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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____
Commission File Number 0-26960

ITLA CAPITAL CORPORATION




(Exact Name of Registrant as Specified in its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 95-4596322                       
|                                                               |  |                                  
|(State or Other Jurisdiction of 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                                      
|                                                    
|(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 þ No o.

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

Number of shares of common stock of the registrant: 6,053,669 outstanding as of November 4, 2003.



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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                                                                 
|                               | 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 INDEX                 
|EXHIBIT 10.3A                 
|EXHIBIT 10.3B                 
|EXHIBIT 10.10                 
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32                    



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ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

|                               |  |                                                                                       |  |                |                                                                                                         |  |    |   | 
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | -------------- | ------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I  FINANCIAL INFORMATION |  |                                                                                       |  |               
|Item 1.                        |  | Financial Statements                                                                  |  |                | 3                                                                                                       | 
|                               |  |                                                                                       |  |                | Consolidated Balance Sheets  September 30, 2003 (Unaudited) and December 31, 2002                      |  |    | 3 | 
|                               |  |                                                                                       |  |                | Consolidated Statements of Income  Three and Nine Months Ended September
30, 2003 and 2002 (Unaudited) |  |    | 4 | 
|                               |  |                                                                                       |  |                | Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2003 and 2002 (Unaudited)       |  |    | 5 | 
|                               |  |                                                                                       |  |                | Notes to Unaudited Consolidated Financial Statements                                                    |  |    | 6 | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                | 14                                                                                                      | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |                | 29                                                                                                      | 
|Item 4.                        |  | Controls and Procedures                                                               |  |                | 29                                                                                                      | 
|PART II  OTHER INFORMATION    |  |                                                                                       |  |               
|Item 1.                        |  | Legal Proceedings                                                                     |  |                | 30                                                                                                      | 
|Item 2.                        |  | Changes in Securities                                                                 |  |                | 30                                                                                                      | 
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  |                | 30                                                                                                      | 
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  |                | 30                                                                                                      | 
|Item 5.                        |  | Other Information                                                                     |  |                | 30                                                                                                      | 
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  |                | 30                                                                                                      | 
|                               |  |                                                                                       |  | Signatures     |                                                                                                         |  | 31 |  
|                               |  |                                                                                       |  | Certifications |                                                                                                         |  | 33 |  

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 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 2003 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

|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |              |         |           |  | 
|--------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ----------------------------------- | --------- | ------------ | ------- | --------- |  | 
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         | September 30,                       |           |              |         |          
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         | 2003                                |           | December 31,
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         | (unaudited)                         |           | 2002        
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         | (in thousands except share amounts)
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            | Assets                               |         |                                     |           |              |         |           |  | 
|Cash and cash equivalents                                                                                                         |                                                                                                                                                                               | $                          | 85,592                                     |                                      |         | $                                   | 160,848   |             
|Investment securities available for sale, at fair value                                                                           |                                                                                                                                                                               |                            | 46,015                                     |                                      |         |                                     | 54,677    |             
|Stock in Federal Home Loan Bank                                                                                                   |                                                                                                                                                                               |                            | 15,887                                     |                                      |         |                                     | 16,934    |             
|Loans, net (net of allowance for loan losses of $31,244 and $31,081
as of September 30, 2003 and December 31, 2002, respectively) |                                                                                                                                                                               |                            | 1,332,098                                  |                                      |         |                                     | 1,316,298 |             
|Real estate loans held in trust, net (net of allowance for loan
losses of $1,928 as of September 30, 2003 and December 31, 2002)  |                                                                                                                                                                               |                            | 85,195                                     |                                      |         |                                     | 121,936   |             
|Interest receivable                                                                                                               |                                                                                                                                                                               |                            | 8,331                                      |                                      |         |                                     | 9,158     |             
|Other real estate owned, net                                                                                                      |                                                                                                                                                                               |                            | 14,767                                     |                                      |         |                                     | 12,593    |             
|Premises and equipment, net                                                                                                       |                                                                                                                                                                               |                            | 5,381                                      |                                      |         |                                     | 4,197     |             
|Deferred income taxes                                                                                                             |                                                                                                                                                                               |                            | 13,923                                     |                                      |         |                                     | 13,822    |             
|Goodwill                                                                                                                          |                                                                                                                                                                               |                            | 3,118                                      |                                      |         |                                     | 3,118     |             
|Other assets                                                                                                                      |                                                                                                                                                                               |                            | 16,667                                     |                                      |         |                                     | 8,384     |             
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            | Total assets                               |                                      | $       | 1,626,974                           |           |              | $       | 1,721,965 | 
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            | Liabilities and Shareholders Equity |         |                                     |           |              |         |           |  | 
|Liabilities:                                                                                                                      |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  | Deposit accounts                                                                                                                                                              |                            | $                                          | 987,418                              |         |                                     | $         | 1,065,911    |        
|                                                                                                                                  | Federal Home Loan Bank advances                                                                                                                                               |                            |                                            | 317,735                              |         |                                     |           | 338,685      |        
|                                                                                                                                  | Collateralized mortgage obligations                                                                                                                                           |                            |                                            | 32,550                               |         |                                     |           | 69,077       |        
|                                                                                                                                  | Accounts payable and other liabilities                                                                                                                                        |                            |                                            | 27,987                               |         |                                     |           | 10,006       |        
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            | Total liabilities                          |                                      |         | 1,365,690                           |           |              |         | 1,483,679 | 
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|Commitments and contingencies                                                                                                     |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|Guaranteed preferred beneficial interests in the Companys junior
subordinated deferrable interest debentures, net                |                                                                                                                                                                               |                            | 81,797                                     |                                      |         |                                     | 81,595    |             
|Shareholders equity:                                                                                                             |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  | Preferred stock, 5,000,000 shares authorized, none issued                                                                                                                     |                            |                                            |                                     |         |                                     |           |             |        
|                                                                                                                                  | Contributed capital - common stock, $.01 par value; 20,000,000
shares authorized, 8,261,408 and 8,226,414 issued as of
September 30, 2003 and December 31, 2002, respectively |                            |                                            | 59,748                               |         |                                     |           | 58,841       |        
|                                                                                                                                  | Retained earnings                                                                                                                                                             |                            |                                            | 159,691                              |         |                                     |           | 135,773      |        
|                                                                                                                                  | Accumulated other comprehensive income                                                                                                                                        |                            |                                            | 126                                  |         |                                     |           | 435          |        
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            | 219,565                                    |                                      |         |                                     | 195,049   |             
|                                                                                                                                  | Less treasury stock, at cost 2,489,826 and 2,447,656 shares as
of September 30, 2003 and December 31, 2002, respectively                                                      |                            |                                            | (40,078                              | )       |                                     |           | (38,358      | )      
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               | Total shareholders equity |                                            |                                      | 179,487 |                                     |           |              | 156,691 |          
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                  |                                                                                                                                                                               |                            | Total liabilities and shareholders equity |                                      | $       | 1,626,974                           |           |              | $       | 1,721,965 | 
|                                                                                                                                  |                                                                                                                                                                               |                            |                                            |                                      |         |                                     |           |             

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              |        | For the Nine Months Ended
|                                                                                       |                                                     |                                      |                                                      |        | September 30,                           |        | September 30,            
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                          
|                                                                                       |                                                     |                                      |                                                      |        | 2003                                    |        | 2002                      |        | 2003   |        | 2002  
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |       
|                                                                                       |                                                     |                                      |                                                      |        | (in thousands except per share amounts)
|Interest income:                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Loans, including fees                               |                                      | $                                                    | 24,802 |                                         |        | $                         | 24,020 |        |        | $      | 78,877 |        |        | $      | 70,598 |       
|                                                                                       | Real estate loans held in trust                     |                                      |                                                      | 1,407  |                                         |        |                           | 2,458  |        |        |        | 5,036  |        |        |        | 7,960  |       
|                                                                                       | Cash and investment securities                      |                                      |                                                      | 866    |                                         |        |                           | 902    |        |        |        | 4,597  |        |        |        | 2,427  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest income                |                                                      |        | 27,075                                  |        |                           |        | 27,380 |        |        |        | 88,510 |        |        |        | 80,985 |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Interest expense:                                                                      |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Deposit accounts                                    |                                      |                                                      | 5,544  |                                         |        |                           | 6,815  |        |        |        | 18,681 |        |        |        | 22,203 |       
|                                                                                       | Federal Home Loan Bank advances                     |                                      |                                                      | 1,367  |                                         |        |                           | 1,422  |        |        |        | 3,855  |        |        |        | 4,310  |       
|                                                                                       | Collateralized mortgage obligations                 |                                      |                                                      | 204    |                                         |        |                           | 563    |        |        |        | 885    |        |        |        | 1,852  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest expense               |                                                      |        | 7,115                                   |        |                           |        | 8,800  |        |        |        | 23,421 |        |        |        | 28,365 |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Net interest income before provision
for loan losses |        |                                         | 19,960 |                           |        |        | 18,580 |        |        |        | 65,089 |        |        |        | 52,620 | 
|Provision for loan losses                                                              |                                                     |                                      | 750                                                  |        |                                         |        | 2,700                     |        |        |        | 7,100  |        |        |        | 6,125  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Net interest income after provision
for loan losses  |        |                                         | 19,210 |                           |        |        | 15,880 |        |        |        | 57,989 |        |        |        | 46,495 | 
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |        |       
|Non-interest income:                                                                   |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Premium on sale of loans, net                       |                                      |                                                      |       |                                         |        |                           |       |        |        |        | 8,983  |        |        |        |       |       
|                                                                                       | Late and collection fees                            |                                      |                                                      | 61     |                                         |        |                           | 38     |        |        |        | 192    |        |        |        | 157    |       
|                                                                                       | Other                                               |                                      |                                                      | 716    |                                         |        |                           | (92    | )      |        |        | 5,379  |        |        |        | 16     |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total non-interest income            |                                                      |        | 777                                     |        |                           |        | (54    | )      |        |        | 14,554 |        |        |        | 173    |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Non-interest expense:                                                                  |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Compensation and benefits                           |                                      |                                                      | 4,610  |                                         |        |                           | 3,303  |        |        |        | 14,735 |        |        |        | 9,781  |       
|                                                                                       | Occupancy and equipment                             |                                      |                                                      | 1,236  |                                         |        |                           | 777    |        |        |        | 3,502  |        |        |        | 2,232  |       
|                                                                                       | Other                                               |                                      |                                                      | 3,112  |                                         |        |                           | 2,379  |        |        |        | 9,755  |        |        |        | 7,076  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total general and administrative     |                                                      |        | 8,958                                   |        |                           |        | 6,459  |        |        |        | 27,992 |        |        |        | 19,089 |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Real estate owned expense, net                      |                                      |                                                      | 220    |                                         |        |                           | 71     |        |        |        | 373    |        |        |        | 325    |       
|                                                                                       | Provision for losses on other real estate owned     |                                      |                                                      |       |                                         |        |                           |       |        |        |        | 370    |        |        |        | 796    |       
|                                                                                       | Loss (gain) on sale of other real estate owned, net |                                      |                                                      | 389    |                                         |        |                           |       |        |        |        | 60     |        |        |        | (75    | )     
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total real estate owned expense, net |                                                      |        | 609                                     |        |                           |        | 71     |        |        |        | 803    |        |        |        | 1,046  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Total non-interest expense                           |        |                                         | 9,567  |                           |        |        | 6,530  |        |        |        | 28,795 |        |        |        | 20,135 | 
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes and
minority interest in income of subsidiary |                                                     |                                      | 10,420                                               |        |                                         |        | 9,296                     |        |        |        | 43,748 |        |        |        | 26,533 |       
|Minority interest in income of subsidiary                                              |                                                     |                                      | 1,540                                                |        |                                         |        | 815                       |        |        |        | 4,506  |        |        |        | 2,411  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes                                               |                                                     |                                      | 8,880                                                |        |                                         |        | 8,481                     |        |        |        | 39,242 |        |        |        | 24,122 |       
|Provision for income taxes                                                             |                                                     |                                      | 3,473                                                |        |                                         |        | 3,326                     |        |        |        | 15,324 |        |        |        | 9,443  |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | NET INCOME                                          |                                      | $                                                    | 5,407  |                                         |        | $                         | 5,155  |        |        | $      | 23,918 |        |        | $      | 14,679 |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | BASIC EARNINGS PER SHARE                            |                                      | $                                                    | 0.90   |                                         |        | $                         | 0.86   |        |        | $      | 3.97   |        |        | $      | 2.45   |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | DILUTED EARNINGS PER SHARE                          |                                      | $                                                    | 0.83   |                                         |        | $                         | 0.80   |        |        | $      | 3.69   |        |        | $      | 2.29   |       
|                                                                                       |                                                     |                                      |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       

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 Nine Months Ended
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        | September 30,            
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                          
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        | 2003                      |         | 2002   
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        | (in thousands)           
|Cash Flows From Operating Activities: |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      | Net Income                                                                        |                                                                                | $                                                   | 23,918                                           |        |                           | $       | 14,679  |       
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                |                                                     |                                                  |        |                           |         |         |       
|                                      |                                                                                   | Depreciation and amortization of premises and equipment                        |                                                     |                                                  | 1,119  |                           |         |         | 674    |        
|                                      |                                                                                   | Amortization of premium on purchased loans                                     |                                                     |                                                  | 1,549  |                           |         |         | 1,532  |        
|                                      |                                                                                   | Amortization
of original issue discount on collateralized mortgage obligations |                                                     |                                                  | 57     |                           |         |         | 136    |        
|                                      |                                                                                   | Accretion of deferred loan origination fees, net of costs                      |                                                     |                                                  | (1,992 | )                         |         |         | (868   | )      
|                                      |                                                                                   | Provision for loan losses                                                      |                                                     |                                                  | 7,100  |                           |         |         | 6,125  |        
|                                      |                                                                                   | Provision for losses on other real estate owned                                |                                                     |                                                  | 370    |                           |         |         | 796    |        
|                                      |                                                                                   | Loss (gain) on sales of other real estate owned                                |                                                     |                                                  | 60     |                           |         |         | (75    | )      
|                                      | Decrease in interest receivable                                                   |                                                                                |                                                     | 827                                              |        |                           |         | 2,127   |       
|                                      | Increase in other assets                                                          |                                                                                |                                                     | (8,283                                           | )      |                           |         | (912    | )     
|                                      | Increase (decrease) in accounts payable and other liabilities                     |                                                                                |                                                     | 17,981                                           |        |                           |         | (2,899  | )     
|                                      | Other operating activities, net                                                   |                                                                                |                                                     | 250                                              |        |                           |         | (32     | )     
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |         |       
|                                      |                                                                                   |                                                                                | Net cash provided by operating activities           |                                                  |        | 42,956                    |         |         |        | 21,283  |        
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|Cash Flows From Investing Activities: |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      | Proceeds from securitization and sale of real estate loans                        |                                                                                |                                                     |                                                 |        |                           |         | 98,155  |       
|                                      | Decrease (increase) in loans, net                                                 |                                                                                |                                                     | 23,706                                           |        |                           |         | (63,527 | )     
|                                      | Net cash paid to acquire Asahi Bank of California                                 |                                                                                |                                                     |                                                 |        |                           |         | (14,872 | )     
|                                      | Repayment of real estate loans held in trust                                      |                                                                                |                                                     | 35,543                                           |        |                           |         | 28,774  |       
|                                      | Purchase of loans                                                                 |                                                                                |                                                     | (54,040                                          | )      |                           |         | (30,084 | )     
|                                      | Purchases of investment securities available for sale                             |                                                                                |                                                     | (34,363                                          | )      |                           |         | (77,670 | )     
|                                      | Proceeds from the maturity and calls of investment securities available for sale  |                                                                                |                                                     | 42,365                                           |        |                           |         | 55,000  |       
|                                      | Decrease (increase) in stock in Federal Home Loan Bank                            |                                                                                |                                                     | 1,047                                            |        |                           |         | (2,990  | )     
|                                      | Proceeds from sale of other real estate owned                                     |                                                                                |                                                     | 6,471                                            |        |                           |         | 2,720   |       
|                                      | Other investing activities, net                                                   |                                                                                |                                                     | (1,793                                           | )      |                           |         | (1,822  | )     
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   |                                                                                | Net cash provided by (used in) investing activities |                                                  |        | 18,936                    |         |         |        | (6,316  | )      
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|Cash Flows From Financing Activities: |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      | Decrease in deposit accounts                                                      |                                                                                |                                                     | (78,493                                          | )      |                           |         | (68,938 | )     
|                                      | Net (repayment of) proceeds from borrowings from
the Federal Home Loan Bank       |                                                                                |                                                     | (20,950                                          | )      |                           |         | 59,800  |       
|                                      | Repayment of Asahi repurchase agreement, net                                      |                                                                                |                                                     |                                                 |        |                           |         | (14,693 | )     
|                                      | Principal payments on collateralized mortgage obligations                         |                                                                                |                                                     | (36,584                                          | )      |                           |         | (30,384 | )     
|                                      | Cash paid to acquire treasury stock                                               |                                                                                |                                                     | (1,720                                           | )      |                           |         | (2,343  | )     
|                                      | Proceeds from exercise of employee stock options                                  |                                                                                |                                                     | 599                                              |        |                           |         | 184     |       
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |         |       
|                                      |                                                                                   |                                                                                | Net cash used in financing activities               |                                                  |        | (137,148                  | )       |         |        | (56,374 | )      
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   |                                                                                |                                                     | Net decrease in cash and cash equivalents        |        |                           | (75,256 | )       |        |         | (41,407 | )
|                                      |                                                                                   |                                                                                |                                                     | Cash and cash equivalents at beginning of period |        |                           | 160,848 |         |        |         | 134,241 |  
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   |                                                                                |                                                     | Cash and cash equivalents at end of period       |        | $                         | 85,592  |         |        | $       | 92,834  |  
|                                      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|Supplemental Cash Flow Information:   |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   | Cash paid during the period for interest                                       |                                                     | $                                                | 28,116 |                           |         | $       | 28,473 |        
|                                      |                                                                                   | Cash paid during the period for income taxes                                   |                                                     | $                                                | 16,260 |                           |         | $       | 10,225 |        
|Non-cash Investing Transactions:      |                                                                                   |                                                                                |                                                     |                                                  |        |                           |         |        
|                                      |                                                                                   | Loans transferred to other real estate owned                                   |                                                     | $                                                | 9,075  |                           |         | $       | 4,258  |        

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), Imperial Capital
Real Estate Investment Trust (Imperial Capital REIT), 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). 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 and nine months ended September 30, 2003 are not
necessarily indicative of the results of operations for the remainder of the
year.

These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31,
2002.

NOTE 2  ACCOUNTING FOR STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation, to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions are effective for fiscal
years ending after December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The Company adopted the provisions
of SFAS No. 148 effective in the first quarter of 2003.

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 SFAS No. 123
for disclosure purposes only. SFAS No. 123 disclosures include pro forma net
income and earning per share as if the fair value-based method of accounting
had been used. If compensation had been determined based on SFAS No. 123, the
Companys pro forma net income and pro forma per share data would be as
follows:

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|                                                                                                   |                       |   |                                       |      |                     |   |       |      |      |   |        |      |  |   |        |      | 
|-------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------------------------- | ---- | ------------------- | - | ----- | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                   |                       |   | For the Three Months                  |      | For the Nine Months
|                                                                                                   |                       |   | Ended September 30,                   |      | Ended September 30,
|                                                                                                   |                       |   |                                       |      |                    
|                                                                                                   |                       |   | 2003                                  |      | 2002                |   | 2003  |      | 2002
|                                                                                                   |                       |   |                                       |      |                     |   |       |      |     
|                                                                                                   |                       |   | (in thousands, except per share data)
|Net income, as reported                                                                            |                       | $ | 5,407                                 |      |                     | $ | 5,155 |      |      | $ | 23,918 |      |  | $ | 14,679 |     
|Less: Stock-based employee
compensation expense
determined under the fair
value method, net of tax |                       |   | 356                                   |      |                     |   | 348   |      |      |   | 996    |      |  |   | 628    |     
|                                                                                                   |                       |   |                                       |      |                     |   |       |      |      |   |        |      |  |   |        |     
|Pro forma net income                                                                               |                       | $ | 5,051                                 |      |                     | $ | 4,807 |      |      | $ | 22,922 |      |  | $ | 14,051 |     
|                                                                                                   |                       |   |                                       |      |                     |   |       |      |      |   |        |      |  |   |        |     
|Earnings per share:                                                                                |                       |   |                                       |      |                     |   |       |      |      |   |        |      |  |   |        |     
|                                                                                                   | Basic  as reported   |   | $                                     | 0.90 |                     |   | $     | 0.86 |      |   | $      | 3.97 |  |   | $      | 2.45 | 
|                                                                                                   | Basic  pro forma     |   | $                                     | 0.84 |                     |   | $     | 0.81 |      |   | $      | 3.81 |  |   | $      | 2.35 | 
|                                                                                                   | Diluted  as reported |   | $                                     | 0.83 |                     |   | $     | 0.80 |      |   | $      | 3.69 |  |   | $      | 2.29 | 
|                                                                                                   | Diluted  pro forma   |   | $                                     | 0.77 |                     |   | $     | 0.75 |      |   | $      | 3.53 |  |   | $      | 2.19 | 

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
|                         |  |                              
|                         |  | 2003                          |             | 2002
|                         |  |                               |             |     
|Dividend Yield           |  |                               | 0.00%       |      |  |  | 0.00%       | 
|Expected Volatility      |  |                               | 36.24%      |      |  |  | 31.36%      | 
|Risk-Free Interest Rates |  |                               | 4.17%-4.34% |      |  |  | 4.62%-4.88% | 
|Expected Lives           |  |                               | Seven Years |      |  |  | Seven Years | 

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.

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

|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|-------------------------------- |  | ---------------------------------------- | ----- | --------------------------------------- |  | --------- | ----- | ------ |  | ----------- | ----- | ------- |  | --------- | ------ |  |  |  | ----- |  |  | - | ----- | -
|                                 |  | For the Three Months Ended September 30, |       | For the Nine Months Ended September 30,
|                                 |  |                                          |       |                                        
|                                 |  |                                          |       |                                         |  | Weighted- |       |        |  |             |       |         |  | Weighted- |        | 
|                                 |  |                                          |       |                                         |  | Average   |       | Per    |  |             |       | Average |  | Per      
|                                 |  | Net                                      |       | Shares                                  |  | Share     |       | Net    |  | Shares      |       | Share  
|                                 |  | Income                                   |       | Outstanding                             |  | Amount    |       | Income |  | Outstanding |       | Amount 
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |        
|                                 |  | (in thousands, except per share data)   
|2003                             |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                        | 5,407 |                                         |  |           | 6,031 |        |  | $           | 0.90  |         |  | $         | 23,918 |  |  |  | 6,019 |  |  | $ | 3.97  |  
|Effect of dilutive
stock options |  |                                          |      |                                         |  |           | 517   |        |  |             | (0.07 | )       |  |           |       |  |  |  | 471   |  |  |   | (0.28 | )
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                        | 5,407 |                                         |  |           | 6,548 |        |  | $           | 0.83  |         |  | $         | 23,918 |  |  |  | 6,490 |  |  | $ | 3.69  |  
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|2002                             |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                        | 5,155 |                                         |  |           | 5,966 |        |  | $           | 0.86  |         |  | $         | 14,679 |  |  |  | 5,984 |  |  | $ | 2.45  |  
|Effect of dilutive
stock options |  |                                          |      |                                         |  |           | 469   |        |  |             | (0.06 | )       |  |           |       |  |  |  | 429   |  |  |   | (0.16 | )
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                        | 5,155 |                                         |  |           | 6,435 |        |  | $           | 0.80  |         |  | $         | 14,679 |  |  |  | 6,413 |  |  | $ | 2.29  |  
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |         |  |           |        |  |  |  |       |  |  |   |       |  

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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 |      | Nine Months Ended
|                                   |                                                                                                                                                                                                                                                                                                     |   | September 30,      |      | September 30,    
|                                   |                                                                                                                                                                                                                                                                                                     |   |                    |      |                  
|                                   |                                                                                                                                                                                                                                                                                                     |   | 2003               |      | 2002              |   | 2003           |     | 2002
|                                   |                                                                                                                                                                                                                                                                                                     |   |                    |      |                   |   |                |     |     
|                                   |                                                                                                                                                                                                                                                                                                     |   |                    |      |                   |   | (in thousands) |     |      |   |       
|Net Income                         |                                                                                                                                                                                                                                                                                                     | $ | 5,407              |      |                   | $ | 5,155          |     |      | $ | 23,918 |      |   | $ | 14,679 |    
|Other comprehensive (loss) income: |                                                                                                                                                                                                                                                                                                     |   |                    |      |                   |   |                |     |      |   |        |      |   |   |        |    
|                                   | Unrealized (loss) gain on
investment securities
available for sale, net of tax
(benefit) expense of ($70) and
$141 for the three months
ended September 30, 2003 and
2002, and net of tax (benefit)
expense of ($198) and $297 for
the nine months ended
September 30, 2003 and 2002,
respectively. |   |                    | (110 | )                 |   |                | 212 |      |   |        | (309 | ) |   |        | 445 | 
|                                   |                                                                                                                                                                                                                                                                                                     |   |                    |      |                   |   |                |     |      |   |        |      |   |   |        |    
|Comprehensive income               |                                                                                                                                                                                                                                                                                                     | $ | 5,297              |      |                   | $ | 5,367          |     |      | $ | 23,609 |      |   | $ | 15,124 |    
|                                   |                                                                                                                                                                                                                                                                                                     |   |                    |      |                   |   |                |     |      |   |        |      |   |   |        |    

NOTE 5  IMPAIRED LOANS RECEIVABLE

As of September 30, 2003 and December 31, 2002, the recorded investment in
impaired loans and impaired real estate loans held in trust was $11.3 million
and $16.0 million, respectively. The average recorded investment in impaired
loans was $10.6 million for the three months ended September 30, 2003 and $7.8
million for the same period last year. The average recorded investment in
impaired loans was $13.3 million for the nine months ended September 30, 2003
and $10.8 million for the same period last year. Interest income recognized on
impaired loans totaled $120,000 and $377,000 for the three and nine months
ended September 30, 2003 as compared to $89,000 and $169,000 for the same
periods last year.

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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 of $5.6 million, which represented the present value of
future cash flows (spread and fees) that are estimated to be
received over the life of the loans. The residual interest is recorded on the
consolidated balance sheet in Investment securities available for sale, at
fair value. The value of the residual interest is subject to substantial
credit, prepayment, and interest rate risk on the sold residential loans. In
accordance with the provisions of Statement of Financial Accounting Standards
(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 the nine months ended September 30, 2003, the Company recognized an
other than temporary impairment of $750,000 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.

At
September 30, 2003 and December 31, 2002, key economic assumptions and the sensitivity of the
current fair value of the residual interest based on projected cash flows to
immediate adverse changes in those assumptions are as follows:

|                                                     |  |               |       |              |  |   |       |  
|---------------------------------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | -
|                                                     |  | September 30, |       | December 31,
|                                                     |  | 2003          |       | 2002        
|                                                     |  |               |       |             
|Dollars in thousands                                 |  |               |       |              |  |   |       |  
|Fair value of retained interest                      |  | $             | 5,368 |              |  | $ | 5,619 |  
|Weighted
average life (in years) - securities        |  |               | 0.90  |              |  |   | 1.49  |  
|Weighted average life (in years) - residual interest |  |               | 4.39  |              |  |   | 4.70  |  
|Weighted average annual prepayment speed             |  |               | 35.0  | %            |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $             | (74   | )            |  | $ | (23   | )
|Impact of 25% adverse change                         |  | $             | (193  | )            |  | $ | (59   | )
|Weighted average annual discount rate                |  |               | 15.0  | %            |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $             | (306  | )            |  | $ | (167  | )
|Impact of 25% adverse change                         |  | $             | (737  | )            |  | $ | (404  | )
|Weighted average lifetime credit losses              |  |               | 3.3   | %            |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $             | (163  | )            |  | $ | (285  | )
|Impact of 25% adverse change                         |  | $             | (407  | )            |  | $ | (678  | )

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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

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

In January 2003, FASB issued FIN 46, an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 establishes
the criteria used to identify variable interest entities and to determine
whether or not to consolidate a variable interest entity. Under the criteria
established by FIN 46, the Company believes it may be required to
de-consolidate its trust subsidiaries. The result will be to recognize
investments in its trust subsidiaries in other assets, to report the amount of
subordinated debentures issued by the Company to its trust subsidiaries in the
liability section of the Companys consolidated balance sheets, and to
recognize the interest expense in the subordinated debentures in the
consolidated statements of income. Prior to FIN 46, the Company consolidated
its trust subsidiaries and reported trust preferred securities in the mezzanine
section of the Companys consolidated balance sheets and recognized the
proportionate share of income attributable to the preferred shareholders as
minority interest in income of subsidiary in the consolidated statements of
income. This interpretation was effective immediately for variable interest
entities created after January 31, 2003 and was initially to be effective for
variable interest entities acquired prior to February 1, 2003, in the quarter
ended September 30, 2003. Effective October 9, 2003, the FASB agreed to defer
the effective date of FIN 46 for variable interests held by public companies in
all entities that were acquired prior to February 1, 2003. The deferral will
require that public companies adopt the provisions of FIN 46 for periods ending
after December 15, 2003.

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

The reporting requirements of SFAS No. 150 are effective July 1, 2003. As
a result of this new standard, should the adoption of FIN 46 not otherwise
require de-consolidation of the trusts, the Company would be required to
reclassify its trust preferred securities, presented on the consolidated
balance sheets as Guaranteed preferred beneficial interest in the Companys
junior subordinated deferrable interest debentures, net, to liabilities and
recognize the related expense within the consolidated statements of income as
interest expense rather than minority interest in income of subsidiary. On
October 29, 2003, the FASB agreed to defer provisions related to mandatorily
redeemable financial instruments to periods beginning after December 15, 2004.

The adoption of FIN 46 and SFAS No. 150 will not have a material impact on
the results of operations or the financial position of the Company but will
require the restatement of certain financial ratios, such as net interest
margin and efficiency ratios, for all periods presented.

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. The Company has no transactions with a
single external customer that exceeds ten percent of the Companys consolidated
revenues.

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

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|                                         |                                  |  |            |         |           |  |              |        |              |  |   |         |   |  |   |         | 
|---------------------------------------- | -------------------------------- |  | ---------- | ------- | --------- |  | ------------ | ------ | ------------ |  | - | ------- | - |  | - | ------- | 
|                                         |                                  |  | Lending    |         |           |  |              |        |              |  |   |         |   |  |  
|                                         |                                  |  | Operations |         | All Other |  | Eliminations |        | Consolidated
|                                         |                                  |  |            |         |           |  |              |        |             
|For
the three months ended September 30, |                                  |  |            |         |           |  |              |        |              |  |   |         |   |  |   |        
|                                         | 2003                             |  |            |         |           |  |              |        |              |  |   |         |   |  |   |         | 
|                                         | Revenues from external customers |  | $          | 27,631  |           |  | $            | 221    |              |  | $ |        |   |  | $ | 27,852  | 
|                                         | Total interest income            |  |            | 26,916  |           |  |              | 1,971  |              |  |   | (1,812  | ) |  |   | 27,075  | 
|                                         | Total interest expense           |  |            | 7,308   |           |  |              | 1,554  |              |  |   | (1,747  | ) |  |   | 7,115   | 
|                                         | Net Income                       |  | $          | 6,896   |           |  | $            | 5,396  |              |  | $ | (6,885  | ) |  | $ | 5,407   | 
|                                         | 2002                             |  |            |         |           |  |              |        |              |  |   |         |   |  |   |         | 
|                                         | Revenues from external customers |  | $          | 27,021  |           |  | $            | 305    |              |  | $ |        |   |  | $ | 27,326  | 
|                                         | Total interest income            |  |            | 27,059  |           |  |              | 1,351  |              |  |   | (1,030  | ) |  |   | 27,380  | 
|                                         | Total interest expense           |  |            | 9,065   |           |  |              | 765    |              |  |   | (1,030  | ) |  |   | 8,800   | 
|                                         | Net Income                       |  | $          | 6,263   |           |  | $            | 5,126  |              |  | $ | (6,234  | ) |  | $ | 5,155   | 
|For
the nine months ended September 30,  |                                  |  |            |         |           |  |              |        |              |  |   |         |   |  |   |        
|                                         | 2003                             |  |            |         |           |  |              |        |              |  |   |         |   |  |   |         | 
|                                         | Revenues from external customers |  | $          | 102,659 |           |  | $            | 405    |              |  | $ |        |   |  | $ | 103,064 | 
|                                         | Total interest income            |  |            | 88,316  |           |  |              | 5,343  |              |  |   | (5,149  | ) |  |   | 88,510  | 
|                                         | Total interest expense           |  |            | 23,906  |           |  |              | 4,623  |              |  |   | (5,108  | ) |  |   | 23,421  | 
|                                         | Net Income                       |  | $          | 29,190  |           |  | $            | 23,885 |              |  | $ | (29,157 | ) |  | $ | 23,918  | 
|                                         | 2002                             |  |            |         |           |  |              |        |              |  |   |         |   |  |   |         | 
|                                         | Revenues from external customers |  | $          | 80,907  |           |  | $            | 251    |              |  | $ |        |   |  | $ | 81,158  | 
|                                         | Total interest income            |  |            | 80,960  |           |  |              | 3,108  |              |  |   | (3,083  | ) |  |   | 80,985  | 
|                                         | Total interest expense           |  |            | 29,124  |           |  |              | 2,324  |              |  |   | (3,083  | ) |  |   | 28,365  | 
|                                         | Net Income                       |  | $          | 18,918  |           |  | $            | 14,614 |              |  | $ | (18,853 | ) |  | $ | 14,679  | 

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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 influenced the financial condition and results of operations for
the three and nine months ended September 30, 2003.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002

General

Consolidated net income was at $5.4 million and $5.2 million for the three
months ended September 30, 2003 and 2002, respectively. Diluted EPS was $0.83
for the three months ended September 30, 2003 compared to $0.80 for the same
period last year, an increase of $0.03 per diluted share. The increase in net
income was primarily due to increases in net interest income and non-interest
income, partially offset by increases in non-interest expense and minority
interest in income of subsidiary.

The increase in net interest income from prior year was a result of the
increase in the average balance of loans outstanding and the decline in average
cost of funds due to our interest bearing liabilities repricing to lower
current market interest rates. A significant portion of the loan portfolio is
not subject to downward pricing adjustment due to interest rate floors. The
resulting increase in net interest income was partially offset by a decline in the yield of the loan portfolio as higher yielding loans were repaid
and replaced by new loan production at lower current market interest rates.

The return on average assets was 1.42% for the three months ended
September 30, 2003 compared to 1.49% for the same period last year. The return
on average shareholders equity was 12.02% for the three months ended September
30, 2003, compared to 13.64% for the same period last year.

Total loan production was $279.6 million for the three months ended
September 30, 2003, consisting of the origination and/or acquisition of $230.4
million of commercial real estate loans, $21.6 million of franchise loans, and
$27.6 million of film finance loans. The Banks loan production for the same
period last year was $144.7 million, consisting of originated and/or acquired
commercial real estate 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).
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 quarter of 2003 will not be
significantly impacted by the RAL program due to the seasonal nature of the
business.

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##### Table of Contents



Net Interest Income and Margin

The following table presents, for the three months ended September 30,
2003 and 2002, 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 September 30,
|                                                                                                              |                                            |                        |           |                                         
|                                                                                                              |                                            |                        |           | 2003                                     |         | 2002   
|                                                                                                              |                                            |                        |           |                                          |         |        
|                                                                                                              |                                            |                        |           | Average                                  |         | Income/ |        | Yield/ |       | Average |      | Income/ |      | Yield/
|                                                                                                              |                                            |                        |           | Balance                                  |         | Expense |        | Rate   |       | Balance |      | Expense |      | Rate  
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |       
|                                                                                                              |                                            |                        |           | (dollars in thousands)                  
|Assets                                                                                                        |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Cash and investments                                                                                          |                                            | $                      | 110,343   |                                          |         | $       | 866    |        |       |         | 3.11 | %       |      | $      | 69,738    |           |         | $ | 902    |        |       |  | 5.13 | %   
|Loans receivable:                                                                                             |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|                                                                                                              | Loans                                      |                        |           | 1,279,054                                |         |         |        | 24,802 |       |         |      | 7.69    | %    |        |           | 1,147,784 |         |   |        | 24,020 |       |  |      | 8.30 | %   
|                                                                                                              | Real estate loans held in trust            |                        |           | 88,960                                   |         |         |        | 1,407  |       |         |      | 6.27    | %    |        |           | 138,906   |         |   |        | 2,458  |       |  |      | 7.02 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Total loans receivable                                                                                        |                                            |                        | 1,368,014 |                                          |         |         | 26,209 |        |       |         | 7.60 | %       |      |        | 1,286,690 |           |         |   | 26,478 |        |       |  | 8.16 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Total interest-earning assets                                                                                 |                                            |                        | 1,478,357 |                                          |         | $       | 27,075 |        |       |         | 7.27 | %       |      |        | 1,356,428 |           |         | $ | 27,380 |        |       |  | 8.01 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Non-interest-earning assets                                                                                   |                                            |                        | 66,405    |                                          |         |         |        |        |       |         |      |         |      |        | 45,321    |           |         |   |        |        |       |  |      |     
|Allowance for loan losses                                                                                     |                                            |                        | (33,456   | )                                        |         |         |        |        |       |         |      |         |      |        | (30,156   | )         |         |   |        |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|                                                                                                              | Total assets                               |                        | $         | 1,511,306                                |         |         |        |        |       |         |      |         |      |        | $         | 1,371,593 |         |   |        |        |       |  |      |      |     
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Liabilities and
Shareholders Equity                                                                          |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Deposit accounts:                                                                                             |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|                                                                                                              | Money market and
passbook accounts         |                        | $         | 169,417                                  |         |         | $      | 659    |       |         |      | 1.54    | %    |        | $         | 136,569   |         |   | $      | 642    |       |  |      | 1.87 | %   
|                                                                                                              | Time certificates                          |                        |           | 753,880                                  |         |         |        | 4,885  |       |         |      | 2.57    | %    |        |           | 754,340   |         |   |        | 6,173  |       |  |      | 3.25 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|                                                                                                              |                                            | Total deposit accounts |           |                                          | 923,297 |         |        |        | 5,544 |         |      |         | 2.38 | %      |           |           | 890,909 |   |        |        | 6,815 |  |      |      | 3.03 | %
|Collateralized mortgage obligations                                                                           |                                            |                        | 37,453    |                                          |         |         | 204    |        |       |         | 2.16 | %       |      |        | 83,530    |           |         |   | 563    |        |       |  | 2.67 | %   
|FHLB advances                                                                                                 |                                            |                        | 236,539   |                                          |         |         | 1,367  |        |       |         | 2.29 | %       |      |        | 211,101   |           |         |   | 1,422  |        |       |  | 2.66 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Total interest-bearing liabilities                                                                            |                                            |                        | 1,197,289 |                                          |         | $       | 7,115  |        |       |         | 2.36 | %       |      |        | 1,185,540 |           |         | $ | 8,800  |        |       |  | 2.94 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Non-interest-bearing liabilities                                                                              |                                            |                        | 53,818    |                                          |         |         |        |        |       |         |      |         |      |        | 7,884     |           |         |   |        |        |       |  |      |     
|Guaranteed preferred beneficial
interests
in the Companys junior
subordinated
deferrable interest debentures |                                            |                        | 81,775    |                                          |         |         |        |        |       |         |      |         |      |        | 28,174    |           |         |   |        |        |       |  |      |     
|Shareholders equity                                                                                          |                                            |                        | 178,424   |                                          |         |         |        |        |       |         |      |         |      |        | 149,995   |           |         |   |        |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|                                                                                                              | Total liabilities
and shareholders equity |                        | $         | 1,511,306                                |         |         |        |        |       |         |      |         |      |        | $         | 1,371,593 |         |   |        |        |       |  |      |      |     
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Net interest spread                                                                                           |                                            |                        |           |                                          |         |         |        |        |       |         | 4.91 | %       |      |        |           |           |         |   |        |        |       |  | 5.07 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Net interest income before provision
for loan losses                                                          |                                            |                        |           |                                          |         | $       | 19,960 |        |       |         |      |         |      |        |           |           |         | $ | 18,580 |        |       |  |      |     
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     
|Net interest margin                                                                                           |                                            |                        |           |                                          |         |         |        |        |       |         | 5.36 | %       |      |        |           |           |         |   |        |        |       |  | 5.43 | %   
|                                                                                                              |                                            |                        |           |                                          |         |         |        |        |       |         |      |         |      |        |           |           |         |   |        |        |       |  |      |     

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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 
|                               |                                     |                                               |   | September 30, 2003 and 2002
|                               |                                     |                                               |   | Increase (Decrease) Due to:
|                               |                                     |                                               |   |                            
|                               |                                     |                                               |   | Rate                        |        | Volume |   | Total         
|                               |                                     |                                               |   |                             |        |        |   |               
|                               |                                     |                                               |   |                             |        |        |   | (In thousands) |       |  |   |       
|Interest and fees earned from: |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               | Cash and investment securities      |                                               | $ | (354                        | )      |        | $ | 318            |       |  | $ | (36    | )     
|                               | Loans                               |                                               |   | (1,615                      | )      |        |   | 2,397          |       |  |   | 782    |       
|                               | Real estate loans held in trust     |                                               |   | (263                        | )      |        |   | (788           | )     |  |   | (1,051 | )     
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               |                                     | Total increase (decrease) in interest income  |   |                             | (2,232 | )      |   |                | 1,927 |  |   |        | (305   | )
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|Interest paid on:              |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               | Deposit accounts                    |                                               |   | (1,464                      | )      |        |   | 193            |       |  |   | (1,271 | )     
|                               | Collateralized mortgage obligations |                                               |   | (107                        | )      |        |   | (252           | )     |  |   | (359   | )     
|                               | FHLB advances                       |                                               |   | (200                        | )      |        |   | 145            |       |  |   | (55    | )     
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |        |       
|                               |                                     | Total increase (decrease) in interest
expense |   |                             | (1,771 | )      |   |                | 86    |  |   |        | (1,685 | )
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               |                                     | Increase (decrease) in net interest income    |   | $                           | (461   | )      |   | $              | 1,841 |  |   | $      | 1,380  |  
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       

Total interest income decreased $0.3 million to $27.1 million in the third
quarter of 2003 as compared to $27.4 million for the same period last year. The
net decrease in interest income was primarily attributable to the decrease of
74 basis points in the yields earned on interest earning assets partially
offset by an increase of $121.9 million in interest earning assets.

The average balance of loans held by the Bank was $1.3 billion and $1.1
billion for the three months ended September 30, 2003 and 2002, respectively.
Loans secured by income producing properties and construction loans had an
average balance of $1.1 billion during the quarter ended September 30, 2003 and
2002. The average balance of franchise loans was $64.1 million and $62.3
million during the quarter ended September 30, 2003 and 2002, respectively.
The average balance of film finance loans was $87.6 million during the quarter
ended September 30, 2003. We acquired the Lewis Horwitz Organization
(LHO) during the fourth quarter of 2002 to originate film finance loans.

The average balance of real estate loans held in trust decreased to $89.0
million for the three months ended September 30, 2003 as compared to $138.9
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 our cash and investments increased to $110.3
million in the third quarter of 2003 compared to $69.7 million during the same
period last year. The increase in our average cash and investments was
attributable to the increased liquidity that was maintained in connection with
the Banks RAL program. The decline in the average yield earned on cash and
investments from 5.13% during the third quarter of 2002 to 3.11% during the
third quarter of 2003 was primarily caused by lower yields earned on short-term
and overnight investments.

The average yield earned on total loans decreased to 7.60% in the quarter
ended September 30, 2003 as compared to 8.16% 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 94.5%
of our real estate loan portfolio (including real estate loans held in trust)
are adjustable rate mortgages at September 30, 2003. These adjustable rate
mortgages generally reprice on a quarterly basis and approximately $1.2 billion
or 89.0% of our real estate loan portfolio contain interest rate floors, below
which the loans contractual interest rate may not adjust. At September 30,
2003, the weighted average floor interest rate of these loans was 7.0%. At
that date, approximately $1.2 billion or 97.4% of those loans were at the floor
interest rate, approximately $20.8 million or 1.7% were within 50 basis points
of their floor interest rate, and approximately $1.8 million or 0.1% were
greater than 50 but less than 100 basis points from their floor interest rate.

Total interest expense decreased by $1.7 million to $7.1 million in the
third quarter of 2003, compared to $8.8 million for the same period last year.
This decrease was primarily attributable to lower interest rates paid on all
interest bearing liabilities and lower average balances on our Collateralized
Mortgage Obligations (CMOs) partially offset by higher average balances on
deposit accounts and Federal Home Loan Bank (FHLB) advances.

Our average cost of funds decreased to 2.36% during the three month period
ended September 30, 2003, compared to 2.94% for the same period last year.
This decrease in funding costs was due primarily to lower rates being paid on
our deposit accounts and CMOs 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 2.38% during the three months ended September 30, 2003
as compared to 3.03% for the same period last year. The average rate paid on
the CMOs was 2.16% during the three months ended September 30, 2003 compared to
2.67% for the same period last year. The average balance of deposit accounts
increased $32.4 million to $923.3 million for the three months ended September
30, 2003 as compared to $890.9 million for the same period last year. The
average balance of our CMOs was $37.5 million during the third quarter of 2003,
compared to $83.5 million for the same period last year reflecting the decline
in the related real estate loans held in trust. FHLB advances averaged $236.5
million in the current quarter, compared to $211.1 million for the same period
last year.

Net interest margin decreased to 5.36% for the three months ended
September 30, 2003 as compared to 5.43% for the same period last year primarily
due to higher yielding loans within the Banks loan portfolio being repaid and
replaced by new loan production at lower current

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market rates. Additionally, the loans held by the REIT are repricing to
lower interest rates slightly faster than the related CMOs.

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 September 30, 2003 was adequate to absorb the known and inherent risks of loss
in the loan portfolio at that date. While management believes the estimates
and assumptions used in its determination of the adequacy of the allowance are
reasonable, there can be no assurance that such estimates and assumptions will
not be proven incorrect in the future, or that the actual amount of future
provisions will not exceed the amount of past provisions or that any increased
provisions that may be required will not adversely impact our financial
condition and results of operations. In addition, the determination of the
amount of the Banks allowance for loan losses is subject to review by 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 $750,000 for the third
quarter of 2003, compared to $2.7 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 a valuation
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 2.29% of total loans and real estate loans held in trust at September 30,
2003 as compared to 2.24% at December 31, 2002. During the quarters ended
September 30, 2003 and 2002, we had net loan charge-offs of $1.1
million and $1.0 million, respectively. See also  Financial Condition 
Credit Risk.

Non-Interest Income

Non-interest income increased to $777,000 for the three months ended
September 30, 2003, compared to a net loss of $54,000 for the same period last
year. Substantially all of the increase was due to residual income earned in
connection with the RAL program.

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Non-Interest Expense

Non-interest expense totaled $9.6 million for the three months ended
September 30, 2003, compared to $6.5 million for the same period last year.
The increase was attributable to the acquisition of LHO, additions relating to
the Banks franchise lending origination staff, the development of Imperial
Capital Express (ICE) (the Banks small balance commercial real estate
lending platform), and certain continuing infrastructure and personnel costs incurred in
connection with the Banks charter conversion. Our efficiency ratio
(defined as recurring general and administrative expenses as a percentage of
net revenue) was 43.20 percent in the third quarter of 2003 as compared to
34.86 percent for the same period in 2002.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, consisting of trust income
earned by holders of our trust preferred securities, was $1.5 million during
the three month period ended September 30, 2003 as compared to $815,000 for the
same period last year. On a period-to-period comparison, the increase was
primarily due to the issuance of the $55.0 million of additional trust
preferred securities during the fourth quarter of 2002.

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Nine Months Ended September 30, 2003 Compared to Nine Months Ended September
30, 2002

General

Consolidated net income totaled $23.9 million for the nine months ended
September 30, 2003 compared to $14.7 million for the same period last year.
Diluted EPS was $3.69 for the nine months ended September 30, 2003, compared to
$2.29 for the same period last year, an increase of $1.40 per diluted share.
The increase in net income was primarily due to increases in net interest
income and non-interest income, partially offset by increases in the provision
for loan losses, non-interest expense and minority interest in income of
subsidiary. Net interest income improved from prior year primarily as a result
of the increase in average balance of loans outstanding, increased interest
income from cash and investment securities and a decline in the average cost of
funds due to its interest bearing liabilities repricing to lower current market
interest rates. These increases were partially offset by a decline in net
interest income of the REIT, a decline in the yield on cash and investment
securities, and a decline in the yield of the loan portfolio, as higher
yielding loans were repaid and replaced by new loan production at lower current
market interest rates. The increase in non-interest income was primarily due
to the Banks RAL program and its strategic relationship with Household.

The return on average assets was 1.80% for the nine months ended September
30, 2003, compared to 1.44% for the same period last year. The return on
average shareholders equity was 18.50% for the nine months ended September 30,
2003, compared to 13.54% for the same period last year.

Total loan production was $525.4 million for the nine months ended
September 30, 2003, compared to $374.6 million for the same period last year.
During the current nine month period, the Bank originated and/or purchased
$439.5 million of commercial real estate loans, $52.0 million of film finance
loans and $33.9 million of franchise loans. Loan production for the same period
last year consisted of $331.8 million of originated and/or acquired commercial
real estate loans, including $36.8 million of loans acquired from Asahi Bank of
California and $6.0 million of acquired franchise loans.

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Net Interest Income and Margin

The following table presents, for the nine months ended September 30, 2003
and 2002, 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 Nine Months Ended September 30,
|                                                                                                          |                                            |                        |           |                                        
|                                                                                                          |                                            |                        |           | 2003                                    |         | 2002   
|                                                                                                          |                                            |                        |           |                                         |         |        
|                                                                                                          |                                            |                        |           | Average                                 |         | Income/ |        | Yield/ |        | Average |      | Income/ |      | Yield/
|                                                                                                          |                                            |                        |           | Balance                                 |         | Expense |        | Rate   |        | Balance |      | Expense |      | Rate  
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |       
|                                                                                                          |                                            |                        |           | (dollars in thousands)                 
|Assets                                                                                                    |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Cash and investments                                                                                      |                                            | $                      | 340,725   |                                         |         | $       | 4,597  |        |        |         | 1.80 | %       |      | $      | 69,626    |           |         | $ | 2,427  |        |        |  | 4.66 | %   
|Loans receivable:                                                                                         |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|                                                                                                          | Loans                                      |                        |           | 1,291,178                               |         |         |        | 78,877 |        |         |      | 8.17    | %    |        |           | 1,123,084 |         |   |        | 70,598 |        |  |      | 8.40 | %   
|                                                                                                          | Real estate loans held in trust            |                        |           | 104,286                                 |         |         |        | 5,036  |        |         |      | 6.46    | %    |        |           | 148,589   |         |   |        | 7,960  |        |  |      | 7.16 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Total loans receivable                                                                                    |                                            |                        | 1,395,464 |                                         |         |         | 83,913 |        |        |         | 8.04 | %       |      |        | 1,271,673 |           |         |   | 78,558 |        |        |  | 8.26 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Total interest-earning assets                                                                             |                                            |                        | 1,736,189 |                                         |         | $       | 88,510 |        |        |         | 6.82 | %       |      |        | 1,341,299 |           |         | $ | 80,985 |        |        |  | 8.07 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Non-interest-earning assets                                                                               |                                            |                        | 76,308    |                                         |         |         |        |        |        |         |      |         |      |        | 54,522    |           |         |   |        |        |        |  |      |     
|Allowance for loan losses                                                                                 |                                            |                        | (33,499   | )                                       |         |         |        |        |        |         |      |         |      |        | (29,299   | )         |         |   |        |        |        |  |      |     
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|                                                                                                          | Total assets                               |                        | $         | 1,778,998                               |         |         |        |        |        |         |      |         |      |        | $         | 1,366,522 |         |   |        |        |        |  |      |      |     
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Liabilities and Shareholders Equity                                                                      |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Deposit accounts:                                                                                         |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|                                                                                                          | Money market and
passbook accounts         |                        | $         | 165,725                                 |         |         | $      | 1,954  |        |         |      | 1.58    | %    |        | $         | 149,874   |         |   | $      | 2,279  |        |  |      | 2.03 | %   
|                                                                                                          | Time certificates                          |                        |           | 822,742                                 |         |         |        | 16,727 |        |         |      | 2.72    | %    |        |           | 755,317   |         |   |        | 19,924 |        |  |      | 3.53 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|                                                                                                          |                                            | Total deposit accounts |           |                                         | 988,467 |         |        |        | 18,681 |         |      |         | 2.53 | %      |           |           | 905,191 |   |        |        | 22,203 |  |      |      | 3.28 | %
|Collateralized mortgage obligations                                                                       |                                            |                        | 51,011    |                                         |         |         | 885    |        |        |         | 2.32 | %       |      |        | 93,534    |           |         |   | 1,852  |        |        |  | 2.65 | %   
|FHLB advances                                                                                             |                                            |                        | 190,876   |                                         |         |         | 3,855  |        |        |         | 2.70 | %       |      |        | 186,328   |           |         |   | 4,310  |        |        |  | 3.09 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Total interest-bearing liabilities                                                                        |                                            |                        | 1,230,354 |                                         |         | $       | 23,421 |        |        |         | 2.55 | %       |      |        | 1,185,053 |           |         | $ | 28,365 |        |        |  | 3.20 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Non-interest-bearing liabilities                                                                          |                                            |                        | 294,084   |                                         |         |         |        |        |        |         |      |         |      |        | 8,403     |           |         |   |        |        |        |  |      |     
|Guaranteed preferred beneficial interests
in Companys junior subordinated
deferrable interest debentures |                                            |                        | 81,707    |                                         |         |         |        |        |        |         |      |         |      |        | 28,153    |           |         |   |        |        |        |  |      |     
|Shareholders equity                                                                                      |                                            |                        | 172,853   |                                         |         |         |        |        |        |         |      |         |      |        | 144,913   |           |         |   |        |        |        |  |      |     
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|                                                                                                          | Total liabilities
and shareholders equity |                        | $         | 1,778,998                               |         |         |        |        |        |         |      |         |      |        | $         | 1,366,522 |         |   |        |        |        |  |      |      |     
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest spread                                                                                       |                                            |                        |           |                                         |         |         |        |        |        |         | 4.27 | %       |      |        |           |           |         |   |        |        |        |  | 4.87 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest income before
provision for loan losses                                                      |                                            |                        |           |                                         |         | $       | 65,089 |        |        |         |      |         |      |        |           |           |         | $ | 52,620 |        |        |  |      |     
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest margin                                                                                       |                                            |                        |           |                                         |         |         |        |        |        |         | 5.01 | %       |      |        |           |           |         |   |        |        |        |  | 5.25 | %   
|                                                                                                          |                                            |                        |           |                                         |         |         |        |        |        |         |      |         |      |        |           |           |         |   |        |        |        |  |      |     

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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 the absolute dollar
amounts of each.

|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |        |  
|------------------------------ | ----------------------------------- | --------------------------------------------- | - | --------------------------- | ------ | ------ | - | ------ | ------ |  | - | ------ | ------ | -
|                               |                                     |                                               |   | For the Nine Months Ended  
|                               |                                     |                                               |   | September 30, 2003 and 2002
|                               |                                     |                                               |   | Increase (Decrease) Due to:
|                               |                                     |                                               |   |                            
|                               |                                     |                                               |   | Rate                        |        | Volume |   | Total 
|                               |                                     |                                               |   |                             |        |        |   |       
|                               |                                     |                                               |   | (In thousands)             
|Interest and fees earned from: |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               | Cash and investment securities      |                                               | $ | (1,486                      | )      |        | $ | 3,656  |        |  | $ | 2,170  |       
|                               | Loans                               |                                               |   | (3,925                      | )      |        |   | 12,204 |        |  |   | 8,279  |       
|                               | Real estate loans held in trust     |                                               |   | (779                        | )      |        |   | (2,145 | )      |  |   | (2,924 | )     
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |       
|                               |                                     | Total increase (decrease) in interest income  |   |                             | (6,190 | )      |   |        | 13,715 |  |   |        | 7,525  |  
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|Interest paid on:              |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               | Deposit accounts                    |                                               |   | (5,093                      | )      |        |   | 1,571  |        |  |   | (3,522 | )     
|                               | Collateralized mortgage obligations |                                               |   | (231                        | )      |        |   | (736   | )      |  |   | (967   | )     
|                               | FHLB advances                       |                                               |   | (547                        | )      |        |   | 92     |        |  |   | (455   | )     
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |       
|                               |                                     | Total increase (decrease) in interest
expense |   |                             | (5,871 | )      |   |        | 927    |  |   |        | (4,944 | )
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               |                                     | Increase (decrease) in net interest income    |   | $                           | (319   | )      |   | $      | 12,788 |  |   | $      | 12,469 |  
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       

Total interest income increased $7.5 million to $88.5 million in the nine
months ended September 30, 2003, as compared to $81.0 million for the same
period last year. The net increase in interest income was primarily
attributable to the increase in the average volume of the Banks loans during
the period and the additional interest income earned on the increased liquidity
maintained in connection with the RAL program partially offset by a decline in
the interest income earned by the REIT.

The average balance of loans held by the Bank was $1.3 billion and $1.1
billion for the nine months ended September 30, 2003 and 2002, respectively.
Loans secured by income producing properties and construction loans were
essentially unchanged with an average balance of $1.1 billion during the nine
months ended September 30, 2003 and 2002. The average balance of franchise
loans was $58.7 million and $60.2 million during the nine months ended
September 30, 2003 and 2002, respectively. The average balance of film finance
loans was $102.9 million during the nine months ended
September 30, 2003. We first began originating film finance loans during the fourth quarter of
2002 when we acquired LHO.

The average balance of real estate loans held in trust decreased to $104.3
million for the nine months ended September 30, 2003 as compared to $148.6
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 our cash and investments increased to $340.7
million for the nine months ended September 30, 2003 compared to $69.6 million
during the same period last year. The increase in our average cash and
investments was attributable to the increased liquidity maintained in
connection with the RAL program. The decline in the average yield earned on
cash and investments from 4.66% during the nine months ended September 30, 2002
to 1.80% during the same period in 2003 was caused by lower yields earned on
short-term and overnight investments as a significant portion of our excess liquidity related to the RAL program was maintained in overnight
investments. The decrease in the average yield was further impacted by the
declining interest rate environment experienced during the current
year.

The average yield earned on loans decreased 22 basis points to 8.04% for
the nine months ended September 30, 2003 compared to 8.26% in the same period
last year. The decrease in the yield on loans was primarily due to higher
yielding loans being repaid and replaced by new loan production at lower
current market interest rates, offset in part by higher yields earned on our
participation interests in RAL loans. Our commercial real estate loan
portfolio is primarily comprised of adjustable rate mortgages indexed to the
six month LIBOR.

Total interest expense decreased by $5.0 million to $23.4 million for the
nine months ended September 30, 2003, compared to $28.4 million for the same
period last year. This decrease was primarily attributable to lower interest
rates paid on all interest bearing liabilities and lower average balances on
CMOs partially offset by higher average balances on deposit accounts and FHLB
advances.

Our average cost of funds decreased to 2.55% during the nine months ended
September 30, 2003, compared to 3.20% for the same period last year. This
decrease in funding costs was primarily due to the general decline in market
interest rates during the current year, which has resulted in a continued
decline in our cost of funds. The average rate paid on deposit accounts was
2.53% during the nine months ended September 30, 2003 compared to 3.28% for the
same period last year. The average rate paid on the CMOs was 2.32% during the
nine months ended September 30, 2003 compared to 2.65% for the same period last
year. The average balance of deposit accounts increased $83.3 million to $988.5
million for the nine months ended September 30, 2003, compared to $905.2
million for the same period last year. The average balance of our CMOs was
$51.0 million during the nine months ended September 30, 2003, compared to
$93.5 million for the same period last year, reflecting the decline in the
related real estate loans held in trust. FHLB advances averaged $190.9 million
for the nine months ended September 30, 2003, compared to $186.3 million for
the same period last year.

Net interest margin decreased to 5.01% for the nine months ended September
30, 2003 compared to 5.25% for the same period last year. This decrease was
primarily due to the significant increase in average interest-earning assets
during the period and the 60 basis point decrease in net interest spread. The
decrease in the net interest spread was caused by a 125 basis point decrease in
the average yield earned on interest-earning assets primarily as a result of
lower yields earned on short-term and overnight investments, partially offset
by a 65 basis point decrease in cost of funds. A significant portion
of our excess liquidity resulting from the RAL program was maintained in
overnight investments at rates significantly below rates earned on other
interest-earning assets.

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Provision for Loan Losses

The consolidated provision for loan losses totaled $7.1 million for the
nine months ended September 30, 2003, compared to $6.1 million for the same
period last year. The current period provision for loan losses was recorded to
provide for reserves based on an analysis of the factors referred to previously
and the valuation of certain nonperforming loans and other loans of concern.
During the nine months ended September 30, 2003 and 2002, we had net
loan charge-offs of $6.9 million and $3.2 million, respectively. The increase
in charge-offs primarily related to one commercial real estate loan.

Non-Interest Income

Non-interest income totaled $14.6 million for the nine months ended
September 30, 2003, compared to $0.2 million for the same period last year.
The increase was primarily attributable to fee income earned in connection with
the RAL program consisting of $9.0 million of net premiums on the sale of RAL
loans and $4.6 million of processing and administrative fees.

Non-Interest Expense

Non-interest expense totaled $28.8 million for the nine months ended
September 30, 2003, compared to $20.1 million for the same period last year.
The increase in non-interest expense was primarily due to the acquisition of
LHO, additions relating to the Banks franchise lending origination staff, the
development of ICE (the Banks small balance commercial real estate lending
platform), and infrastructure and personnel costs incurred in connection with
the Banks charter conversion. Our efficiency ratio (defined as
recurring general and administrative expenses as a percentage of net revenue)
was 35.15 percent for the nine months ended September 30, 2003, compared to
36.16 percent for the same period in 2002.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary was $4.5 million during the nine
month period ended September 30, 2003 compared to $2.4 million for the same
period last year. The increase was primarily due to the issuance of $55.0
million of additional Trust Preferred securities during the fourth quarter of
2002.

FINANCIAL CONDITION

Total assets decreased to $1.6 billion at September 30, 2003 as compared
to $1.7 billion at December 31, 2002. At September 30, 2003, loans, net
totaled $1.3 billion, including approximately $1.2 billion of commercial real
estate loans, $80.1 million of franchise loans and $82.5 million of film
finance loans. During the nine months ended September 30, 2003, the Banks
loan portfolio increased $15.8 million and the REITs portfolio decreased $36.7
million. The decrease in the REITs loan portfolio reflects an increase in
loan prepayments experienced during the nine months ended September 30, 2003 as
compared to prior periods. Additionally, cash and cash equivalents decreased
$75.3 million primarily as a result of reducing excess liquidity that was
maintained to fund anticipated loan production at December 31, 2002. Total
deposit accounts, which are concentrated in time certificates, declined to $1.0
billion at September 30, 2003 from $1.1 billion at December 31, 2002. FHLB
advances decreased $21.0 million to $317.7 million at September 30, 2003,
compared to $338.7 million at December 31,

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2002. 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 $36.5 million to $32.6 million at
September 30, 2003 compared to $69.1 million at December 31, 2002 reflecting
the decline in real estate loans held in trust. Accounts payable and other
liabilities increased $18.0 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 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 of $5.6 million 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 the nine months ended September 30, 2003, we recognized an other
than temporary impairment of $750,000 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 we
consider credit risk, as well as the magnitude and trend of default rates and
prepayment speeds of the underlying residential loans.

25



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##### Table of Contents



At
September 30, 2003 and December 31, 2002, key economic assumptions and the sensitivity of the
current fair value of the residual interest based on projected cash flows to
immediate adverse changes in those assumptions is as follows:

|                                                     |  |               |       |              |  |   |       |  
|---------------------------------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | -
|                                                     |  | September 30, |       | December 31,
|                                                     |  | 2003          |       | 2002        
|                                                     |  |               |       |             
|Dollars in thousands                                 |  |               |       |              |  |   |       |  
|Fair value of retained interest                      |  | $             | 5,368 |              |  | $ | 5,619 |  
|Weighted
average life (in years)  securities        |  |               | 0.90  |              |  |   | 1.49  |  
|Weighted
average life (in years)  residual interest |  |               | 4.39  |              |  |   | 4.70  |  
|Weighted average annual prepayment speed             |  |               | 35.0  | %            |  |   | 35.0  | %
|Impact of 10% adverse change                         |  | $             | (74   | )            |  | $ | (23   | )
|Impact of 25% adverse change                         |  | $             | (193  | )            |  | $ | (59   | )
|Weighted average annual discount rate                |  |               | 15.0  | %            |  |   | 15.0  | %
|Impact of 10% adverse change                         |  | $             | (306  | )            |  | $ | (167  | )
|Impact of 25% adverse change                         |  | $             | (737  | )            |  | $ | (404  | )
|Weighted average lifetime credit losses              |  |               | 3.3   | %            |  |   | 3.3   | %
|Impact of 10% adverse change                         |  | $             | (163  | )            |  | $ | (285  | )
|Impact of 25% adverse change                         |  | $             | (407  | )            |  | $ | (678  | )

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.

26



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##### Table of Contents



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.

|                                                                    |              |                                         |        |                        |        |              |        |       |        | 
|------------------------------------------------------------------- | ------------ | --------------------------------------- | ------ | ---------------------- | ------ | ------------ | ------ | ----- | ------ | 
|                                                                    |              |                                         |        | September 30,          |        | December 31,
|                                                                    |              |                                         |        | 2003                   |        | 2002        
|                                                                    |              |                                         |        |                        |        |             
|                                                                    |              |                                         |        | (dollars in thousands)
|Nonaccrual loans:                                                   |              |                                         |        |                        |        |              |        |      
|                                                                    | Real estate  |                                         | $      | 3,756                  |        |              | $      | 3,913 |       
|                                                                    | Franchise    |                                         |        | 823                    |        |              |        | 1,986 |       
|                                                                    | Film finance |                                         |        | 2,357                  |        |              |        |      |       
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | Total nonaccrual loans                  |        |                        | 6,936  |              |        |       | 5,899  | 
|Other real estate owned, net                                        |              |                                         | 14,767 |                        |        |              | 12,593 |      
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | Total nonperforming assets              |        |                        | 21,703 |              |        |       | 18,492 | 
|                                                                    |              | Performing troubled debt restructurings |        |                        | 4,732  |              |        |       | 7,858  | 
|                                                                    |              |                                         |        |                        |        |              |        |      
|                                                                    |              | $                                       | 26,435 |                        |        | $            | 26,350 |      
|                                                                    |              |                                         |        |                        |        |              |        |      
|Nonaccrual loans to total loans
and real estate loans held in trust |              |                                         | 0.48   | %                      |        |              | 0.36   | %    
|Allowance for loan losses to nonaccrual loans                       |              |                                         | 478.26 | %                      |        |              | 555.61 | %    
|Nonperforming assets to total assets                                |              |                                         | 1.33   | %                      |        |              | 1.08   | %    

At September 30, 2003, other real estate owned consisted of four income
producing properties totaling $14.8 million. Management periodically evaluates
the estimated fair value of its other real estate owned properties.
In connection with this process, we will be reviewing the valuation
of certain properties during the fourth quarter of 2003. Any changes
in fair value will be adjusted upon completion of these assessments.

As of September 30, 2003 and December 31, 2002, other loans of concern
totaled $27.5 million and $35.5 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 nine months ended September 30, 2003 was
primarily due to $5.6 million of loans being paid-off, and $15.4 million of
loans migrating to nonaccrual status, partially offset by $13.1 million of new
other loans of concern.

27



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##### Table of Contents



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 Nine           |        | For the Year
|                                                                                |                          |   | Months Ended           |        | Ended       
|                                                                                |                          |   | September 30,          |        | December 31,
|                                                                                |                          |   | 2003                   |        | 2002        
|                                                                                |                          |   |                        |        |             
|                                                                                |                          |   | (dollars in thousands)
|Balance at beginning of period                                                  |                          | $ | 33,009                 |        |              | $ | 26,650 |       
|Provision for loan losses                                                       |                          |   | 7,100                  |        |              |   | 9,030  |       
|Additions related to acquisitions                                               |                          |   |                       |        |              |   | 2,048  |       
|Charge-offs                                                                     |                          |   | (6,948                 | )      |              |   | (4,730 | )     
|Recoveries                                                                      |                          |   | 11                     |        |              |   | 11     |       
|                                                                                |                          |   |                        |        |              |   |        |       
|Net charge-offs                                                                 |                          |   | (6,937                 | )      |              |   | (4,719 | )     
|                                                                                |                          |   |                        |        |              |   |        |       
|                                                                                | Balance at end of period |   | $                      | 33,172 |              |   | $      | 33,009 | 
|                                                                                |                          |   |                        |        |              |   |        |       
|Allowance for loan losses as a percentage of
loans and loans held in trust, net |                          |   | 2.29                   | %      |              |   | 2.24   | %     

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 September 30, 2003, we held $85.6 million of cash and
cash equivalents (consisting primarily of short-term investments with original
maturities of 90 days or less) and $46.0 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 September 30,
2003, we had remaining available borrowing capacity under this credit facility
of $152.6 million, net of the $8.0 million of additional Federal Home Loan Bank
Stock that we would be required to purchase to support those additional
borrowings, and $30.0 million of unused federal funds credit facilities under
established lines of credit with two banks.

28



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##### Table of Contents



Capital Resources

As of September 30, 2003, the Banks Leverage (Core), Tier I and Total
Risk-Based capital ratios were 15.17%, 15.03% and 16.30%, respectively. These
ratios were 13.02%, 13.18% and 14.44%, respectively, as of December 31, 2002.
The minimum regulatory requirement for Leverage (Core), Tier I and Total
Risk-Based capital are 4.0%, 4.0% and 8.0%, respectively. As of September 30,
2003, the most recent notification from its primary regulator categorized the
Banks capital position as well capitalized under the regulatory framework
for prompt corrective actions.

At September 30, 2003, shareholders equity totaled $179.5 million, or
11.03 percent of total assets. Our book value per share of common
stock was $31.10 as of September 30, 2003, as compared to $27.11 as of December
31, 2002, and $26.14 as of September 30, 2002.




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, 2002.




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
September 30, 2003 under the supervision and with the participation of the
Companys Chief Executive Officer, Chief Financial Officer and several other
members of the Companys senior management. The Companys Chief Executive
Officer and Chief Financial Officer concluded that, as of September 30, 2003,
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 September 30, 2003, no change occurred in the Companys internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

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##### 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                                                                                                                                                                                                                 
|       
|        |  | Not applicable.                                                                                                                                                                                                                       
|       
|Item 3. |  | Defaults Upon Senior Securities                                                                                                                                                                                                       
|       
|        |  | Not applicable.                                                                                                                                                                                                                       
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                   
|       
|        |  | (a)       On July 30, 2003, the Company held its Annual Meeting of
Shareholders.                                                                                                                                                      
|       
|        |  | (b)       Shareholders voted on the following matters:                                                                                                                                                                                



| | (i) |  | The election of Norval L. Bruce as director for a term to
expire in 2006:
| | --- |  | -------------------------------------------------------------------------

|      |  |           |  |         |   |          |  |         |  |  |  | 
|----- |  | --------- |  | ------- | - | -------- |  | ------- |  |  |  | 
|Votes |  | For       |  | Against |   | Withheld
|      |  |           |  |         |   |         
|      |  | 5,088,232 |  |         | 0 |          |  | 204,546



| | (ii) |  | The election of Jeffrey L. Lipscomb as director for a term to expire in 2006:
| | ---- |  | -----------------------------------------------------------------------------

|      |  |           |  |         |   |          |  |         |  |  |  | 
|----- |  | --------- |  | ------- | - | -------- |  | ------- |  |  |  | 
|Votes |  | For       |  | Against |   | Withheld
|      |  |           |  |         |   |         
|      |  | 5,088,232 |  |         | 0 |          |  | 204,546



| | (iii) |  | The election of Preston Martin as director for a term to expire in 2006:
| | ----- |  | ------------------------------------------------------------------------

|      |  |           |  |         |   |          |  |         |  |  |  | 
|----- |  | --------- |  | ------- | - | -------- |  | ------- |  |  |  | 
|Votes |  | For       |  | Against |   | Withheld
|      |  |           |  |         |   |         
|      |  | 5,118,307 |  |         | 0 |          |  | 174,471



| | (iv) |  | The ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 2003:
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|      |  |           |  |         |  |          |  |  |  |  |  | 
|----- |  | --------- |  | ------- |  | -------- |  |  |  |  |  | 
|Votes |  | For       |  | Against |  | Withheld
|      |  |           |  |         |  |         
|      |  | 5,174,042 |  | 118,736 |  | 0       



|Item 5. |  | Other Information                                                                              
|------- |  | -----------------------------------------------------------------------------------------------
|       
|        |  | None.                                                                                          
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                               
|       
|        |  | (a)   See exhibit index                                                                        
|       
|        |  | (b)   During the third quarter of 2003, we filed or
furnished the following reports on Form 8-K

|       |        |                  |  |                                                                     |  |                |  | 
|------ | ------ | ---------------- |  | ------------------------------------------------------------------- |  | -------------- |  | 
|Item # |        | Item Description |  | Filing Date                                                        
|       |        |                  |  |                                                                    
|       | 9      |                  |  | Materials presented at the Companys Annual Meeting of Stockholders |  | July 30, 2003 
|       |        |                  |  |                                                                     |  |                |  | 
|       | 7 & 12 |                  |  | Second Quarter Earnings Press Release                               |  | August 4, 2003

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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: November 14, 2003 |  | /s/ George W. Haligowski            
|                        |  |                                     
|                        |  | George W. Haligowski                
|                        |  | Chairman of the Board, President and
|                        |  | Chief Executive Officer             
|                        |  |                                     
|Date: November 14, 2003 |  | /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   
|               |       |          |  |                                                                                                                                                                                                                |  | Number       
|Regulation S-K |       |          |  | 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                                                                                                                                              |  | 10.3a        
|               |       |          |  |                                                                                                                                                                                                                |  |              
|               | 10.3b |          |  | Nonqualified
(Employer Securities Only) Deferred Compensation Plan                                                                                                                                             |  | 10.3b        
|               |       |          |  |                                                                                                                                                                                                                |  |              
|               | 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                                                                                                                                                                         |  | 10.10        
|               |       |          |  |                                                                                                                                                                                                                |  |              
|               | 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 Registrants Form 10-K
for the year ended December 31, 2001 (File No. 0-26960).                                                                                                                     
|               
|* * * * * *     |  | Filed as an exhibit to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 (File No. 0-26960).                                                                                                          
|               
|* * * * * * *   |  | Filed as an appendix to the Companys definitive proxy
materials filed on September 29, 2001.                                                                                                                                            
|               
|* * * * * * * * |  | Filed as an exhibit to the Current Report on Form 8-K
filed by the Company on February 5, 2003 (File No. 0-26960). Portions of
this exhibit have been omitted pursuant to a request for confidential
treatment granted by the Commission.

32