------- | ------------------------ | - | ---------------------- | ------ | ------------ | - | ------ | ------ | 
|                                                                                |                          |   | For the Three          |        | For the Year
|                                                                                |                          |   | Months Ended           |        | Ended       
|                                                                                |                          |   | March 31,              |        | December 31,
|                                                                                |                          |   | 2004                   |        | 2003        
|                                                                                |                          |   |                        |        |             
|                                                                                |                          |   | (dollars in thousands)
|Balance at beginning of period                                                  |                          | $ | 33,401                 |        |              | $ | 33,009 |       
|Provision for loan losses                                                       |                          |   | 1,400                  |        |              |   | 7,760  |       
|Charge-offs                                                                     |                          |   |                       |        |              |   | (7,447 | )     
|Recoveries                                                                      |                          |   | 84                     |        |              |   | 79     |       
|                                                                                |                          |   |                        |        |              |   |        |       
|Net recoveries (charge-offs)                                                    |                          |   | 84                     |        |              |   | (7,368 | )     
|                                                                                |                          |   |                        |        |              |   |        |       
|                                                                                | Balance at end of period |   | $                      | 34,885 |              |   | $      | 33,401 | 
|                                                                                |                          |   |                        |        |              |   |        |       
|Allowance for loan losses as a percentage of
loans and loans held in trust, net |                          |   | 2.26                   | %      |              |   | 2.17   | %     

Liquidity

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 liquidity requirements while preserving capital and
maximizing yield. As of March 31, 2004, we held $285.4 million of cash and
cash equivalents (consisting primarily of short-term investments with original
maturities of 90 days or less) and $49.6 million of investment securities
classified as available for sale.

Short-term fixed income investments classified as cash equivalents
consisted of interest-bearing deposits at financial institutions, government
money market funds and short-term government agency securities, while
investment securities available for sale consisted primarily of fixed income
instruments, which were rated AAA, or equivalent by nationally recognized
rating agencies. In addition, our liquidity position is supported by a credit
facility with the Federal Home Loan Bank of San Francisco. As of March 31,
2004, we had remaining available borrowing capacity under this credit facility
of $284.4 million, net of the $15.0 million of additional Federal Home Loan
Bank stock that we would be required to purchase to support those additional
borrowings, $30.0 million of unused federal funds credit facilities under
established lines of credit with two banks, and a $25.0 million revolving
credit facility with a bank.

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Capital Resources

The Company, the Banks holding company, had Tier 1 leverage, Tier 1 risk
based and total risk-based capital ratios at March 31, 2004 of 10.0%, 16.4% and
18.8%, respectively, which represents $130.3 million, $165.8 million and $138.2
million, respectively, of capital in excess of the amount required to be well
capitalized for bank holding company regulatory purposes. These ratios were
14.2%, 15.6% and 18.2% as of December 31, 2003, respectively.

The Bank had Tier 1 leverage, Tier 1 risk based and total risk-based
capital ratios at March 31, 2004 of 8.9%, 14.8% and 16.0%, respectively, which
represents $100.2 million, $135.3 million and $92.9 million, respectively, of
capital in excess of the amount required to be well capitalized for
regulatory purposes. These ratios were 13.2%, 14.3% and 15.6% as of December
31, 2003, respectively.

At March 31, 2004, shareholders equity totaled $199.5 million, or 10.3
percent of total assets. Our book value per share of common stock was $33.35
as of March 31, 2004, as compared to $31.30 as of December 31, 2003, and $29.37
as of March 31, 2003.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our estimated sensitivity to interest rate risk, as measured by the
estimated interest earnings sensitivity profile and the interest sensitivity
gap analysis, has not materially changed from the information disclosed in our
annual report on Form 10-K for the year ended December 31, 2003.




Item 4. 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
March 31, 2004 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 March 31, 2004, the
Companys disclosure controls and procedures are 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 Control over Financial Reporting: During the
quarter ended March 31, 2004, 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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##### Table of Contents






PART II   OTHER INFORMATION




Item 1. 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 financial condition or results of operations.




Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities

The following table sets forth the repurchases of our common stock for the
fiscal quarter ended March 31, 2004.

|                                      |  |                  |        |                    |  |                    |       |              |  |                     |        |                     |  |  |         | 
|------------------------------------- |  | ---------------- | ------ | ------------------ |  | ------------------ | ----- | ------------ |  | ------------------- | ------ | ------------------- |  |  | ------- | 
|                                      |  |                  |        |                    |  |                    |       |              |  | Total Number of     |        | Maximum Number of  
|                                      |  |                  |        |                    |  |                    |       |              |  | Shares Purchased as |        | Shares that May Yet
|                                      |  |                  |        |                    |  |                    |       |              |  | Part of Publicly    |        | Be Purchased Under 
|                                      |  | Total Number of  |        | Average Price Paid |  | Announced Plans or |       | the Plans or
|Period                                |  | Shares Purchased |        | per Share          |  | Programs           |       | Programs    
|                                      |  |                  |        |                    |  |                    |       |             
|January 1, 2004 to
January 31, 2004   |  |                  | 7,000  |                    |  | $                  | 49.55 |              |  |                     | 7,000  |                     |  |  | 175,876 | 
|February 1, 2004 to
February 29, 2004 |  |                  | 18,700 |                    |  |                    | 48.11 |              |  |                     | 18,700 |                     |  |  | 157,176 | 
|March 1, 2004 to
March 31, 2004       |  |                  | 23,400 |                    |  |                    | 46.76 |              |  |                     | 23,400 |                     |  |  | 133,776 | 
|                                      |  |                  |        |                    |  |                    |       |              |  |                     |        |                     |  |  |         | 
|Total                                 |  |                  | 49,100 |                    |  | $                  | 47.70 |              |  |                     | 49,100 |                     |  |  | 133,776 | 
|                                      |  |                  |        |                    |  |                    |       |              |  |                     |        |                     |  |  |         | 

These repurchases were made under a program announced on December 21, 2001
for the repurchase of up to 5% of the outstanding shares.




Item 3. Defaults Upon Senior Securities

Not applicable.




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

None.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | See exhibit index                                                                         
| | --- |  | ------------------------------------------------------------------------------------------
|
| | (b) |  | During the first quarter of 2004, we filed or
furnished the following reports on Form 8-K:

|       |  |                                                             |  |                  
|------ |  | ----------------------------------------------------------- |  | -----------------
|Item # |  | Item Description                                            |  | Filing Date      
|       |  |                                                             |  |                  
|12     |  | Earnings Press Release for the year ended December 31, 2003 |  | February 11, 2004
|9      |  | Materials Presented at an Industry Conference               |  | February 18, 2004

24



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                   |  |                                                                                   |  |                     
|------------------ |  | --------------------------------------------------------------------------------- |  | --------------------
|                   |  | ITLA CAPITAL CORPORATION                                                         
|                  
|Date: May 10, 2004 |  | /s/                                                                               |  | George W. Haligowski
|                   |  |                                                                                  
|                   |  | George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
|                  
|Date: May 10, 2004 |  | /s/                                                                               |  | Timothy M. Doyle    
|                   |  |                                                                                  
|                   |  | Timothy M. Doyle
Senior Managing Director and
Chief Financial Officer            

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##### Table of Contents



EXHIBIT INDEX

|               |  |                                                                                                                                                                                                                |  |                   
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|               |  |                                                                                                                                                                                                                |  | 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             |  | Quarterly Report to Security Holders                                                                                                                                                                           |  | None              
|15             |  | Letter Regarding Unaudited Interim Financial Information                                                                                                                                                       |  | None              
|18             |  | Letter Regarding Change in Accounting Principles                                                                                                                                                               |  | None              
|19             |  | Report furnished to Security Holders                                                                                                                                                                           |  | None              
|22             |  | Published Report Regarding Matters Submitted to Vote of Security
Holders                                                                                                                                       |  | None              
|23             |  | Consent of Experts                                                                                                                                                                                             |  | None              
|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 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.
|        
|        
|        
|        
|******** |  | 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).                                                                                                          

26