##### Table of Contents



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

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2001

OR

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

For the Transition Period from __________________ to __________________

Commission File Number 0-26960

ITLA CAPITAL CORPORATION

---

(Exact Name of Registrant as Specified in its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 95-4596322                       
|                                                               |  |                                  
|(State or Other Jurisdiction of 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 [X]    No [   ]

Number of shares of common stock of the registrant: 5,900,813 outstanding
as of November 7, 2001.





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TABLE OF CONTENTS



|                            |                                                                                               |                                                          |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                               | 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: MARKET RISK                                                                          
|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                 



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##### Table of Contents



ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS

|                                         |                                                                                               |                                                                                                                 |    |      | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | -- | ---- | 
|                                         |                                                                                               |                                                                                                                 |    | Page
|                                         |                                                                                               |                                                                                                                 |    |     
|PART
          I - FINANCIAL INFORMATION |                                                                                               |                                                                                                                
|                                        
|                                        
|                                        
|                                        
|Item 1.                                  | Financial Statements                                                                          |                                                                                                                 |   
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Consolidated
          Balance Sheets  September 30, 2001 and December 31,
          2000                      |    | 3   
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Consolidated
          Statements of Income  Three and Nine Months Ended September 30,
          2001 and 2000 |    | 4   
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Consolidated
          Statements of Cash Flows  Nine Months Ended September 30, 2001
          and 2000       |    | 5   
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Notes
          to Unaudited Consolidated Financial Statements                                                  |    | 6   
|                                        
|                                        
|                                        
|                                        
|Item 2.                                  | Managements Discussion
        and Analysis of Financial Condition and Results of Operations |                                                                                                                 | 8 
|                                        
|                                        
|                                        
|                                        
|Item 3.                                  | Market Risk                                                                                   |                                                                                                                 | 20
|                                        
|                                        
|                                        
|                                        
|PART
          II  OTHER INFORMATION    |                                                                                               |                                                                                                                
|                                        
|                                        
|                                        
|                                        
|Item 1.                                  |                                                                                               | Legal
          Proceedings                                                                                     |    | 21  
|                                        
|                                        
|                                        
|                                        
|Item 2.                                  |                                                                                               | Changes
          in Securities                                                                                 |    | 21  
|                                        
|                                        
|                                        
|                                        
|Item 3.                                  |                                                                                               | Defaults
          Upon Senior Securities                                                                       |    | 21  
|                                        
|                                        
|                                        
|                                        
|Item 4.                                  |                                                                                               | Submission
          of Matters to a Vote of Security Holders                                                   |    | 21  
|                                        
|                                        
|                                        
|                                        
|Item 5.                                  |                                                                                               | Other
          Information                                                                                     |    | 21  
|                                        
|                                        
|                                        
|                                        
|Item 6.                                  |                                                                                               | Exhibits
          and Reports on Form 8-K                                                                      |    | 21  
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Signatures                                                                                                      |    | 22  

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, fluctuations in
interest rates and operating results 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 2001 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 or Company refer
to ITLA Capital Corporation and its consolidated subsidiaries.

2



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |           |         |           | 
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ----------------------------------- | --------- | ------------ | --------- | ------- | --------- | 
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         | September 30,                       |           |              |           |        
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         | 2001                                |           | December 31,
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         | (unaudited)                         |           | 2000        
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |             
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         | (in thousands except share amounts)
|Assets                                                                                                                 |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|Cash and cash equivalents                                                                                              |                                                                                                                                                               | $                          | 92,290                                     |         |                                     | $         | 70,950       |          
|Investment securities available for sale, at fair value                                                                |                                                                                                                                                               |                            | 3,523                                      |         |                                     |           | 46,325       |          
|Stock in Federal Home Loan Bank                                                                                        |                                                                                                                                                               |                            | 10,244                                     |         |                                     |           | 3,963        |          
|Real estate loans, net (net of allowance for loan losses of
$22,695 and $22,608 in 2001 and 2000, respectively)        |                                                                                                                                                               |                            | 1,112,655                                  |         |                                     |           | 1,045,927    |          
|Real estate loans held in trust (net of allowance for loan losses
of $1,928 and $4,578 in 2001 and 2000, respectively) |                                                                                                                                                               |                            | 175,691                                    |         |                                     |           | 211,722      |          
|Interest receivable                                                                                                    |                                                                                                                                                               |                            | 11,001                                     |         |                                     |           | 11,821       |          
|Other real estate owned, net                                                                                           |                                                                                                                                                               |                            | 6,803                                      |         |                                     |           | 2,250        |          
|Premises and equipment, net                                                                                            |                                                                                                                                                               |                            | 2,031                                      |         |                                     |           | 2,690        |          
|Deferred income taxes                                                                                                  |                                                                                                                                                               |                            | 11,159                                     |         |                                     |           | 11,302       |          
|Other assets                                                                                                           |                                                                                                                                                               |                            | 7,135                                      |         |                                     |           | 8,193        |          
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       |                                                                                                                                                               |                            | Total assets                               |         | $                                   | 1,432,532 |              |           | $       | 1,415,143 | 
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|Liabilities and Shareholders Equity                                                                                   |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|Liabilities:                                                                                                           |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       | Deposit accounts                                                                                                                                              |                            | $                                          | 932,159 |                                     |           | $            | 1,015,699 |        
|                                                                                                                       | Collateralized mortgage obligations                                                                                                                           |                            |                                            | 123,416 |                                     |           |              | 161,852   |        
|                                                                                                                       | Federal Home Loan Bank advances                                                                                                                               |                            |                                            | 204,885 |                                     |           |              | 79,250    |        
|                                                                                                                       | Accounts payable and other liabilities                                                                                                                        |                            |                                            | 9,095   |                                     |           |              | 11,269    |        
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       |                                                                                                                                                               |                            | Total liabilities                          |         |                                     | 1,269,555 |              |           |         | 1,268,070 | 
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|Commitments and contingencies                                                                                          |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                      
|                                                                                                                       | Guaranteed preferred beneficial interests in the Companys
junior subordinated deferrable interest debentures, net                                            |                            |                                            | 28,093  |                                     |           |              | 13,519    |        
|Shareholders equity:                                                                                                  |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       | Preferred stock, 5,000,000 shares authorized, none issued                                                                                                     |                            |                                            |        |                                     |           |              |          |        
|                                                                                                                       | Contributed capital-common stock, $.01 par value; 20,000,000
shares authorized, 8,212,749 and 8,206,749 issued and
outstanding in 2001 and 2000, respectively |                            |                                            | 58,200  |                                     |           |              | 57,120    |        
|                                                                                                                       | Retained earnings                                                                                                                                             |                            |                                            | 111,088 |                                     |           |              | 97,617    |        
|                                                                                                                       | Accumulated
other comprehensive (loss) income                                                                                                                 |                            |                                            | (6      | )                                   |           |              | 91        |        
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       |                                                                                                                                                               |                            | 169,282                                    |         |                                     |           | 154,828      |          
|                                                                                                                       | Less
treasury stock, at cost  2,270,336 and 1,546,336
shares in 2001 and 2000, respectively                                                                  |                            |                                            | (34,398 | )                                   |           |              | (21,274   | )      
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       |                                                                                                                                                               | Total shareholders equity |                                            |         | 134,884                             |           |              |           | 133,554 |          
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          
|                                                                                                                       |                                                                                                                                                               |                            | Total liabilities and shareholders equity |         | $                                   | 1,432,532 |              |           | $       | 1,415,143 | 
|                                                                                                                       |                                                                                                                                                               |                            |                                            |         |                                     |           |              |          

See accompanying notes to the unaudited consolidated financial statements.

3



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |        |        |        | 
|-------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------- | ------ | --------------------------------------- | ------ | ------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                                                       |                                                          |                                            |                                                      |        | For the Three Months Ended              |        | For the Nine Months Ended
|                                                                                       |                                                          |                                            |                                                      |        | September 30,                           |        | September 30,            
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                          
|                                                                                       |                                                          |                                            |                                                      |        | 2001                                    |        | 2000                      |        | 2001   |        | 2000  
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |       
|                                                                                       |                                                          |                                            |                                                      |        | (in thousands except per share amounts)
|Interest income:                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Real estate loans, including fees                        |                                            | $                                                    | 25,445 |                                         |        | $                         | 25,964 |        |        | $      | 78,863 |        |        | $      | 75,343 |       
|                                                                                       | Real estate loans held in trust                          |                                            |                                                      | 3,532  |                                         |        |                           | 5,424  |        |        |        | 11,860 |        |        |        | 11,342 |       
|                                                                                       | Cash and investment securities                           |                                            |                                                      | 656    |                                         |        |                           | 1,152  |        |        |        | 2,604  |        |        |        | 3,917  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total interest income                      |                                                      |        | 29,633                                  |        |                           |        | 32,540 |        |        |        | 93,327 |        |        |        | 90,602 |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Interest expense:                                                                      |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Deposit accounts                                         |                                            |                                                      | 12,250 |                                         |        |                           | 14,353 |        |        |        | 42,161 |        |        |        | 40,742 |       
|                                                                                       | Collateralized mortgage obligations                      |                                            |                                                      | 1,412  |                                         |        |                           | 3,696  |        |        |        | 5,394  |        |        |        | 7,678  |       
|                                                                                       | Federal Home Loan Bank advances                          |                                            |                                                      | 1,561  |                                         |        |                           | 411    |        |        |        | 3,219  |        |        |        | 1,305  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total interest expense                     |                                                      |        | 15,223                                  |        |                           |        | 18,460 |        |        |        | 50,774 |        |        |        | 49,725 |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          |                                            | Net interest income before provision
for loan losses |        |                                         | 14,410 |                           |        |        | 14,080 |        |        |        | 42,553 |        |        |        | 40,877 | 
|Provision for loan losses                                                              |                                                          |                                            | 1,500                                                |        |                                         |        | 1,525                     |        |        |        | 2,450  |        |        |        | 3,325  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          |                                            | Net interest income after provision
for loan losses  |        |                                         | 12,910 |                           |        |        | 12,555 |        |        |        | 40,103 |        |        |        | 37,552 | 
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Noninterest income:                                                                    |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Fee income from mortgage banking activities              |                                            |                                                      | 15     |                                         |        |                           | 33     |        |        |        | 75     |        |        |        | 33     |       
|                                                                                       | Gain on sale of investment securities available for sale |                                            |                                                      |       |                                         |        |                           |       |        |        |        |       |        |        |        | 1,412  |       
|                                                                                       | Other                                                    |                                            |                                                      | 236    |                                         |        |                           | 175    |        |        |        | 729    |        |        |        | 481    |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total noninterest income                   |                                                      |        | 251                                     |        |                           |        | 208    |        |        |        | 804    |        |        |        | 1,926  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Noninterest expense:                                                                   |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Compensation and benefits                                |                                            |                                                      | 3,018  |                                         |        |                           | 2,340  |        |        |        | 8,871  |        |        |        | 7,219  |       
|                                                                                       | Occupancy and equipment                                  |                                            |                                                      | 753    |                                         |        |                           | 587    |        |        |        | 2,196  |        |        |        | 1,982  |       
|                                                                                       | FDIC assessment                                          |                                            |                                                      | 46     |                                         |        |                           | 46     |        |        |        | 139    |        |        |        | 141    |       
|                                                                                       | Other                                                    |                                            |                                                      | 1,855  |                                         |        |                           | 2,033  |        |        |        | 5,378  |        |        |        | 6,030  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total recurring general and administrative |                                                      |        | 5,672                                   |        |                           |        | 5,006  |        |        |        | 16,584 |        |        |        | 15,372 |       
|                                                                                       | Nonrecurring expense                                     |                                            |                                                      |       |                                         |        |                           |       |        |        |        |       |        |        |        | 1,400  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total general and administrative           |                                                      |        | 5,672                                   |        |                           |        | 5,006  |        |        |        | 16,584 |        |        |        | 16,772 |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | Real estate owned expense (income), net                  |                                            |                                                      | 47     |                                         |        |                           | 10     |        |        |        | 97     |        |        |        | (38    | )     
|                                                                                       | Provision for losses on other real estate owned          |                                            |                                                      | 34     |                                         |        |                           | 23     |        |        |        | 237    |        |        |        | 167    |       
|                                                                                       | (Gain) loss on sale of other real estate owned, net      |                                            |                                                      | (13    | )                                       |        |                           | 3      |        |        |        | (50    | )      |        |        | 12     |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          | Total real estate owned expense, net       |                                                      |        | 68                                      |        |                           |        | 36     |        |        |        | 284    |        |        |        | 141    |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                          |                                            | Total noninterest expense                            |        |                                         | 5,740  |                           |        |        | 5,042  |        |        |        | 16,868 |        |        |        | 16,913 | 
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes and
minority interest in income of subsidiary |                                                          |                                            | 7,421                                                |        |                                         |        | 7,721                     |        |        |        | 24,039 |        |        |        | 22,565 |       
|Minority interest in income of subsidiary                                              |                                                          |                                            | 799                                                  |        |                                         |        | 99                        |        |        |        | 2,169  |        |        |        | 99     |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes                                               |                                                          |                                            | 6,622                                                |        |                                         |        | 7,622                     |        |        |        | 21,870 |        |        |        | 22,466 |       
|Provision for income taxes                                                             |                                                          |                                            | 2,583                                                |        |                                         |        | 2,999                     |        |        |        | 8,399  |        |        |        | 9,006  |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | NET INCOME                                               |                                            | $                                                    | 4,039  |                                         |        | $                         | 4,623  |        |        | $      | 13,471 |        |        | $      | 13,460 |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | BASIC EARNINGS PER SHARE                                 |                                            | $                                                    | 0.64   |                                         |        | $                         | 0.66   |        |        | $      | 2.06   |        |        | $      | 1.89   |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       
|                                                                                       | DILUTED EARNINGS PER SHARE                               |                                            | $                                                    | 0.62   |                                         |        | $                         | 0.65   |        |        | $      | 1.99   |        |        | $      | 1.86   |       
|                                                                                       |                                                          |                                            |                                                      |        |                                         |        |                           |        |        |        |        |        |        |        |        |       

See accompanying notes to the unaudited consolidated financial statements.

4



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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |        |         |        |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ------------------------- | ------ | ------ | ------- | ------ | ------- | -
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          | For the Nine Months Ended
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          | September 30,            
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                          
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          | 2001                      |        | 2000  
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          | (in thousands)           
|Cash Flows From Operating Activities: |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      | Net Income                                                                        |                                                                                        | $                                                                                                               | 13,471                                               |          |                           | $      | 13,460 |        
|                                      | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                                        |                                                                                                                 |                                                      |          |                           |        |        |        
|                                      |                                                                                   |                                                                                        | Depreciation and amortization of premises and equipment                                                         |                                                      |          | 616                       |        |        |         | 602    |        
|                                      |                                                                                   |                                                                                        | Amortization of premium on purchased loans                                                                      |                                                      |          | 2,373                     |        |        |         | 1,699  |        
|                                      |                                                                                   |                                                                                        | Accretion of deferred loan origination fees, net of costs                                                       |                                                      |          | (1,219                    | )      |        |         | (1,178 | )      
|                                      |                                                                                   |                                                                                        | Amortization of original issue discount and deferred debt
issuance costs on collateralized mortgage obligations |                                                      |          | 234                       |        |        |         | 773    |        
|                                      |                                                                                   |                                                                                        | Provision for loan losses                                                                                       |                                                      |          | 2,450                     |        |        |         | 3,325  |        
|                                      |                                                                                   |                                                                                        | Provision for losses on other real estate owned                                                                 |                                                      |          | 237                       |        |        |         | 167    |        
|                                      |                                                                                   |                                                                                        | Gain on sale of investment securities available for sale                                                        |                                                      |          |                          |        |        |         | (1,412 | )      
|                                      |                                                                                   |                                                                                        | (Gain) loss in the sale of other real estate owned                                                              |                                                      |          | (50                       | )      |        |         | 12     |        
|                                      |                                                                                   |                                                                                        | Decrease (increase) in interest receivable                                                                      |                                                      |          | 820                       |        |        |         | (497   | )      
|                                      |                                                                                   |                                                                                        | Decrease (increase) in other assets                                                                             |                                                      |          | 977                       |        |        |         | (4,122 | )      
|                                      |                                                                                   |                                                                                        | (Decrease) increase in accounts payable and other liabilities                                                   |                                                      |          | (1,143                    | )      |        |         | 1,951  |        
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Net cash provided by operating activities            |          |                           | 18,766 |        |         |        | 14,780  |  
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|Cash Flows From Investing Activities: |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   | Purchases of investment securities available for sale                                  |                                                                                                                 |                                                      | (16,000  | )                         |        |        | (15,000 | )     
|                                      |                                                                                   | Proceeds from maturity of investment securities available for sale                     |                                                                                                                 |                                                      | 59,260   |                           |        |        | 10,000  |       
|                                      |                                                                                   | Proceeds from the sale of investment securities available for sale                     |                                                                                                                 |                                                      |         |                           |        |        | 16,176  |       
|                                      |                                                                                   | (Increase) decrease in stock in Federal Home Loan Bank                                 |                                                                                                                 |                                                      | (6,066   | )                         |        |        | 5,956   |       
|                                      |                                                                                   | Purchases of real estate loans                                                         |                                                                                                                 |                                                      | (170,576 | )                         |        |        | (99,177 | )     
|                                      |                                                                                   | Decrease in real estate loans, net                                                     |                                                                                                                 |                                                      | 94,338   |                           |        |        | 54,030  |       
|                                      |                                                                                   | Cash paid to acquire ICCMAC Multifamily and Commercial Trust 1999-1                    |                                                                                                                 |                                                      |         |                           |        |        | (51,069 | )     
|                                      |                                                                                   | Repayment of real estate loans held in trust                                           |                                                                                                                 |                                                      | 34,829   |                           |        |        | 26,814  |       
|                                      |                                                                                   | Proceeds from sale of real estate loans                                                |                                                                                                                 |                                                      | 448      |                           |        |        | 12,720  |       
|                                      |                                                                                   | Proceeds from the sale of other real estate owned                                      |                                                                                                                 |                                                      | 1,889    |                           |        |        | 1,334   |       
|                                      |                                                                                   | Other, net                                                                             |                                                                                                                 |                                                      | (472     | )                         |        |        | (1,032  | )     
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Net cash used in investing activities                |          |                           | (2,350 | )      |         |        | (39,248 | )
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|Cash Flows From Financing Activities: |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   | Net (decrease) increase in deposit accounts                                            |                                                                                                                 |                                                      | (83,540  | )                         |        |        | 10,750  |       
|                                      |                                                                                   | Principal repayments on collateralized mortgage obligations                            |                                                                                                                 |                                                      | (38,670  | )                         |        |        | (28,540 | )     
|                                      |                                                                                   | Net
proceeds from borrowings (repayment of borrowings) from
the Federal Home Loan Bank |                                                                                                                 |                                                      | 125,635  |                           |        |        | (10,100 | )     
|                                      |                                                                                   | Proceeds from the issuance of trust preferred securities                               |                                                                                                                 |                                                      | 14,549   |                           |        |        | 13,580  |       
|                                      |                                                                                   | Proceeds from exercise of employee stock options                                       |                                                                                                                 |                                                      | 74       |                           |        |        | 30      |       
|                                      |                                                                                   | Cash paid to acquire treasury stock                                                    |                                                                                                                 |                                                      | (13,124  | )                         |        |        | (5,476  | )     
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Net cash provided by (used in) financing activities  |          |                           | 4,924  |        |         |        | (19,756 | )
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Net increase (decrease) in cash and cash equivalents |          |                           | 21,340 |        |         |        | (44,224 | )
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Cash and cash equivalents at beginning of the period |          |                           | 70,950 |        |         |        | 72,242  |  
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   |                                                                                        |                                                                                                                 | Cash and cash equivalents at end of period           |          | $                         | 92,290 |        |         | $      | 28,018  |  
|                                      |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|Supplemental Cash Flow Information:   |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   | Cash paid during the period for interest                                               |                                                                                                                 | $                                                    | 51,155   |                           |        | $      | 48,912  |       
|                                      |                                                                                   | Cash paid during the period for income taxes                                           |                                                                                                                 | $                                                    | 6,500    |                           |        | $      | 8,950   |       
|Noncash Investing Transactions:       |                                                                                   |                                                                                        |                                                                                                                 |                                                      |          |                           |        |       
|                                      |                                                                                   | Loans transferred to other real estate owned                                           |                                                                                                                 | $                                                    | 6,660    |                           |        | $      | 2,869   |       

See accompanying notes to the unaudited consolidated financial statements.

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##### Table of Contents



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 period indicated. The unaudited
consolidated financial statements include the accounts of ITLA Capital and its
subsidiaries, Imperial Capital Bank (the Bank) and Imperial Capital Real
Estate Investment Trust (Imperial Capital REIT), ITLA Capital Statutory Trust
I (Trust I) and ITLA Capital Statutory Trust II (Trust II). All
intercompany transactions and balances have been eliminated. Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. The results of operations for the
three and nine months ended September 30, 2001 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,
2000.

NOTE 2  EARNINGS PER SHARE

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

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)   
|2001                             |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                        | 4,039 |                                         |  |           | 6,277 |        |  | $           | 0.64  |        |  | $       | 13,471 |           |  |  | 6,542 |  |  | $ | 2.06  |  
|Effect of dilutive
stock options |  |                                          |      |                                         |  |           | 231   |        |  |             | (0.02 | )      |  |         |       |           |  |  | 235   |  |  |   | (0.07 | )
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                        | 4,039 |                                         |  |           | 6,508 |        |  | $           | 0.62  |        |  | $       | 13,471 |           |  |  | 6,777 |  |  | $ | 1.99  |  
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|2000                             |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                        | 4,623 |                                         |  |           | 6,976 |        |  | $           | 0.66  |        |  | $       | 13,460 |           |  |  | 7,126 |  |  | $ | 1.89  |  
|Effect of dilutive
stock options |  |                                          |      |                                         |  |           | 134   |        |  |             | (0.01 | )      |  |         |       |           |  |  | 124   |  |  |   | (0.03 | )
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                        | 4,623 |                                         |  |           | 7,110 |        |  | $           | 0.65  |        |  | $       | 13,460 |           |  |  | 7,250 |  |  | $ | 1.86  |  
|                                 |  |                                          |       |                                         |  |           |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  

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NOTE 3  COMPREHENSIVE INCOME

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

|                                   |                                                                                                                                                                                                                                                                                                        |   |                    |     |                   |   |       |     |      |   |        |     |   |   |        |      |  
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------ | --- | ----------------- | - | ----- | --- | ---- | - | ------ | --- | - | - | ------ | ---- | -
|                                   |                                                                                                                                                                                                                                                                                                        |   | Three Months Ended |     | Nine Months Ended
|                                   |                                                                                                                                                                                                                                                                                                        |   | September 30,      |     | September 30,    
|                                   |                                                                                                                                                                                                                                                                                                        |   |                    |     |                  
|                                   |                                                                                                                                                                                                                                                                                                        |   | 2001               |     | 2000              |   | 2001  |     | 2000
|                                   |                                                                                                                                                                                                                                                                                                        |   |                    |     |                   |   |       |     |     
|                                   |                                                                                                                                                                                                                                                                                                        |   | (in thousands)    
|Net income                         |                                                                                                                                                                                                                                                                                                        | $ | 4,039              |     |                   | $ | 4,623 |     |      | $ | 13,471 |     |   | $ | 13,460 |     
|Other comprehensive (loss) income: |                                                                                                                                                                                                                                                                                                        |   |                    |     |                   |   |       |     |      |   |        |     |   |   |        |     
|                                   | Unrealized (loss) gain on
investment securities
available for sale, net of tax
benefit of $18 and net tax
expense $71 for the three
months ended September 30,
2001 and 2000, and net of tax
benefit of $65 and tax expense
of $70 for the nine months
ended September 30, 2001 and
2000, respectively |   |                    | (27 | )                 |   |       | 107 |      |   |        | (97 | ) |   |        | 105  |  
|                                   | Less: reclassification
adjustment for gains included
in net income, net of tax
benefit of $579 in 2000                                                                                                                                                                                                 |   |                    |    |                   |   |       |    |      |   |        |    |   |   |        | (833 | )
|                                   |                                                                                                                                                                                                                                                                                                        |   |                    |     |                   |   |       |     |      |   |        |     |   |   |        |     
|Comprehensive income               |                                                                                                                                                                                                                                                                                                        | $ | 4,012              |     |                   | $ | 4,730 |     |      | $ | 13,374 |     |   | $ | 12,732 |     
|                                   |                                                                                                                                                                                                                                                                                                        |   |                    |     |                   |   |       |     |      |   |        |     |   |   |        |     

NOTE 4  IMPAIRED LOANS RECEIVABLE

As of September 30, 2001 and December 31, 2000, the recorded investment in
impaired real estate loans and impaired real estate loans held in trust was
$26.3 million and $18.9 million, respectively. The average recorded investment
in impaired loans was $28.3 million for the three months ended September 30,
2001 and $9.5 million for the same period last year. The average recorded
investment in impaired loans was $26.3 million for the nine months ended
September 30, 2001 and $13.7 million for the same period last year. Interest
income recognized on impaired loans totaled $33,000 and $45,000 for the three
and nine months ended September 30, 2001 as compared to none and $355,000 for
the same periods last year.

NOTE 5  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANYS JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Company has two
wholly-owned trust subsidiaries, Trust I and Trust II,
which issued $14.0 million of 10.60% cumulative trust preferred securities and
$15.0 million of 10.20% cumulative trust preferred securities, respectively,
(referred to collectively as the Trust Preferred securities.) ITLA Capital has
fully and unconditionally guaranteed the Trust Preferred securities along with
all obligations of each trust under their respective trust agreements. Each
trust was formed for the exclusive purpose of issuing their respective Trust
Preferred securities and common securities and using the proceeds to acquire
ITLA Capitals junior subordinated deferrable interest debentures. Trust I
acquired an aggregate principal amount of $14.4 million of ITLA Capitals
10.60% junior subordinated deferrable interest debentures due September 7, 2030
and Trust II acquired an aggregate principal amount of $15.5 million of ITLA
Capitals 10.20% junior subordinated deferrable interest debentures due
February 22, 2031. The sole assets of each trust are the debentures it holds.
Each of the debentures is redeemable, in whole or in part, at ITLA Capitals
option on or after ten years after issuance, at declining premiums to maturity.
The Company used the proceeds from the debentures for general corporate
purposes, including an aggregate of $28.0 million in capital contributions to
the Bank to support future growth.

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##### Table of Contents



The costs associated with the Trust
Preferred securities issuance have been capitalized and are being amortized
using a method that approximates the interest method over a period of ten
years. The distributions payable on the Trust Preferred securities are
reflected as Minority interest in income of subsidiary in the Consolidated
Statements of Income. The Trust preferred securities are reflected on the
Consolidated Statement of Financial Condition as Guaranteed Preferred
Beneficial Interests in the Companys Junior Subordinated Deferrable Interest
Debentures.

NOTE 6  SUBSEQUENT EVENT

On November 2, 2001, we announced a definite agreement and plan of merger
with The Asahi Bank, LTD.-Japan (ABLJ) and its subsidiary, Asahi Bank of
California (ABC) to acquire ABC by merger for approximately $6 million
subject to certain closing adjustments. The completion of the merger is subject
to approval by the Federal Deposit Insurance Corporation and the California
Department of Financial Institutions. At September 30, 2001, Asahi Bank had
total assets of approximately $80.0 million, including $40.0 million of
commercial real estate and business loans and $40.0 million of cash and
securities. It is expected that the excess liquidity on the current balance
will be returned to ABLJ in the form of distributions of excess capital which
will result in approximately $40.0 million of assets being acquired through
merger into our Bank. This transaction is expected to close during the first
quarter of 2002.




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 months and nine months ended September 30, 2001.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

General

Consolidated net income totaled $4.0 million for the three months ended
September 30, 2001 compared to $4.6 million for the same period last year. The
decrease in net income was primarily due to increases in noninterest expense
and the expense associated with our Trust Preferred securities partially offset
by an increase in net interest income. Diluted EPS was $0.62 for the three
months ended September 30, 2001 compared to $0.65 for the same period last
year, a decrease of 4.6%.

The return on average assets was 1.18% for the three months ended
September 30, 2001 compared to 1.44% for the same period last year. The return
on average shareholders equity was 11.86% for the three months ended September
30, 2001, compared to 14.03% for the same period last year.

Total loan production was $138.2 million for the three months ended
September 30, 2001, consisting of the origination and/or purchase of $101.7
million of commercial real estate loans, $12.7 million of residential real
estate loans and $23.8 million of franchise loans. Loan production during the
same period last year totaled $122.0 million, consisting of the origination
and/or purchase of $113.4 million of commercial real estate loans and $8.6
million of residential real estate loans.

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##### Table of Contents



Net Interest Income and Margin

The following table presents, for the three months ended September 30,
2001 and 2000, 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,
|                                                     |                                            |                        |           |           |                                         
|                                                     |                                            |                        |           |           | 2001                                     |   | 2000   
|                                                     |                                            |                        |           |           |                                          |   |        
|                                                     |                                            |                        |           |           | Average                                  |   | Income/ |        | Yield/ |  | Average |      | Income/ |   | Yield/   
|                                                     |                                            |                        |           |           | Balance                                  |   | Expense |        | Rate   |  | Balance |      | Expense |   | Rate     
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |          
|                                                     |                                            |                        |           |           | (dollars in thousands)                  
|Assets                                               |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Cash and investments                                 |                                            | $                      | 63,667    |           |                                          | $ | 656     |        |        |  | 4.09    | %    |         | $ | 74,613    |           |         | $ | 1,152  |        |        |  | 6.14  | %    
|Loans receivable:                                    |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|                                                     | Real estate loans                          |                        |           | 1,108,442 |                                          |   |         | 25,445 |        |  |         | 9.11 | %       |   |           | 955,909   |         |   |        | 25,964 |        |  |       | 10.81 | %   
|                                                     | Real estate loans
held in trust            |                        |           | 182,988   |                                          |   |         | 3,532  |        |  |         | 7.66 | %       |   |           | 240,597   |         |   |        | 5,424  |        |  |       | 8.97  | %   
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Total loans receivable                               |                                            |                        | 1,291,430 |           |                                          |   | 28,977  |        |        |  | 8.90    | %    |         |   | 1,196,506 |           |         |   | 31,388 |        |        |  | 10.44 | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Total interest-earning assets                        |                                            |                        | 1,355,097 |           |                                          | $ | 29,633  |        |        |  | 8.68    | %    |         |   | 1,271,119 |           |         | $ | 32,540 |        |        |  | 10.18 | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Noninterest-earning assets                           |                                            |                        | 34,143    |           |                                          |   |         |        |        |  |         |      |         |   | 30,156    |           |         |   |        |        |        |  |       |      
|Allowance for loan losses                            |                                            |                        | (27,101   | )         |                                          |   |         |        |        |  |         |      |         |   | (25,762   | )         |         |   |        |        |        |  |       |      
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|                                                     | Total assets                               |                        | $         | 1,362,139 |                                          |   |         |        |        |  |         |      |         |   | $         | 1,275,513 |         |   |        |        |        |  |       |       |     
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Liabilities and
Shareholders Equity                 |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Deposit accounts:                                    |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|                                                     | Money market and
passbook accounts         |                        | $         | 120,757   |                                          |   | $       | 1,164  |        |  |         | 3.82 | %       |   | $         | 112,877   |         |   | $      | 1,643  |        |  |       | 5.79  | %   
|                                                     | Time certificates                          |                        |           | 797,794   |                                          |   |         | 11,086 |        |  |         | 5.51 | %       |   |           | 799,559   |         |   |        | 12,710 |        |  |       | 6.32  | %   
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|                                                     |                                            | Total deposit accounts |           |           | 918,551                                  |   |         |        | 12,250 |  |         |      | 5.29    | % |           |           | 912,436 |   |        |        | 14,353 |  |       |       | 6.26 | %
|Collateralized mortgage
obligations                  |                                            |                        | 128,528   |           |                                          |   | 1,412   |        |        |  | 4.36    | %    |         |   | 186,354   |           |         |   | 3,696  |        |        |  | 7.89  | %    
|FHLB advances                                        |                                            |                        | 135,881   |           |                                          |   | 1,561   |        |        |  | 4.56    | %    |         |   | 26,966    |           |         |   | 411    |        |        |  | 6.06  | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Total interest-bearing
liabilities                   |                                            |                        | 1,182,960 |           |                                          | $ | 15,223  |        |        |  | 5.11    | %    |         |   | 1,125,756 |           |         | $ | 18,460 |        |        |  | 6.52  | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Noninterest-bearing liabilities                      |                                            |                        | 15,958    |           |                                          |   |         |        |        |  |         |      |         |   | 15,190    |           |         |   |        |        |        |  |       |      
|Trust preferred securities                           |                                            |                        | 28,081    |           |                                          |   |         |        |        |  |         |      |         |   | 3,470     |           |         |   |        |        |        |  |       |      
|Shareholders equity                                 |                                            |                        | 135,140   |           |                                          |   |         |        |        |  |         |      |         |   | 131,097   |           |         |   |        |        |        |  |       |      
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|                                                     | Total liabilities
and shareholders equity |                        | $         | 1,362,139 |                                          |   |         |        |        |  |         |      |         |   | $         | 1,275,513 |         |   |        |        |        |  |       |       |     
|Net interest spread                                  |                                            |                        |           |           |                                          |   |         |        |        |  | 3.57    | %    |         |   |           |           |         |   |        |        |        |  | 3.66  | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      
|Net interest income
before provision for
loan losses |                                            |                        |           |           |                                          | $ | 14,410  |        |        |  |         |      |         |   |           |           |         | $ | 14,080 |        |        |  |       |      
|Net interest margin                                  |                                            |                        |           |           |                                          |   |         |        |        |  | 4.22    | %    |         |   |           |           |         |   |        |        |        |  | 4.41  | %    
|                                                     |                                            |                        |           |           |                                          |   |         |        |        |  |         |      |         |   |           |           |         |   |        |        |        |  |       |      

9



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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, 2001 and 2000
|                                           |                                     |                                               |       | Increase (Decrease) Due to:
|                                           |                                     |                                               |       |                            
|                                           |                                     |                                               |       | Volume                      |       | Rate |        | Total 
|                                           |                                     |                                               |       |                             |       |      |        |       
|                                           |                                     |                                               |       | (In thousands)             
|Interest and fees earned from:             |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|                                           | Real estate loans                   |                                               | $     | 3,537                       |       |      | $      | (4,056 | )      |   | $   | (519   | )     
|                                           | Real estate loans held in trust     |                                               |       | (1,104                      | )     |      |        | (788   | )      |   |     | (1,892 | )     
|                                           | Cash and investment securities      |                                               |       | (112                        | )     |      |        | (384   | )      |   |     | (496   | )     
|                                           |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|                                           |                                     | Total increase (decrease) in interest income  |       | $                           | 2,321 |      |        |        | (5,228 | ) |     |        | (2,907 | )
|                                           |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|Interest paid on:                          |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|                                           | Deposit accounts                    |                                               |       | 83                          |       |      |        | (2,186 | )      |   |     | (2,103 | )     
|                                           | Collateralized mortgage obligations |                                               |       | (633                        | )     |      |        | (1,651 | )      |   |     | (2,284 | )     
|                                           | FHLB advances                       |                                               |       | 1,252                       |       |      |        | (102   | )      |   |     | 1,150  |       
|                                           |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|                                           |                                     | Total increase (decrease) in interest
expense |       |                             | 702   |      |        |        | (3,939 | ) |     |        | (3,237 | )
|                                           |                                     |                                               |       |                             |       |      |        |        |        |   |     |       
|Increase (decrease) in net interest income |                                     | $                                             | 1,619 |                             |       | $    | (1,289 | )      |        | $ | 330 |       
|                                           |                                     |                                               |       |                             |       |      |        |        |        |   |     |       

Total interest income decreased $2.9 million to $29.6 million in the third
quarter of 2001 compared to $32.5 million for the same period last year. The
net decrease in interest income was due primarily to lower yields on interest
earning assets partially offset by a higher average outstanding balance of
interest-earning assets.

The average balance of real estate loans was $1.1 billion for the three
months ended September 30, 2001 as compared to $955.9 million for the same
period last year. This increase was primarily due to increases in real estate
loans secured by income producing properties and construction loans. Loans
secured by income producing properties and construction loans had an average
balance of $981.9 million during the quarter ended September 30, 2001 compared
to $832.0 million during the same period last year. The average balance of
purchased single family residential mortgages remained relatively unchanged at
$126.5 million during the quarter ended September 30, 2001,
compared to $123.9
million in the same period in the prior year. Purchased single family
residential mortgages are not presently expected to materially increase as a
percentage of our total assets. The average balance of real estate loans held
in trust was $183.0 million for the three months ended September 30, 2001 as
compared to $240.6 million for the same period last year. This decrease was
due to loan prepayments and principal amortization.

The average yield earned on real estate loans decreased 170 basis points
to 9.11% in the quarter ended September 30, 2001 as compared to 10.81% in the
same period last year. The decrease in the yield on real estate loans was
primarily due to the repricing of variable rate loans at lower interest rates
resulting from the general decline in market interest rates. Our commercial
real estate loan portfolio is primarily comprised of adjustable rate mortgages
indexed to the six month LIBOR.

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Approximately 90.5% of our real estate loan portfolio (including real
estate loans held in trust) are adjustable rate mortgages at September 30,
2001. These adjustable rate mortgages generally reprice on a quarterly basis
and approximately $1.1 billion or 94.9% of our real estate loan portfolio
contain interest rate floors, below which the loans contractual interest rate
may not adjust. At September 30, 2001, the weighted average floor interest rate
of these loans was 9.0%. At that date, approximately $905.8 million or 81.4%
of those loans were at the floor interest rate, approximately $50.1 million or
4.5% were within 50 basis points of their floor interest rate, and
approximately $70.3 million or 6.3% were greater than 50 but less than 100
basis points from their floor interest rate. As market interest rates decline
and the loans reprice, more of our portfolio will reach the floor interest rate
and no longer reprice downward; however, these loans may be more susceptible to
prepayment. We expect, due to the interest rate floors in our loan contracts,
that the rate of decline in the yield on our adjustable rate loans due to
falling interest rates may be less significant during the remainder of 2001, as
compared to the nine months ended September 30, 2001.

Total interest
expense decreased by $3.3 million to $15.2 million in the
third quarter of 2001, compared to $18.5 million for the same period last year.
This decrease was primarily attributable to lower interest rates paid on all
interest bearing liabilities and a lower average balance on our Collateralized
Mortgage Obligations (CMOs) partially offset by higher average balances on
deposit accounts and Federal Home Loan Bank (FHLB) advances.

Our cost of funds decreased to 5.11% during the three month period ended
September 30, 2001, compared to 6.52% for the same period last year. This
decrease in funding costs was due primarily to lower rates being paid on the
CMOs and deposit accounts as compared to the same period last year due to the
general decline in market interest rates. We expect the cost of funds of our
deposit accounts to decline during the remainder of 2001, as our certificates
of deposit issued at higher market interest rates mature and are replaced with
certificates that bear interest at current market rates. Approximately $364.6
million, or 39.1% of our deposit accounts consist of certificates of deposit
that will mature within the next three months. The average rate paid on the
CMOs was 4.36% during the three months ended September 30, 2001 compared to
7.89% for the same period last year. The average balance of deposit accounts
increased $6.2 million to $918.6 million for the three months ended September
30, 2001, compared to $912.4 million for the same period last year. The average
balance of the CMOs was $128.5 million during the third quarter of 2001,
compared to $186.4 million for the same period last year. FHLB advances
averaged $135.9 million in the current quarter, compared to $27.0 million for
the same period last year.

Net interest margin decreased to 4.22% for the three months ended
September 30, 2001 as compared to 4.41% for the same period last year primarily
due to the 150 basis point decrease in the yield on total average
interest-earning assets partially offset by the 141 basis point decrease in
cost of funds.

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.

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##### Table of Contents







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, 2001 was
adequate to absorb the known and inherent risks of loss in the loan portfolio
at that date. While management believes the estimates and assumptions used in
its determination of the adequacy of the allowance are reasonable, there can be
no assurance that such estimates and assumptions will not be proven incorrect
in the future, or that the actual amount of future provisions will not exceed
the amount of past provisions or that any increased provisions that may be
required will not adversely impact our financial condition and results of
operations. In addition, the determination of the amount of the Banks
allowance for loan losses is subject to review by the Banks regulators, as
part of the routine examination process, which may result in the establishment
of additional reserves based upon their judgment of information available to
them at the time of their examination.

The consolidated provision for loan losses totaled $1.5 million for both
the third quarter of 2001 and 2000. The current period provision for loan
losses was recorded to provide for reserves based on the aggregate amount of
nonperforming loans and other loans of concern, which has declined in total
since December 31, 2000, and also reflects the reallocation of $2.7 million of
allowance for loan losses from the Imperial Capital REIT to the Bank, as actual
loan losses related to real estate loans held in trust have been negligible,
and this loan portfolio has decreased due to principal payments. The allowance
for loan losses was 1.88% of total real estate loans and real estate loans held
in trust at September 30, 2001 as compared to 2.12% at
December 31, 2000. During the quarter ended September 30,
2001, the Company had net loan charge-offs of $4.0 million
compared to $213,000 for the same period last year. The current
period charge-offs represent the adjustment to current market value
of three loans originated by the Companys former mortgage
banking subsidiary, ITLA Funding Corporation, in 1998, for the
commercial mortgage backed securitization market. These loans were
retained by the Bank when the secondary market for this product type
collapsed due to the currency crisis experienced in October 1998.
See
also  Financial Condition  Credit Risk.

Noninterest Expense

Noninterest expense totaled $5.7 million for the three months ended
September 30, 2001, compared to $5.0 million for the same period last year.
Compensation and benefits expense totaled $3.0 million during the three months
ended September 30, 2001, compared to $2.3 million for the same period last
year. The increase in compensation and benefits expense was primarily due to
additions made to retail and wholesale loan origination sales and support
staff.

For the three months ended September 30, 2001, our ratio of consolidated
general and administrative expense to average assets, on an annualized basis,
increased to 1.67% compared to 1.57% for the same period last year. Our
efficiency ratio, (excluding real estate owned expense), which is defined as
general and administrative expenses as a percentage of net interest income and
noninterest income was 38.69% for the quarter ended September 30, 2001,
compared to 35.03% for the same period last year.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, consisting of accrued
distributions payable on our Trust Preferred securities, was $799,000 during
the three month period ended September 30, 2001 as compared to $99,000 for the
same period last year, during which we first issued our Trust Preferred
securities. See Note 5 to the unaudited Consolidated Financial Statements for
further information.

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##### Table of Contents



Nine Months Ended September 30, 2001 Compared to Nine Months Ended September
30, 2000

General

Consolidated net income remained relatively unchanged at $13.5 million for
the nine months ended September 30, 2001 compared to the same period last year.
Although net income remained relatively unchanged in 2001 compared to 2000,
the increases in net income due to higher net interest income, lower provisions
for loan losses, and lower income tax expense were offset by decreases in
income due to lower noninterest income and an increase in the expense
associated with our Trust Preferred securities. Diluted EPS increased 7.0% to
$1.99 for the nine months ended September 30, 2001, compared to $1.86 for the
same period last year.

The return on average assets was 1.32% for the nine months ended September
30, 2001, compared to 1.48% for the same period last year. The return on
average shareholders' equity was 13.20% for the nine months ended September 30,
2001, compared to 13.95% for the same period last year.

Total loan production was $385.6 million for the nine months ended
September 30, 2001, consisting of the origination and/or purchase of $301.8
million of commercial real estate loans, $30.5 million of residential real
estate loans and $53.3 million of franchise loans. Loan production during the
same period last year totaled $226.5 million, consisting of the origination
and/or acquisition of $165.2 million of commercial real estate loans and $61.3
million of residential real estate loans. Additionally, during the same period
last year, we acquired $250.5 million of commercial real estate loans when we
purchased the ICCMAC Multifamily and Commercial Trust 1999-1 (ICCMAC Trust).

13



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##### Table of Contents



Net Interest Income and Margin

The following table presents, for the nine months ended September 30, 2001
and 2000, 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,
|                                                     |                                    |                        |           |           |                                        
|                                                     |                                    |                        |           |           | 2001                                    |   | 2000   
|                                                     |                                    |                        |           |           |                                         |   |        
|                                                     |                                    |                        |           |           | Average                                 |   | Income/ |        | Yield/ |  | Average |      | Income/ |   | Yield/   
|                                                     |                                    |                        |           |           | Balance                                 |   | Expense |        | Rate   |  | Balance |      | Expense |   | Rate     
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |          
|                                                     |                                    |                        |           |           | (dollars in thousands)                 
|Assets                                               |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Cash and investments                                 |                                    | $                      | 68,487    |           |                                         | $ | 2,604   |        |        |  | 5.08    | %    |         | $ | 84,994    |         |           | $ | 3,917  |        |        |  | 6.16  | %    
|Loans receivable:                                    |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|                                                     | Real estate loans                  |                        |           | 1,099,425 |                                         |   |         | 78,863 |        |  |         | 9.59 | %       |   |           | 955,669 |           |   |        | 75,343 |        |  |       | 10.53 | %   
|                                                     | Real estate loans
held in trust    |                        |           | 195,737   |                                         |   |         | 11,860 |        |  |         | 8.10 | %       |   |           | 169,368 |           |   |        | 11,342 |        |  |       | 8.95  | %   
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Total loans receivable                               |                                    |                        | 1,295,162 |           |                                         |   | 90,723  |        |        |  | 9.37    | %    |         |   | 1,125,037 |         |           |   | 86,685 |        |        |  | 10.29 | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Total interest-earning assets                        |                                    |                        | 1,363,649 |           |                                         | $ | 93,327  |        |        |  | 9.15    | %    |         |   | 1,210,031 |         |           | $ | 90,602 |        |        |  | 10.00 | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Noninterest-earning assets                           |                                    |                        | 33,287    |           |                                         |   |         |        |        |  |         |      |         |   | 25,908    |         |           |   |        |        |        |  |       |      
|Allowance for loan losses                            |                                    |                        | (27,335   | )         |                                         |   |         |        |        |  |         |      |         |   | (23,561   | )       |           |   |        |        |        |  |       |      
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|                                                     |                                    | Total assets           |           | $         | 1,369,601                               |   |         |        |        |  |         |      |         |   |           | $       | 1,212,378 |   |        |        |        |  |       |       |      |  
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Liabilities and
Shareholders Equity                 |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Deposit accounts:                                    |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|                                                     | Money market and
passbook accounts |                        | $         | 110,521   |                                         |   | $       | 3,656  |        |  |         | 4.42 | %       |   | $         | 117,989 |           |   | $      | 4,903  |        |  |       | 5.55  | %   
|                                                     | Time certificates                  |                        |           | 854,121   |                                         |   |         | 38,505 |        |  |         | 6.03 | %       |   |           | 787,454 |           |   |        | 35,839 |        |  |       | 6.08  | %   
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|                                                     |                                    | Total deposit accounts |           |           | 964,642                                 |   |         |        | 42,161 |  |         |      | 5.84    | % |           |         | 905,443   |   |        |        | 40,742 |  |       |       | 6.01 | %
|Collateralized mortgage
obligations                  |                                    |                        | 141,260   |           |                                         |   | 5,394   |        |        |  | 5.11    | %    |         |   | 132,527   |         |           |   | 7,678  |        |        |  | 7.74  | %    
|FHLB advances                                        |                                    |                        | 87,096    |           |                                         |   | 3,219   |        |        |  | 4.94    | %    |         |   | 30,731    |         |           |   | 1,305  |        |        |  | 5.67  | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Total interest-bearing
liabilities                   |                                    |                        | 1,192,998 |           |                                         | $ | 50,774  |        |        |  | 5.69    | %    |         |   | 1,068,701 |         |           | $ | 49,725 |        |        |  | 6.22  | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Noninterest-bearing
liabilities                      |                                    |                        | 14,847    |           |                                         |   |         |        |        |  |         |      |         |   | 13,657    |         |           |   |        |        |        |  |       |      
|Trust preferred securities                           |                                    |                        | 25,300    |           |                                         |   |         |        |        |  |         |      |         |   | 1,165     |         |           |   |        |        |        |  |       |      
|Shareholders equity                                 |                                    |                        | 136,456   |           |                                         |   |         |        |        |  |         |      |         |   | 128,855   |         |           |   |        |        |        |  |       |      
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Total liabilities
and shareholders equity           |                                    | $                      | 1,369,601 |           |                                         |   |         |        |        |  |         |      |         | $ | 1,212,378 |         |           |   |        |        |        |  |       |      
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Net interest spread                                  |                                    |                        |           |           |                                         |   |         |        |        |  | 3.46    | %    |         |   |           |         |           |   |        |        |        |  | 3.78  | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Net interest income
before provision for
loan losses |                                    |                        |           |           |                                         | $ | 42,553  |        |        |  |         |      |         |   |           |         |           | $ | 40,877 |        |        |  |       |      
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      
|Net interest margin                                  |                                    |                        |           |           |                                         |   |         |        |        |  | 4.17    | %    |         |   |           |         |           |   |        |        |        |  | 4.51  | %    
|                                                     |                                    |                        |           |           |                                         |   |         |        |        |  |         |      |         |   |           |         |           |   |        |        |        |  |       |      

14



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##### Table of Contents



The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in average interest-earning asset
and interest-bearing liability balances and changes in average interest rates.
The change in interest due to both volume and rate has been allocated to change
due to volume and rate in proportion to the relationship of absolute dollar
amounts of each.

|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |        |       | 
|------------------------------------------ | ----------------------------------- | --------------------------------------------- | ----- | --------------------------- | ------ | ---- | ------ | ------ | ------ | - | ----- | ------ | ----- | 
|                                           |                                     |                                               |       | For the Nine Months Ended  
|                                           |                                     |                                               |       | September 30, 2001 and 2000
|                                           |                                     |                                               |       | Increase (Decrease) Due to:
|                                           |                                     |                                               |       |                            
|                                           |                                     |                                               |       | Volume                      |        | Rate |        | Total 
|                                           |                                     |                                               |       |                             |        |      |        |       
|                                           |                                     |                                               |       | (In thousands)             
|Interest and fees earned from:             |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|                                           | Real estate loans                   |                                               | $     | 10,268                      |        |      | $      | (6,748 | )      |   | $     | 3,520  |      
|                                           | Real estate loans held in trust     |                                               |       | 1,596                       |        |      |        | (1,078 | )      |   |       | 518    |      
|                                           | Cash and investments                |                                               |       | (627                        | )      |      |        | (686   | )      |   |       | (1,313 | )    
|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|                                           |                                     | Total increase (decrease) in interest income  |       | $                           | 11,237 |      |        |        | (8,512 | ) |       | $      | 2,725 | 
|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|Interest paid on:                          |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|                                           | Deposit accounts                    |                                               |       | 2,575                       |        |      |        | (1,156 | )      |   |       | 1,419  |      
|                                           | Collateralized mortgage obligations |                                               |       | 333                         |        |      |        | (2,617 | )      |   |       | (2,284 | )    
|                                           | FHLB advances                       |                                               |       | 2,082                       |        |      |        | (168   | )      |   |       | 1,914  |      
|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|                                           |                                     | Total increase (decrease) in interest expense |       |                             | 4,990  |      |        |        | (3,941 | ) |       |        | 1,049 | 
|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |       
|Increase (decrease) in net interest income |                                     | $                                             | 6,247 |                             |        | $    | (4,571 | )      |        | $ | 1,676 |       
|                                           |                                     |                                               |       |                             |        |      |        |        |        |   |       |       

Total interest income increased $2.7 million to $93.3 million in the nine
months ended September 30, 2001, compared to $90.6 million for the same period
last year due to increases in the average balance of real estate
loans and real estate loans held in trust. These increases in interest income
were primarily offset by decreases resulting from lower yields on interest
earning assets and to a lesser extent, the decline in the average balance of
cash and investment securities.

The average balance of real estate loans increased to $1.1 billion during
the nine months ended September 30, 2001 as compared to $955.7 million for the
same period last year. This increase was primarily due to growth in real
estate loans secured by income producing properties, construction loans and
purchased single family residential mortgages. Loans secured by income
producing properties and construction loans had an average balance of $967.1
million during the nine months ended September 30, 2001,
compared to $848.1
million during the same period last year. The average balance of purchased
single family residential mortgages was $132.3 million during the nine months
ended September 30, 2001, compared to $107.6 million during the same period in
the prior year. Purchased single family residential mortgages are not presently
expected to materially increase as a percentage of our current total assets.

The average balance of real estate loans held in trust was $195.7 million
for the nine months ended September 30, 2001 as compared to $169.4 million for
the same period last year. This increase was primarily due to the timing of
the acquisition of the ICCMAC Trust which occurred during the last week of the
prior years first quarter.

The average yield earned on real estate loans decreased 94 basis points to
9.59% for the nine months ended September 30, 2001 as compared to 10.53% in the
same period in the prior year. The decrease in the yield on real estate loans
was primarily due to the repricing of variable rate loans at lower interest
rates and the reduced yield earned on current period loan production, both
resulting from the general decline in market interest rates. Our commercial
real estate loan portfolio and current loan production is primarily comprised of adjustable rate
mortgages indexed to the six month LIBOR.

15



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Total interest expense increased by $1.0 million to $50.8 million in the
nine months ended September 30, 2001, compared to $49.7 million for the same
period last year. This increase was primarily attributable to increases in the
average balance of interest bearing liabilities, which was partially offset by
an overall decrease in interest rates.

The average balance of deposit accounts increased $59.2 million to $964.6
million for the nine months ended September 30, 2001 compared to $905.4 million
for the same period last year. The average rate paid on deposit accounts was
5.84% for the nine months ended September 30, 2001, compared to 6.01% for the
same period last year. FHLB advances averaged $87.1 million for the nine
months ended September 30, 2001, compared to $30.7 million for the same period
last year. The average rate paid on FHLB advances was 4.94% for the nine
months ended September 30, 2001, compared to 5.67% for the same period last
year. The average balance of our CMOs was $141.3 million during the nine
months ended September 30, 2001, compared to $132.5 million for the same period
last year. The average rate paid on our CMOs was 5.11% during the nine months
ended September 30, 2001 compared to 7.89% for the same period last year. Our
cost of funds decreased to 5.69% for the nine month period ended September 30,
2001, compared to 6.23% for the same period last year. This decrease in
funding costs was due to lower rates paid on CMOs, deposit accounts and FHLB
advances, reflecting the general decline in market interest rates.

Net interest margin decreased to 4.17% for the nine months ended September
30, 2001 as compared to 4.51% for the same period last year primarily due to
the 87 basis point decrease in the yield on total average interest earning
assets, partially offset by a 54 basis point decrease in cost of funds.

Provision for Loan Losses

The provision for loan losses totaled $2.5 million in the nine months
ended September 30, 2001, compared to $3.3 million for the same period in the
prior year. The provision for loan losses was recorded to provide for reserves
based on the aggregate amount of nonperforming loans and other loans of
concern, which has declined by $37.3 million since December 31, 2000.

Noninterest Income

Noninterest income totaled $804,000 for the nine months ended September
30, 2001, compared to $1.9 million for the same period last year. The previous
years noninterest income included a $1.4 million gain on sale of investment
securities available for sale.

Noninterest Expense

Noninterest expense remained relatively constant at $16.9 million for the
nine months ended September 30, 2001 and 2000, respectively. The previous
years noninterest expense included a $1.4 million nonrecurring charge relating
to the consolidation of the Banks headquarters with ITLA Capitals
headquarters in La Jolla, California. Compensation and benefits expense
totaled $8.9 million during the nine months ended September 30, 2001, compared
to $7.2 million for the same period last year. The increase in compensation
and benefits expense was primarily due to additions made to the retail and
wholesale loan originations sales and support staff. Full time equivalent
associates averaged 131 during the nine month period ended September 30, 2001, compared to 115 for the same
period last year.

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For the nine months ended September 30, 2001, our ratio of consolidated
general and administrative expense to average assets, on an annualized basis,
decreased to 1.61% compared to 1.69% for the same period last year. Our
efficiency ratio (excluding real estate operations), which is defined as
general and administrative expenses as a percentage of net interest income and
noninterest income, was 38.25% for the nine months ended September 30, 2001
compared to 35.91% for the same period last year.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, which consists of accrued
distributions payable on our Trust Preferred securities, was $2.2 million
during the nine month period ended September 30, 2001 as compared to $99,000
for the same period last year, during which we first issued our trust preferred
securities. See Note 5 to the unaudited Consolidated Financial Statements for
further information.

FINANCIAL CONDITION

Total assets increased $17.4 million to $1.43 billion at September 30,
2001 as compared to $1.42 billion at December 31, 2000. At
September 30, 2001, real estate loans, net totaled
$1.1 billion, including approximately $48.0 million of
franchise loans. During
the nine months ended September 30, 2001, the Banks loan portfolio increased
$66.7 million and cash and cash equivalents increased by $21.3 million. Other
real estate owned increased $4.5 million to $6.8 million at September 30, 2001,
compared to $2.3 million at December 31, 2000 primarily due to the foreclosure
of two commercial properties during the current quarter. These increases were
partially offset by a $42.8 million decrease in investment securities available
for sale and a $36.0 million decrease in real estate loans held in trust. Total
deposit accounts, which are concentrated in time certificates, decreased to
$932.2 million at September 30, 2001 as compared to $1.02 billion at December
31, 2000. We managed an overall decline in our deposit liabilities while
retaining a majority of the deposit accounts which matured by replacing higher
cost deposits with lower cost FHLB advances. Management believes that a
significant portion of deposits will remain with us upon maturity based on our
historical experience regarding retention of deposits. CMOs decreased $38.4
million to $123.4 million at September 30, 2001 compared to $161.9 million at
December 31, 2000. The decreases in deposit accounts and CMOs were offset by
an increase in FHLB advances, which increased $125.6 million to $204.9 million
at September 30, 2001, compared to $79.3 million at December 31, 2000.

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CREDIT RISK

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

The following table sets forth our nonperforming assets by category,
accruing loans past due 90 days or more and troubled debt restructurings as of
the dates indicated.

|                                                                                |                        |                                                                               |        |                        |        |              |        |        |        | 
|------------------------------------------------------------------------------- | ---------------------- | ----------------------------------------------------------------------------- | ------ | ---------------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                                                |                        |                                                                               |        | September 30,          |        | December 31,
|                                                                                |                        |                                                                               |        | 2001                   |        | 2000        
|                                                                                |                        |                                                                               |        |                        |        |             
|                                                                                |                        |                                                                               |        | (dollars in thousands)
|Nonaccrual loans:                                                               |                        |                                                                               |        |                        |        |              |        |       
|                                                                                | Real estate (1)        |                                                                               | $      | 13,424                 |        |              | $      | 9,430  |       
|                                                                                | Construction           |                                                                               |        | 11,490                 |        |              |        | 8,712  |       
|                                                                                |                        |                                                                               |        |                        |        |              |        |       
|                                                                                | Total nonaccrual loans |                                                                               |        | 24,914                 |        |              |        | 18,142 |       
|Other real estate owned, net                                                    |                        |                                                                               | 6,803  |                        |        |              | 2,250  |       
|                                                                                |                        |                                                                               |        |                        |        |              |        |       
|                                                                                |                        | Total nonperforming assets                                                    |        |                        | 31,717 |              |        |        | 20,392 | 
|                                                                                |                        | Accruing loans past due 90 days or
more with respect to principal or interest |        |                        |       |              |        |        | 9,765  | 
|                                                                                |                        | Performing troubled debt restructurings                                       |        |                        | 3,700  |              |        |        | 3,002  | 
|                                                                                |                        |                                                                               |        |                        |        |              |        |       
|                                                                                |                        | $                                                                             | 35,417 |                        |        | $            | 33,159 |       
|                                                                                |                        |                                                                               |        |                        |        |              |        |       
|Nonaccrual loans to total real estate loans
and real estate loans held in trust |                        |                                                                               | 1.91   | %                      |        |              | 1.42   | %     
|Allowance for loan losses to nonaccrual loans                                   |                        |                                                                               | 98.83  | %                      |        |              | 149.85 | %     
|Nonperforming assets to total assets                                            |                        |                                                                               | 2.21   | %                      |        |              | 1.44   | %     



---

|(1) |  | Includes one loan with a net book balance of $220,000 at September 30,
2001 and one loan with a net book of $1.4 million at December 31, 2000
that are nonperforming troubled debt restructurings.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At September 30, 2001, other real estate owned consisted of six income
producing properties totaling $6.4 million and nine single family residential
properties totaling $423,000.

As of September 30, 2001 and December 31, 2000, other loans of concern
totaled $26.9 million and $70.9 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, 2001 was
primarily due to $16.0 million of loans being paid-off, $18.0 million of loans
being upgraded due to improving conditions and $14.3 million of loans migrating
to nonaccrual status, partially offset by $4.3 million of new other loans of
concern.

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

|                                                                                            |                    |                   |                          |        |                        |        |              |        |        |        | 
|------------------------------------------------------------------------------------------- | ------------------ | ----------------- | ------------------------ | ------ | ---------------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                                                            |                    |                   |                          |        | For Nine               |        | For the Year
|                                                                                            |                    |                   |                          |        | Months Ended           |        | Ended       
|                                                                                            |                    |                   |                          |        | September 30,          |        | December 31,
|                                                                                            |                    |                   |                          |        | 2001                   |        | 2000        
|                                                                                            |                    |                   |                          |        |                        |        |             
|                                                                                            |                    |                   |                          |        | (dollars in thousands)
|Balance at beginning of period                                                              |                    | $                 | 27,186                   |        |                        | $      | 19,895       |       
|Provision for loan losses                                                                   |                    |                   | 2,450                    |        |                        |        | 4,775        |       
|Addition due to purchase of the ICCMAC Trust                                                |                    |                   |                         |        |                        |        | 4,614        |       
|Charge-offs:                                                                                |                    |                   |                          |        |                        |        |              |       
|                                                                                            | Real estate loans  |                   |                          | (2,827 | )                      |        |              | (1,489 | )     
|                                                                                            | Construction loans |                   |                          | (2,235 | )                      |        |              | (1,000 | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    | Total charge-offs |                          |        | (5,062                 | )      |              |        | (2,489 | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Recoveries:                                                                                 |                    |                   |                          |        |                        |        |              |       
|                                                                                            | Real estate loans  |                   |                          | 49     |                        |        |              | 391    |       
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    | Total recoveries  |                          |        | 49                     |        |              |        | 391    |       
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Net charge-offs                                                                             |                    |                   | (5,013                   | )      |                        |        | (2,098       | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    |                   | Balance at end of period |        | $                      | 24,623 |              |        | $      | 27,186 | 
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Allowance for loan losses as a percentage
of real estate loans and loans held in
trust, net |                    |                   | 1.88                     | %      |                        |        | 2.12         | %     

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 real estate 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, 2001, we held approximately $92.3
million of cash and cash equivalents (consisting primarily of short-term
investments with original maturities of 90 days or less) and $3.5 million of
investment securities classified as available for sale. Short-term fixed
income investments classified as cash equivalents consisted of interest-bearing
deposits at financial institutions, government money market funds and
short-term government agency securities, while investment securities available
for sale consisted primarily of fixed income instruments which were rated AAA
or equivalent by nationally recognized rating agencies. As of September 30,
2001 and December 31, 2000, the Banks liquidity ratios were 10.2% and 11.7%,
respectively. In addition, our liquidity position is supported by a credit
facility with the Federal Home Loan Bank of San Francisco. As of September 30,
2001, we had remaining available borrowing capacity under this credit facility
of $144.6 million, net of the $7.6 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.

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##### Table of Contents



Capital Resources

As of September 30, 2001, the Banks Leverage (Core), Tier I and Total
Risk-Based capital ratios were 10.2%, 10.9% and 12.2%, respectively. These
ratios were 9.1%, 10.4% and 11.6%, respectively, as of December 31, 2000. The
increase in capital ratios from December 31, 2000 to September 30, 2001 was due
primarily to the Banks net income of $10.2 million. 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, 2001, the Banks capital
position was designated as well capitalized for regulatory purposes.

At September 30, 2001, shareholders equity totaled $134.9 million or 9.4
percent of total assets. The Company continued to repurchase shares of its
common stock in the open market during the third quarter of 2001. During the
third quarter of 2001, the Company repurchased 212,000 shares of common stock
at an average price of $18.67 per share. For the nine months ending September
30, 2001, the Company repurchased 724,000 shares of common stock at an average
price of $18.13 per share. Since beginning share repurchases in April of 1997,
the Company has repurchased a total of 1,987,519 shares or approximately 24
percent of the outstanding shares of common stock, returning approximately
$31.9 million of capital to its shareholders at an average price of $16.03 per
share. Through our stock repurchase program, 100 percent of the Companys
secondary public offering, which raised $22.6 million in April of 1996 has been
retired along with returning to our shareholders approximately $9.3 million of
proceeds from the Companys initial public offering completed in October 1995.
The Companys book value per share of common stock was $22.70 as of September
30, 2001, as compared to $20.05 as of December 31, 2000, and $19.25 as of
September 30, 2000.




ITEM 3: 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, 2000.

20



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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 31, 2001, the Company held its Annual Meeting of Shareholders.
| | --- |  | ----------------------------------------------------------------------
|
| | (b) |  | Shareholders voted on the following matters:                          
|



| | (i) |  | The election of Sandor X. Mayuga as director for a term to expire in 2004:
| | --- |  | --------------------------------------------------------------------------

|      |  |     |           |         |  |          |   |  |  |  |         | 
|----- |  | --- | --------- | ------- |  | -------- | - |  |  |  | ------- | 
|Votes |  | For |           | Against |  | Withheld
|      |  |     |           |         |  |         
|      |  |     | 4,255,610 |         |  |          | 0 |  |  |  | 934,750 | 



| | (ii) |  | The election of Robert R. Reed as director for a term to expire in 2004:
| | ---- |  | ------------------------------------------------------------------------

|      |  |     |           |         |  |          |   |  |  |  |         | 
|----- |  | --- | --------- | ------- |  | -------- | - |  |  |  | ------- | 
|Votes |  | For |           | Against |  | Withheld
|      |  |     |           |         |  |         
|      |  |     | 4,500,863 |         |  |          | 0 |  |  |  | 689,497 | 



| | (iii) |  | An amendment to ITLA Capitals 1995 Employee Stock
Incentive Plan to increase the number of shares authorized for
award under the plan by 311,500 (representing 4.99% of
the outstanding shares of common stock as of June 27, 2001)
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |     |           |         |  |          |           |  |  |  |        | 
|----- |  | --- | --------- | ------- |  | -------- | --------- |  |  |  | ------ | 
|Votes |  | For |           | Against |  | Withheld
|      |  |     |           |         |  |         
|      |  |     | 3,737,273 |         |  |          | 1,440,774 |  |  |  | 12,313 | 



| | (iv) |  | The ratification of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending
December 31, 2001:
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------

|      |  |     |           |         |  |          |        |  |  |  |        | 
|----- |  | --- | --------- | ------- |  | -------- | ------ |  |  |  | ------ | 
|Votes |  | For |           | Against |  | Withheld
|      |  |     |           |         |  |         
|      |  |     | 5,146,454 |         |  |          | 25,935 |  |  |  | 17,970 | 




Item 5 Other Information

| |      
| | -----
| | None.




Item 6 Exhibits and Reports on Form 8-K



| | (b) 1 |  | The registrant filed a report on Form 8-K on July
31, 2001. The filing reported material which was presented at
the Companys Annual Meeting of Shareholders on July 31,
2001.
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) 2 |  | The registrant filed a report on Form 8-K on
September 14, 2001. The filing reported certain financial information presented at an investor
conference.                       

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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, 2001 | /s/  George W. Haligowski
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
|----------------------- | -----------------------------------------------------------------------------------------------------------



|Date: November 14, 2001 | /s/  Timothy M. Doyle
Timothy M. Doyle
Managing Director and Chief
Financial Officer
|----------------------- | ------------------------------------------------------------------------------------

22