##### 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 June 30, 2003

OR

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

For the Transition Period from__________to_________

Commission File Number 0-26960

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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 [  ].

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

Number of shares of common stock of the Registrant: 6,081,591 outstanding
as of August 8, 2003.

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TABLE OF CONTENTS



|                               |                                                                                               |                                                          |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS                             
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                       
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                   
|                               |                                                                                               | NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                               | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 2. Changes in Securities                                                                
|                               | Item 3. Defaults Upon Senior Securities                                                      
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 5. Other Information                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32                    



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##### Table of Contents



ITLA CAPITAL CORPORATION FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
TABLE OF CONTENTS

|                               |                                                                                       |  |                                                     |                                                                                                   |  |    |    |      |  | 
|------------------------------ | ------------------------------------------------------------------------------------- |  | --------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  | -- | -- | ---- |  | 
|                               |                                                                                       |  |                                                     |                                                                                                   |  |    |    | Page | 
|                               |                                                                                       |  |                                                     |                                                                                                   |  |    |    |      | 
|PART I  FINANCIAL INFORMATION |                                                                                       |  |                                                     |                                                                                                  
|Item 1.                        | Financial Statements                                                                  |  |                                                     |                                                                                                   | 
|                               |                                                                                       |  |                                                     | Consolidated Balance Sheets  June 30, 2003 (unaudited) and December 31, 2002                     |  | 3  |   
|                               |                                                                                       |  |                                                     | Consolidated Statements of Income  Three and Six Months
Ended June 30, 2003 and 2002 (unaudited) |  | 4  |   
|                               |                                                                                       |  |                                                     | Consolidated Statements of Cash Flows 
Six Months Ended June 30, 2003 and 2002 (unaudited)       |  | 5  |   
|                               |                                                                                       |  |                                                     | Notes to Unaudited Consolidated Financial Statements                                              |  | 6  |   
|Item 2.                        | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |                                                     | 11                                                                                                | 
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                     | 24                                                                                                | 
|Item 4.                        | Controls and Procedures                                                               |  |                                                     | 24                                                                                                | 
|PART II  OTHER INFORMATION    |                                                                                       |  |                                                     |                                                                                                  
|Item 1.                        |                                                                                       |  | Legal Proceedings                                   |                                                                                                   |  | 25 |   
|Item 2.                        |                                                                                       |  | Changes in Securities                               |                                                                                                   |  | 25 |   
|Item 3.                        |                                                                                       |  | Defaults Upon Senior Securities                     |                                                                                                   |  | 25 |   
|Item 4.                        |                                                                                       |  | Submission of Matters to a Vote of Security Holders |                                                                                                   |  | 25 |   
|Item 5.                        |                                                                                       |  | Other Information                                   |                                                                                                   |  | 25 |   
|Item 6.                        |                                                                                       |  | Exhibits and Reports on Form 8-K                    |                                                                                                   |  | 25 |   
|                               |                                                                                       |  |                                                     | Signatures                                                                                        |  |    | 26 |     
|                               |                                                                                       |  |                                                     | Certifications                                                                                    |  |    | 29 |     

Forward Looking Statements

Safe Harbor statement under the Private Securities Litigation Reform Act
of 1995: This Form 10-Q contains forward-looking statements that are subject to
risks and uncertainties, including, but not limited to, changes in economic
conditions in our market areas, changes in policies by regulatory agencies, the
impact of competitive loan products, loan demand risks, the quality or
composition of our loan or investment portfolios, fluctuations in interest
rates and changes in the relative differences between short and long term
interest rates, levels of nonperforming assets and operating results, the
impact of terrorist actions and other risks detailed from time to time in our
filings with the Securities and Exchange Commission. We caution readers not to
place undue reliance on forward-looking statements. We do not undertake and
specifically disclaim any obligation to revise any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements. These risks could cause our
actual results for 2003 and beyond to differ materially from those expressed in
any forward-looking statements by, or on behalf of, us.

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

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##### Table of Contents






PART I - FINANCIAL INFORMATION




ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |              |         |           |  | 
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ----------------------------------- | --------- | ------------ | ------- | --------- |  | 
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         | June 30,                            |           |              |         |          
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         | 2003                                |           | December 31,
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         | (unaudited)                         |           | 2002        
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         | (in thousands except share amounts)
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            | Assets                               |         |                                     |           |              |         |           |  | 
|Cash and cash equivalents                                                                                                            |                                                                                                                                                                          | $                          | 133,139                                    |                                      |         | $                                   | 160,848   |             
|Investment securities available for sale, at fair value                                                                              |                                                                                                                                                                          |                            | 41,135                                     |                                      |         |                                     | 54,677    |             
|Stock in Federal Home Loan Bank                                                                                                      |                                                                                                                                                                          |                            | 12,392                                     |                                      |         |                                     | 16,934    |             
|Loans, net (net of allowance for loan losses of $31,590 and
$31,081 as of June 30, 2003 and December 31, 2002, respectively)         |                                                                                                                                                                          |                            | 1,217,150                                  |                                      |         |                                     | 1,316,298 |             
|Real estate loans held in trust (net of allowance for loan losses of $1,928
as of June 30, 2003 and December 31, 2002, respectively) |                                                                                                                                                                          |                            | 96,109                                     |                                      |         |                                     | 121,936   |             
|Interest receivable                                                                                                                  |                                                                                                                                                                          |                            | 7,796                                      |                                      |         |                                     | 9,158     |             
|Other real estate owned, net                                                                                                         |                                                                                                                                                                          |                            | 16,885                                     |                                      |         |                                     | 12,593    |             
|Premises and equipment, net                                                                                                          |                                                                                                                                                                          |                            | 5,189                                      |                                      |         |                                     | 4,197     |             
|Deferred income taxes                                                                                                                |                                                                                                                                                                          |                            | 13,848                                     |                                      |         |                                     | 13,822    |             
|Goodwill                                                                                                                             |                                                                                                                                                                          |                            | 3,118                                      |                                      |         |                                     | 3,118     |             
|Other assets                                                                                                                         |                                                                                                                                                                          |                            | 16,735                                     |                                      |         |                                     | 8,384     |             
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            | Total assets                               |                                      | $       | 1,563,496                           |           |              | $       | 1,721,965 | 
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            | Liabilities and Shareholders Equity |         |                                     |           |              |         |           |  | 
|Liabilities:                                                                                                                         |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     | Deposit accounts                                                                                                                                                         |                            | $                                          | 973,039                              |         |                                     | $         | 1,065,911    |        
|                                                                                                                                     | Federal Home Loan Bank advances                                                                                                                                          |                            |                                            | 247,835                              |         |                                     |           | 338,685      |        
|                                                                                                                                     | Collateralized mortgage obligations                                                                                                                                      |                            |                                            | 43,419                               |         |                                     |           | 69,077       |        
|                                                                                                                                     | Accounts payable and other liabilities                                                                                                                                   |                            |                                            | 42,049                               |         |                                     |           | 10,006       |        
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            | Total liabilities                          |                                      |         | 1,306,342                           |           |              |         | 1,483,679 | 
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|Commitments and contingencies                                                                                                        |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                    
|                                                                                                                                    
|                                                                                                                                    
|                                                                                                                                    
|Guaranteed preferred beneficial interests in the Companys junior
subordinated deferrable interest debentures, net                   |                                                                                                                                                                          |                            | 81,731                                     |                                      |         |                                     | 81,595    |             
|                                                                                                                                    
|                                                                                                                                    
|                                                                                                                                    
|                                                                                                                                    
|Shareholders equity:                                                                                                                |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     | Preferred stock, 5,000,000 shares authorized, none issued                                                                                                                |                            |                                            |                                     |         |                                     |           |             |        
|                                                                                                                                     | Contributed capital - common stock, $.01 par value; 20,000,000 shares
authorized, 8,240,579 and 8,226,414 issued as of June 30, 2003 and
December 31, 2002, respectively |                            |                                            | 59,261                               |         |                                     |           | 58,841       |        
|                                                                                                                                     | Retained earnings                                                                                                                                                        |                            |                                            | 154,284                              |         |                                     |           | 135,773      |        
|                                                                                                                                     | Accumulated other comprehensive income                                                                                                                                   |                            |                                            | 236                                  |         |                                     |           | 435          |        
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            | 213,781                                    |                                      |         |                                     | 195,049   |             
|                                                                                                                                     | Less treasury stock, at cost 2,447,656 shares as of June 30, 2003 and
December 31, 2002, respectively                                                                    |                            |                                            | (38,358                              | )       |                                     |           | (38,358      | )      
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          | Total shareholders equity |                                            |                                      | 175,423 |                                     |           |              | 156,691 |          
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             
|                                                                                                                                     |                                                                                                                                                                          |                            | Total liabilities and shareholders equity |                                      | $       | 1,563,496                           |           |              | $       | 1,721,965 | 
|                                                                                                                                     |                                                                                                                                                                          |                            |                                            |                                      |         |                                     |           |             

See accompanying notes to the unaudited consolidated financial statements.

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##### Table of Contents






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

|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |        |        |        |        | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------ | -------------------------- | ---------------------------------------------------- | ------ | -------------------------- | ------ | ------------------------ | ------ | --------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                                                       |                                                     |                                      |                            |                                                      |        | For the Three Months Ended |        | For the Six Months Ended
|                                                                                       |                                                     |                                      |                            |                                                      |        | June 30,                   |        | June 30,                
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                         
|                                                                                       |                                                     |                                      |                            |                                                      |        | 2003                       |        | 2002                     |        | 2003                                    |        | 2002  
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        | (in thousands except per share amounts) |        |        |        |       
|Interest income:                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | Loans, including fees                               |                                      | $                          | 25,461                                               |        |                            | $      | 23,062                   |        |                                         | $      | 54,075 |        |        | $      | 46,578 |       
|                                                                                       | Real estate loans held in trust                     |                                      |                            | 1,456                                                |        |                            |        | 2,662                    |        |                                         |        | 3,629  |        |        |        | 5,502  |       
|                                                                                       | Cash and investment securities                      |                                      |                            | 994                                                  |        |                            |        | 846                      |        |                                         |        | 3,731  |        |        |        | 1,525  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest income                |                            |                                                      | 27,911 |                            |        |                          | 26,570 |                                         |        |        | 61,435 |        |        |        | 53,605 |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|Interest expense:                                                                      |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | Deposit accounts                                    |                                      |                            | 6,289                                                |        |                            |        | 7,095                    |        |                                         |        | 13,137 |        |        |        | 15,388 |       
|                                                                                       | Federal Home Loan Bank advances                     |                                      |                            | 1,293                                                |        |                            |        | 1,350                    |        |                                         |        | 2,488  |        |        |        | 2,888  |       
|                                                                                       | Collateralized mortgage obligations                 |                                      |                            | 291                                                  |        |                            |        | 631                      |        |                                         |        | 681    |        |        |        | 1,289  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest expense               |                            |                                                      | 7,873  |                            |        |                          | 9,076  |                                         |        |        | 16,306 |        |        |        | 19,565 |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     |                                      |                            | Net interest income before provision
for loan losses |        |                            | 20,038 |                          |        |                                         | 17,494 |        |        |        | 45,129 |        |        |        | 34,040 | 
|Provision for loan losses                                                              |                                                     |                                      | 1,850                      |                                                      |        |                            | 2,100  |                          |        |                                         | 6,350  |        |        |        | 3,425  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     |                                      |                            | Net interest income after provision for loan losses  |        |                            | 18,188 |                          |        |                                         | 15,394 |        |        |        | 38,779 |        |        |        | 30,615 | 
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|Non-interest income:                                                                   |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | Premium on sale of loans, net                       |                                      |                            | 265                                                  |        |                            |        |                         |        |                                         |        | 8,983  |        |        |        |       |       
|                                                                                       | Late and collection fees                            |                                      |                            | 64                                                   |        |                            |        | 47                       |        |                                         |        | 131    |        |        |        | 119    |       
|                                                                                       | Other                                               |                                      |                            | 912                                                  |        |                            |        | 55                       |        |                                         |        | 4,664  |        |        |        | 108    |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     | Total non-interest income            |                            |                                                      | 1,241  |                            |        |                          | 102    |                                         |        |        | 13,778 |        |        |        | 227    |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|Non-interest expense:                                                                  |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | Compensation and benefits                           |                                      |                            | 4,773                                                |        |                            |        | 3,159                    |        |                                         |        | 10,125 |        |        |        | 6,478  |       
|                                                                                       | Occupancy and equipment                             |                                      |                            | 1,055                                                |        |                            |        | 738                      |        |                                         |        | 2,131  |        |        |        | 1,455  |       
|                                                                                       | FDIC assessment                                     |                                      |                            | 42                                                   |        |                            |        | 42                       |        |                                         |        | 80     |        |        |        | 84     |       
|                                                                                       | Other                                               |                                      |                            | 3,047                                                |        |                            |        | 2,373                    |        |                                         |        | 6,701  |        |        |        | 4,613  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     | Total general and administrative     |                            |                                                      | 8,917  |                            |        |                          | 6,312  |                                         |        |        | 19,037 |        |        |        | 12,630 |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | Real estate owned expense, net                      |                                      |                            | 11                                                   |        |                            |        | 168                      |        |                                         |        | 153    |        |        |        | 254    |       
|                                                                                       | Provision for losses on other real estate owned     |                                      |                            | 40                                                   |        |                            |        | 283                      |        |                                         |        | 370    |        |        |        | 796    |       
|                                                                                       | Loss (gain) on sale of other real estate owned, net |                                      |                            |                                                     |        |                            |        | 57                       |        |                                         |        | (329   | )      |        |        | (75    | )     
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     | Total real estate owned expense, net |                            |                                                      | 51     |                            |        |                          | 508    |                                         |        |        | 194    |        |        |        | 975    |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Total non-interest expense |                                                      |        | 8,968                      |        |                          |        | 6,820                                   |        |        |        | 19,231 |        |        |        | 13,605 |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|Income before provision for income taxes and
minority interest in income of subsidiary |                                                     |                                      | 10,461                     |                                                      |        |                            | 8,676  |                          |        |                                         | 33,326 |        |        |        | 17,237 |       
|Minority interest in income of subsidiary                                              |                                                     |                                      | 1,446                      |                                                      |        |                            | 797    |                          |        |                                         | 2,966  |        |        |        | 1,596  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|Income before provision for income taxes                                               |                                                     |                                      | 9,015                      |                                                      |        |                            | 7,879  |                          |        |                                         | 30,360 |        |        |        | 15,641 |       
|Provision for income taxes                                                             |                                                     |                                      | 3,525                      |                                                      |        |                            | 3,074  |                          |        |                                         | 11,849 |        |        |        | 6,117  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | NET INCOME                                          |                                      | $                          | 5,490                                                |        |                            | $      | 4,805                    |        |                                         | $      | 18,511 |        |        | $      | 9,524  |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | BASIC EARNINGS PER SHARE                            |                                      | $                          | 0.91                                                 |        |                            | $      | 0.80                     |        |                                         | $      | 3.08   |        |        | $      | 1.59   |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       
|                                                                                       | DILUTED EARNINGS PER SHARE                          |                                      | $                          | 0.85                                                 |        |                            | $      | 0.75                     |        |                                         | $      | 2.86   |        |        | $      | 1.49   |       
|                                                                                       |                                                     |                                      |                            |                                                      |        |                            |        |                          |        |                                         |        |        |        |        |        |       

See accompanying notes to the unaudited consolidated financial statements.

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##### Table of Contents






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

|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |       |         |         |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------ | ------- | ------------------------ | ------- | ----- | ------- | ------- | ------- | -
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         | For the Six Months Ended
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         | June 30,                
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                         
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         | 2003                     |         | 2002 
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         | (in thousands)          
|Cash Flows From Operating Activities: |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      | Net Income                                                                        |                                                                                  | $                                         | 18,511                                           |         |                          | $       | 9,524 |        
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                  |                                           |                                                  |         |                          |         |       |        
|                                      |                                                                                   | Depreciation and amortization of premises and equipment                          |                                           |                                                  | 742     |                          |         |       | 444     |        
|                                      |                                                                                   | Amortization of premium on purchased loans                                       |                                           |                                                  | 1,355   |                          |         |       | 216     |        
|                                      |                                                                                   | Amortization of original issue discount and deferred debt issuance cost on CMOs  |                                           |                                                  | 151     |                          |         |       | 97      |        
|                                      |                                                                                   | Accretion of deferred loan origination fees, net of costs                        |                                           |                                                  | (1,506  | )                        |         |       | (418    | )      
|                                      |                                                                                   | Provision for loan losses                                                        |                                           |                                                  | 6,350   |                          |         |       | 3,425   |        
|                                      |                                                                                   | Provision for losses on other real estate owned                                  |                                           |                                                  | 370     |                          |         |       | 796     |        
|                                      |                                                                                   | Gain on sales of other real estate owned                                         |                                           |                                                  | (329    | )                        |         |       | (75     | )      
|                                      |                                                                                   | Decrease in interest receivable                                                  |                                           |                                                  | 1,362   |                          |         |       | 2,217   |        
|                                      |                                                                                   | Increase in other assets                                                         |                                           |                                                  | (8,351  | )                        |         |       | (1,711  | )      
|                                      |                                                                                   | Increase (decrease) in accounts payable and other liabilities                    |                                           |                                                  | 32,043  |                          |         |       | (976    | )      
|                                      |                                                                                   | Other operating activities, net                                                  |                                           |                                                  | 250     |                          |         |       | (32     | )      
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |       |        
|                                      |                                                                                   |                                                                                  | Net cash provided by operating activities |                                                  |         | 50,948                   |         |       |         | 13,507  |        
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|Cash Flows From Investing Activities: |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   | Proceeds from securitization and sale of real estate loans                       |                                           |                                                  |        |                          |         |       | 98,155  |        
|                                      |                                                                                   | Decrease (increase) in loans, net                                                |                                           |                                                  | 88,022  |                          |         |       | (24,524 | )      
|                                      |                                                                                   | Net cash paid to acquire Asahi Bank of California                                |                                           |                                                  |        |                          |         |       | (14,872 | )      
|                                      |                                                                                   | Repayment of real estate loans held in trust                                     |                                           |                                                  | 24,985  |                          |         |       | 19,148  |        
|                                      |                                                                                   | Purchase of loans                                                                |                                           |                                                  | (3,259  | )                        |         |       | (15,791 | )      
|                                      |                                                                                   | Purchases of investment securities available for sale                            |                                           |                                                  | (20,210 | )                        |         |       | (23,418 | )      
|                                      |                                                                                   | Proceeds from the maturity and calls of investment securities available for sale |                                           |                                                  | 33,277  |                          |         |       | 15,000  |        
|                                      |                                                                                   | Decrease (increase) in stock in Federal Home Loan Bank                           |                                           |                                                  | 4,542   |                          |         |       | (1,545  | )      
|                                      |                                                                                   | Proceeds from sale of other real estate owned                                    |                                           |                                                  | 4,695   |                          |         |       | 2,730   |        
|                                      |                                                                                   | Other investing activities, net                                                  |                                           |                                                  | (1,392  | )                        |         |       | (749    | )      
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   |                                                                                  | Net cash provided by investing activities |                                                  |         | 130,660                  |         |       |         | 54,134  |        
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|Cash Flows From Financing Activities: |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   | Decrease in deposit accounts                                                     |                                           |                                                  | (92,872 | )                        |         |       | (94,049 | )      
|                                      |                                                                                   | Net (repayment of) proceeds from borrowings from
the Federal Home Loan Bank      |                                           |                                                  | (90,850 | )                        |         |       | 30,900  |        
|                                      |                                                                                   | Repayment of Asahi repurchase agreement, net                                     |                                           |                                                  |        |                          |         |       | (14,693 | )      
|                                      |                                                                                   | Principal payments on collateralized mortgage obligations                        |                                           |                                                  | (25,809 | )                        |         |       | (20,371 | )      
|                                      |                                                                                   | Cash paid to acquire treasury stock                                              |                                           |                                                  |        |                          |         |       | (1,911  | )      
|                                      |                                                                                   | Proceeds from exercise of employee stock options                                 |                                           |                                                  | 214     |                          |         |       | 132     |        
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   |                                                                                  | Net cash used in financing activities     |                                                  |         | (209,317                 | )       |       |         | (99,992 | )      
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   |                                                                                  |                                           | Net decrease in cash and cash equivalents        |         |                          | (27,709 | )     |         |         | (32,351 | )
|                                      |                                                                                   |                                                                                  |                                           | Cash and cash equivalents at beginning of period |         |                          | 160,848 |       |         |         | 134,241 |  
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   |                                                                                  |                                           | Cash and cash equivalents at end of period       |         | $                        | 133,139 |       |         | $       | 101,890 |  
|                                      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|Supplemental Cash Flow Information:   |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   | Cash paid during the period for interest                                         |                                           | $                                                | 16,975  |                          |         | $     | 19,767  |        
|                                      |                                                                                   | Cash paid during the period for income taxes                                     |                                           | $                                                | 12,410  |                          |         | $     | 7,725   |        
|Non-cash Investing Transactions:      |                                                                                   |                                                                                  |                                           |                                                  |         |                          |         |      
|                                      |                                                                                   | Loans transferred to other real estate owned                                     |                                           | $                                                | 9,028   |                          |         | $     | 548     |        

See accompanying notes to the unaudited consolidated financial statements.

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

NOTE 1 - BASIS OF PRESENTATION

The unaudited consolidated financial statements of ITLA Capital
Corporation (the Company) included herein reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present
fairly the results of operations and financial position of the Company, as of
and for the interim periods indicated. The unaudited consolidated financial
statements include the accounts of ITLA Capital Corporation and its
wholly-owned subsidiaries, Imperial Capital Bank (the Bank), Imperial Capital
Real Estate Investment Trust (Imperial Capital REIT), ITLA Capital Statutory
Trust I (Trust I), ITLA Capital Statutory Trust II (Trust II), ITLA Capital
Statutory Trust III (Trust III), ITLA Capital Statutory Trust IV (Trust
IV), and ITLA Capital Statutory Trust V (Trust V). All intercompany
transactions and balances have been eliminated. Certain information and
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission. Certain amounts in prior periods have been
reclassified to conform to the presentation in the current period. The results
of operations for the three and six months ended June 30, 2003 are not
necessarily indicative of the results of operations for the remainder of the
year.

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

NOTE 2 - 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 June 30, |       | For the Six Months Ended June 30,
|                                 |  |                                     |       |                                  
|                                 |  |                                     |       |                                   |  | Weighted-                             |       |        |  |             |       |        |  |         |        | Weighted- |  |  |       | 
|                                 |  |                                     |       |                                   |  | Average                               |       | Per    |  |             |       |        |  | Average |        | Per      
|                                 |  | Net                                 |       | Shares                            |  | Share                                 |       | Net    |  | Shares      |       | Share 
|                                 |  | Income                              |       | Outstanding                       |  | Amount                                |       | Income |  | Outstanding |       | Amount
|                                 |  |                                     |       |                                   |  |                                       |       |        |  |             |       |       
|                                 |  |                                     |       |                                   |  | (in thousands, except per share data) |       |        |  |            
|2003                             |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                   | 5,490 |                                   |  |                                       | 6,016 |        |  | $           | 0.91  |        |  | $       | 18,511 |           |  |  | 6,013 |  |  | $ | 3.08  |  
|Effect of dilutive
stock options |  |                                     |      |                                   |  |                                       | 476   |        |  |             | (0.06 | )      |  |         |       |           |  |  | 453   |  |  |   | (0.22 | )
|                                 |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                   | 5,490 |                                   |  |                                       | 6,492 |        |  | $           | 0.85  |        |  | $       | 18,511 |           |  |  | 6,466 |  |  | $ | 2.86  |  
|                                 |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|2002                             |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                   | 4,805 |                                   |  |                                       | 5,979 |        |  | $           | 0.80  |        |  | $       | 9,524  |           |  |  | 5,995 |  |  | $ | 1.59  |  
|Effect of dilutive
stock options |  |                                     |      |                                   |  |                                       | 465   |        |  |             | (0.05 | )      |  |         |       |           |  |  | 406   |  |  |   | (0.10 | )
|                                 |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                   | 4,805 |                                   |  |                                       | 6,444 |        |  | $           | 0.75  |        |  | $       | 9,524  |           |  |  | 6,401 |  |  | $ | 1.49  |  
|                                 |  |                                     |       |                                   |  |                                       |       |        |  |             |       |        |  |         |        |           |  |  |       |  |  |   |       |  

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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 |     | Six Months Ended
|                                   |                                                                                                                                                                                                                                                                                         |   | June 30,           |     | June 30,        
|                                   |                                                                                                                                                                                                                                                                                         |   |                    |     |                 
|                                   |                                                                                                                                                                                                                                                                                         |   | 2003               |     | 2002             |   | 2003           |     | 2002
|                                   |                                                                                                                                                                                                                                                                                         |   |                    |     |                  |   |                |     |     
|                                   |                                                                                                                                                                                                                                                                                         |   |                    |     |                  |   | (in thousands) |     |      |   |       
|Net Income                         |                                                                                                                                                                                                                                                                                         | $ | 5,490              |     |                  | $ | 4,805          |     |      | $ | 18,511 |      |   | $ | 9,524 |    
|Other comprehensive (loss) income: |                                                                                                                                                                                                                                                                                         |   |                    |     |                  |   |                |     |      |   |        |      |   |   |       |    
|                                   | Unrealized (loss) gain on
investment securities
available for sale, net of tax
(benefit) expense of ($51) and
$20 for the three months ended
June 30, 2003 and 2002, and
net of tax (benefit) expense
of ($127) and $155 for the six
months ended June 30, 2003 and
2002, respectively. |   |                    | (79 | )                |   |                | 102 |      |   |        | (199 | ) |   |       | 233 | 
|                                   |                                                                                                                                                                                                                                                                                         |   |                    |     |                  |   |                |     |      |   |        |      |   |   |       |    
|Comprehensive income               |                                                                                                                                                                                                                                                                                         | $ | 5,411              |     |                  | $ | 4,907          |     |      | $ | 18,312 |      |   | $ | 9,757 |    
|                                   |                                                                                                                                                                                                                                                                                         |   |                    |     |                  |   |                |     |      |   |        |      |   |   |       |    

NOTE 4 - IMPAIRED LOANS RECEIVABLE

As of June 30, 2003 and December 31, 2002, the recorded investment in
impaired loans and impaired real estate loans held in trust was $9.2 million
and $16.0 million, respectively. The average recorded investment in impaired
loans was $12.1 million for the three months ended June 30, 2003 and $9.1
million for the same period last year. The average recorded investment in
impaired loans was $14.6 million for the six months ended June 30, 2003 and
$11.8 million for the same period last year. Interest income recognized on
impaired loans totaled $116,000 and $257,000 for the three and six months ended
June 30, 2003 as compared to $35,000 and $79,000 for the same periods last
year.

NOTE 5 - RESIDUAL INTEREST IN SECURITIZATION

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

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During the six months ended June 30, 2003, the Company recognized an other
than temporary impairment of $500,000 in connection with its residual interest.
Impairments that are deemed to be other than temporary are charged to income,
as other expense. In evaluating impairments as other than temporary the
Company considers credit risk, as well as the magnitude and trend of default
rates and prepayment speeds of the underlying residential loans.

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

|                                         |  |          |       |  
|---------------------------------------- |  | -------- | ----- | -
|                                         |  | June 30,
|                                         |  | 2003    
|                                         |  |         
|Dollars in thousands, except percentages |  |          |       |  
|Fair value of retained interest          |  | $        | 5,368 |  
|Weighted average life (in years)         |  |          | 1.22  |  
|Weighted average annual prepayment speed |  |          | 35.0  | %
|Impact of 10% adverse change             |  | $        | (93   | )
|Impact of 25% adverse change             |  | $        | (225  | )
|Weighted average annual discount rate    |  |          | 15.0  | %
|Impact of 10% adverse change             |  | $        | (359  | )
|Impact of 25% adverse change             |  | $        | (857  | )
|Weighted average lifetime credit losses  |  |          | 3.3   | %
|Impact of 10% adverse change             |  | $        | (152  | )
|Impact of 25% adverse change             |  | $        | (380  | )

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

NOTE 6  ACCOUNTING FOR STOCK-BASED COMPENSATION

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

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The Company has stock-based
compensation plans. These plans are accounted for under APB Opinion
No. 25, Accounting for Stock Issued to Employees, and
accordingly, no compensation costs have been recognized in the
accompanying unaudited consolidated statements of income. The Company
applies SFAS No. 123, Accounting for Stock-Based Compensation
for disclosure purposes only. SFAS No. 123 disclosures include
pro forma net income and earning per share as if the fair value-based
method of accounting had been used. If compensation had been
determined based on SFAS No. 123, the Companys pro forma net income and pro
forma per share data would be as follows:

|                                                                                                   |                       |   |                                       |      |                    |   |       |      |  |  |      |  |      |   |        |      |  |   |       |      | 
|-------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------------------------- | ---- | ------------------ | - | ----- | ---- |  |  | ---- |  | ---- | - | ------ | ---- |  | - | ----- | ---- | 
|                                                                                                   |                       |   | For the Three Months                  |      | For the Six Months
|                                                                                                   |                       |   | Ended June 30,                        |      | Ended June 30,    
|                                                                                                   |                       |   |                                       |      |                   
|                                                                                                   |                       |   | 2003                                  |      | 2002               |   |       |      |  |  | 2003 |  | 2002
|                                                                                                   |                       |   |                                       |      |                    |   |       |      |  |  |      |  |     
|                                                                                                   |                       |   | (in thousands, except per share data)
|Net income, as reported                                                                            |                       | $ | 5,490                                 |      |                    | $ | 4,805 |      |  |  |      |  |      | $ | 18,511 |      |  | $ | 9,524 |     
|Less: Stock-based employee
compensation expense
determined under the fair
value method, net of tax |                       |   | 348                                   |      |                    |   | 190   |      |  |  |      |  |      |   | 631    |      |  |   | 327   |     
|                                                                                                   |                       |   |                                       |      |                    |   |       |      |  |  |      |  |      |   |        |      |  |   |       |     
|Pro forma net income                                                                               |                       | $ | 5,142                                 |      |                    | $ | 4,615 |      |  |  |      |  |      | $ | 17,880 |      |  | $ | 9,197 |     
|                                                                                                   |                       |   |                                       |      |                    |   |       |      |  |  |      |  |      |   |        |      |  |   |       |     
|Earnings per share:                                                                                |                       |   |                                       |      |                    |   |       |      |  |  |      |  |      |   |        |      |  |   |       |     
|                                                                                                   | Basic  as reported   |   | $                                     | 0.91 |                    |   | $     | 0.80 |  |  |      |  |      |   | $      | 3.08 |  |   | $     | 1.59 | 
|                                                                                                   | Basic  pro forma     |   |                                       | 0.85 |                    |   |       | 0.77 |  |  |      |  |      |   |        | 2.97 |  |   |       | 1.53 | 
|                                                                                                   | Diluted  as reported |   |                                       | 0.85 |                    |   |       | 0.75 |  |  |      |  |      |   |        | 2.86 |  |   |       | 1.49 | 
|                                                                                                   | Diluted  pro forma   |   |                                       | 0.79 |                    |   |       | 0.72 |  |  |      |  |      |   |        | 2.77 |  |   |       | 1.44 | 

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

|                         |  |                                  |       |             |  |  |             |  |  |  |  | 
|------------------------ |  | -------------------------------- | ----- | ----------- |  |  | ----------- |  |  |  |  | 
|                         |  | Weighted-Average Assumptions for
|                         |  | Options Grants                   |       |             | 
|                         |  |                                  |       |             |  | 
|                         |  | 2003                             |       | 2002        |  |  |             | 
|                         |  |                                  |       |             |  |  |             | 
|Dividend Yield           |  |                                  | 0.00  | %           |  |  | 0.00%       | 
|Expected Volatility      |  |                                  | 34.47 | %           |  |  | 29.38%      | 
|Risk-Free Interest Rates |  |                                  | 4.17  | %           |  |  | 4.79%-4.88% | 
|Expected Lives           |  | Seven Years                      |       | Seven Years

NOTE 7  NEW ACCOUNTING PRONOUNCEMENTS

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

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In January of 2003, FASB issued FIN 46, an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 establishes
the criteria used to identify variable interest entities and to determine
whether or not to consolidate a variable interest entity. Under the criteria
established by FIN 46, the Company believes it will be required to
de-consolidate its trust subsidiaries, however, management is still evaluating
this interpretation. The result will be to recognize investments in its trust
subsidiaries in other assets, to report the amount of subordinated debentures
issued by the Company to its trust subsidiaries in the liability section of the
Companys consolidated balance sheets, and to recognize the interest expense in
the subordinated debentures in the consolidated statements of income. Prior to
FIN 46, the Company consolidated its trust subsidiaries and reported trust
preferred securities in the mezzanine section of the Companys consolidated
balance sheets and recognized the proportionate share of income attributable to
the preferred shareholders as minority interest in income of subsidiary in the
consolidated statements of income. This interpretation was effective
immediately for variable interest entities created after January 31, 2003 and
in the first fiscal year or interim period beginning after June 15, 2003, for
variable interest entities in which a variable interest was acquired prior to
February 1, 2003.

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

The reporting requirements of SFAS No. 150 are effective July 1, 2003. As a
result of this new standard, should the adoption of FIN 46 not otherwise
require de-consolidation of the trusts, the Company will reclassify its trust
preferred securities, presented on the consolidated balance sheets as
Guaranteed preferred beneficial interest in the Companys junior subordinated
deferrable interest debentures, net, to liabilities and recognize the related
expense within the consolidated statements of income as interest expense rather
than minority interest in income of subsidiary.

The adoption of FIN 46 and SFAS No. 150 will have no impact on the results of
operations or the financial position of the Company but will require the
restatement of certain financial ratios for all periods presented such as net
interest margin and efficiency ratios, beginning in the third quarter of 2003.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis is intended to identify the major
factors that influenced the financial condition and results of operations for
the three months ended June 30, 2003.

RESULTS OF OPERATIONS

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

General

Consolidated net income was at $5.5 million and $4.8 million for the three
months ended June 30, 2003 and 2002, respectively. The increase in net income
was primarily due to increases in net interest income and non-interest income,
partially offset by increases in non-interest expense and minority interest in
income of subsidiary. The increase in non-interest income was primarily due to
the Banks refund anticipation loan (RAL) program and its strategic
relationship with Household International, Inc. (Household). Diluted EPS was
$0.85 for the three months ended June 30, 2003 compared to $0.75 for the same
period last year, an increase of $0.10 per diluted share.

The return on average assets was 1.38% for the three months ended June 30,
2003 compared to 1.46% for the same period last year. The return on average
shareholders equity was 12.68% for the three months ended June 30, 2003,
compared to 13.31% for the same period last year.

Total loan production was $144.0 million for the three months ended June
30, 2003, consisting of the origination of $124.4 million of commercial real
estate loans, $10.5 million of franchise loans, and $9.1 million of film
finance loans. Loan production during the same period last year totaled $127.2
million, consisting of the origination and/or purchase of $121.2 million of
commercial real estate loans and $6.0 million of acquired franchise loans.

Substantially all RAL loans originated during the quarter were sold to
Household. At June 30, 2003, the Company held $1.1 million in RAL
participation interests. Because the RAL program relates to the filing of
income tax returns, transaction activity is concentrated during the tax season.
This results in the Company earning most of its RAL program
income in the first quarter of the year. The Company expects that its
financial results for the remaining quarters of 2003 will not be significantly
impacted by the RAL program due to the seasonal nature of the business.

Net Interest Income and Margin

The following table presents, for the three months ended June 30, 2003 and
2002, our condensed average balance sheet information, together with interest
income and yields earned on average interest-earning assets and interest
expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.

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|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |      |      |  
|---------------------------------------------------- | ------------------------------------------ | ---------------------- | --------- | ----------------------------------- | --------- | ------- | ------ | ------ | ----- | ------- | ---- | ---------------------- | ---- | ------ | --------- | --------- | ------- | - | ------ | ------ | ----- |  | ---- | ---- | ---- | -
|                                                     |                                            |                        |           | For the Three Months Ended June 30,
|                                                     |                                            |                        |           |                                    
|                                                     |                                            |                        |           | 2003                                |           | 2002   
|                                                     |                                            |                        |           |                                     |           |        
|                                                     |                                            |                        |           | Average                             |           | Income/ |        | Yield/ |       | Average |      | Income/                |      | Yield/
|                                                     |                                            |                        |           | Balance                             |           | Expense |        | Rate   |       | Balance |      | Expense                |      | Rate  
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |       
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      | (dollars in thousands) |      |        |           |           |         |   |        |       
|Assets                                               |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Cash and investments                                 |                                            | $                      | 203,187   |                                     |           | $       | 994    |        |       |         | 1.96 | %                      |      | $      | 66,610    |           |         | $ | 846    |        |       |  | 5.09 | %   
|Loans receivable:                                    |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|                                                     | Loans                                      |                        |           | 1,266,690                           |           |         |        | 25,461 |       |         |      | 8.06                   | %    |        |           | 1,094,054 |         |   |        | 23,062 |       |  |      | 8.45 | %   
|                                                     | Real estate loans held in trust            |                        |           | 107,146                             |           |         |        | 1,456  |       |         |      | 5.45                   | %    |        |           | 149,000   |         |   |        | 2,662  |       |  |      | 7.17 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Total loans receivable                               |                                            |                        | 1,373,836 |                                     |           |         | 26,917 |        |       |         | 7.86 | %                      |      |        | 1,243,054 |           |         |   | 25,724 |        |       |  | 8.30 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Total interest-earning assets                        |                                            |                        | 1,577,023 |                                     |           | $       | 27,911 |        |       |         | 7.10 | %                      |      |        | 1,309,664 |           |         | $ | 26,570 |        |       |  | 8.14 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Non-interest-earning assets                          |                                            |                        | 64,702    |                                     |           |         |        |        |       |         |      |                        |      |        | 42,374    |           |         |   |        |        |       |  |      |     
|Allowance for loan losses                            |                                            |                        | (32,887   | )                                   |           |         |        |        |       |         |      |                        |      |        | (29,169   | )         |         |   |        |        |       |  |      |     
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|                                                     | Total assets                               |                        | $         | 1,608,838                           |           |         |        |        |       |         |      |                        |      |        | $         | 1,322,869 |         |   |        |        |       |  |      |      |     
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Liabilities and
Shareholders Equity                 |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Deposit accounts:                                    |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|                                                     | Money market and
passbook accounts         |                        | $         | 168,276                             |           |         | $      | 620    |       |         |      | 1.48                   | %    |        | $         | 142,849   |         |   | $      | 691    |       |  |      | 1.94 | %   
|                                                     | Time certificates                          |                        |           | 844,830                             |           |         |        | 5,669  |       |         |      | 2.69                   | %    |        |           | 739,216   |         |   |        | 6,404  |       |  |      | 3.47 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|                                                     |                                            | Total deposit accounts |           |                                     | 1,013,106 |         |        |        | 6,289 |         |      |                        | 2.49 | %      |           |           | 882,065 |   |        |        | 7,095 |  |      |      | 3.23 | %
|Collateralized mortgage obligations                  |                                            |                        | 55,988    |                                     |           |         | 291    |        |       |         | 2.08 | %                      |      |        | 93,673    |           |         |   | 631    |        |       |  | 2.70 | %   
|FHLB advances                                        |                                            |                        | 168,698   |                                     |           |         | 1,293  |        |       |         | 3.07 | %                      |      |        | 168,755   |           |         |   | 1,350  |        |       |  | 3.21 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Total interest-bearing liabilities                   |                                            |                        | 1,237,792 |                                     |           | $       | 7,873  |        |       |         | 2.55 | %                      |      |        | 1,144,493 |           |         | $ | 9,076  |        |       |  | 3.18 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Non-interest-bearing liabilities                     |                                            |                        | 115,689   |                                     |           |         |        |        |       |         |      |                        |      |        | 5,467     |           |         |   |        |        |       |  |      |     
|Trust preferred securities                           |                                            |                        | 81,698    |                                     |           |         |        |        |       |         |      |                        |      |        | 28,154    |           |         |   |        |        |       |  |      |     
|Shareholders equity                                 |                                            |                        | 173,659   |                                     |           |         |        |        |       |         |      |                        |      |        | 144,755   |           |         |   |        |        |       |  |      |     
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|                                                     | Total liabilities
and shareholders equity |                        | $         | 1,608,838                           |           |         |        |        |       |         |      |                        |      |        | $         | 1,322,869 |         |   |        |        |       |  |      |      |     
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Net interest spread                                  |                                            |                        |           |                                     |           |         |        |        |       |         | 4.55 | %                      |      |        |           |           |         |   |        |        |       |  | 4.96 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     
|Net interest income before
provision
for loan losses |                                            |                        |           |                                     |           | $       | 20,038 |        |       |         |      |                        |      |        |           |           |         | $ | 17,494 |        |       |  |      |     
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |      |     
|Net interest margin                                  |                                            |                        |           |                                     |           |         |        |        |       |         | 5.10 | %                      |      |        |           |           |         |   |        |        |       |  | 5.36 | %   
|                                                     |                                            |                        |           |                                     |           |         |        |        |       |         |      |                        |      |        |           |           |         |   |        |        |       |  |      |     

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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 
|                               |                                     |                                               |   | June 30, 2003 and 2002     
|                               |                                     |                                               |   | Increase (Decrease) Due to:
|                               |                                     |                                               |   |                            
|                               |                                     |                                               |   | Rate                        |        | Volume |   | Total         
|                               |                                     |                                               |   |                             |        |        |   |               
|                               |                                     |                                               |   |                             |        |        |   | (In thousands) |       |  |   |       
|Interest and fees earned from: |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               | Cash and investment securities      |                                               | $ | (490                        | )      |        | $ | 638            |       |  | $ | 148    |       
|                               | Loans                               |                                               |   | (967                        | )      |        |   | 3,366          |       |  |   | 2,399  |       
|                               | Real estate loans held in trust     |                                               |   | (638                        | )      |        |   | (568           | )     |  |   | (1,206 | )     
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               |                                     | Total increase (decrease) in interest income  |   |                             | (2,095 | )      |   |                | 3,436 |  |   |        | 1,341  |  
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|Interest paid on:              |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               | Deposit accounts                    |                                               |   | (1,622                      | )      |        |   | 816            |       |  |   | (806   | )     
|                               | Collateralized mortgage obligations |                                               |   | (145                        | )      |        |   | (195           | )     |  |   | (340   | )     
|                               | FHLB advances                       |                                               |   | (57                         | )      |        |   |               |       |  |   | (57    | )     
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               |                                     | Total increase (decrease) in interest
expense |   |                             | (1,824 | )      |   |                | 621   |  |   |        | (1,203 | )
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       
|                               |                                     | Increase (decrease) in net interest income    |   | $                           | (271   | )      |   | $              | 2,815 |  |   | $      | 2,544  |  
|                               |                                     |                                               |   |                             |        |        |   |                |       |  |   |       

Total interest income increased $1.3 million to $27.9 million in the
second quarter of 2003 as compared to $26.6 million for the same period last
year. The net increase in interest income was primarily attributable to the
increase in the average balance of the Banks loans and a
decline in our average cost of funds partially offset by a decrease in the yields earned on
our interest earning assets.

The average balance of loans held by the Bank was $1.3 billion and $1.1
billion for the three months ended June 30, 2003 and 2002, respectively. Loans
secured by income producing properties and construction loans had an average
balance of $1.1 billion during the quarter ended June 30, 2003 compared to $1.0
billion during the same period last year. The average balance of franchise
loans was $55.3 million and $59.9 million during the quarter ended June 30,
2003 and 2002, respectively. The average balance of film finance loans was
$107.7 million during the quarter ended June 30, 2003. The Company acquired the
Lewis Horwitz Organization (LHO) during the fourth quarter of 2002 to
originate film finance loans.

The average balance of real estate loans held in trust decreased to $107.1
million for the three months ended June 30, 2003 as compared to $149.0 million
for the same period last year. This decrease was due to loan prepayments and
principal amortization.

The
average balance of our cash and investments increased to $203.2
million in the second quarter of 2003 compared to $66.6 million during the same
period last year. The increase in our
average cash and investments was attributable to the increased liquidity
that was maintained in connection with the Banks RAL program. The decline in
the average yield earned on cash and investments from 5.09% during the second
quarter of 2002 to 1.96% during the second quarter of 2003 was caused by lower
yields earned on short-term and overnight investments, as a significant portion
of the Companys excess liquidity was maintained in overnight investments in
connection with the RAL program.

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The average yield earned on total loans decreased to 7.86% in the quarter
ended June 30, 2003 as compared to 8.30% in the same period last year. The
decline in our yield was primarily caused by our loans being originated or
repricing at lower rates due to 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.
Approximately 93.0% of our real estate loan portfolio (including real
estate loans held in trust) are adjustable rate mortgages at June 30, 2003.
These adjustable rate mortgages generally reprice on a quarterly basis and
approximately $1.1 billion or 88.2% of our real estate loan portfolio contain
interest rate floors, below which the loans contractual interest rate may not
adjust. At June 30, 2003, the weighted average floor interest rate of these
loans was 7.3%. At that date, approximately $1.1 billion or 98.0% of those
loans were at the floor interest rate, approximately $8.4 million or 0.8% were
within 50 basis points of their floor interest rate, and approximately $2.8
million or 0.3% were greater than 50 but less than 100 basis points from their
floor interest rate. If market interest rates decline, because most of our
portfolio has reached the floor interest rates, our loans may be susceptible to
prepayment.

Total interest expense decreased by $1.2 million to $7.9 million in the
second quarter of 2003, compared to $9.1 million for the same period last year.
This decrease was primarily attributable to lower interest rates paid on all
interest bearing liabilities and lower average balances on our Collateralized
Mortgage Obligations (CMOs) partially offset by higher average balances on
deposit accounts.

Our average cost of funds decreased to 2.55% during the three month period
ended June 30, 2003, compared to 3.18% for the same period last year. This
decrease in funding costs was due primarily to lower rates being paid on our
deposit accounts and CMOs as compared to the same period last year
primarily
due to the general decline in market interest rates. The average rate paid on
deposit accounts was 2.49% during the three months ended June 30, 2003 as
compared to 3.23% for the same period last year. The average rate paid on the
CMOs was 2.08% during the three months ended June 30, 2003 compared to 2.70%
for the same period last year. The average balance of deposit accounts
increased $131.0 million to $1.0 billion for the three months ended June 30,
2003 as compared to $882.1 million for the same period last year. The average
balance of our CMOs was $56.0 million during the second quarter of 2003,
compared to $93.7 million for the same period last year reflecting the decline
in the related real estate loans held in trust. Federal Home Loan Bank (FHLB) advances
averaged $168.7 million in the current quarter, compared to $168.8 million for
the same period last year.

Net
interest margin decreased to 5.10% for the three months ended June 30,
2003 as compared to 5.36% for the same period last year primarily due to the
increase in average assets during the quarter and a 104 basis point decrease in
the yield earned on total average interest-earning assets partially offset by a
63 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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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 June 30, 2003 was adequate to
absorb the known and inherent risks of loss in the loan portfolio at that date.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be required
will not adversely impact our financial condition and results of operations.
In addition, the determination of the amount of the Banks allowance for loan
losses is subject to review by the Banks regulators, as part of the routine
examination process, which may result in the establishment of additional
reserves based upon their judgment of information available to them at the time
of their examination.

The consolidated provision for loan losses totaled $1.9 million for the
second quarter of 2003, compared to $2.1 million for the same period last year.
The current period provision for loan losses was recorded to provide for
reserves based on an analysis of the factors referred to above and the
valuation of certain nonperforming loans and other loans of concern. The
allowance for loan losses was 2.49% of total loans and real estate loans held
in trust at June 30, 2003 as compared to 2.24% at December 31, 2002. During
the quarters ended June 30, 2003 and 2002, the Company had net loan charge-offs
of $0.8 million and $1.2 million, respectively. See also  Financial
Condition  Credit Risk.

Non-interest Income

Non-interest income increased to $1.2 million for the three months ended
June 30, 2003, compared to $102,000 for the same period last year.
Substantially all of the increase was due to income earned in connection with
the RAL program.

Non-interest Expense

Non-interest expense totaled $9.0 million for the three months ended June
30, 2003, compared to $6.8 million for the same period last year. The increase
was attributable to an increase in compensation and benefits expense, which
totaled $4.8 million during the three months ended June 30, 2003, compared to
$3.2 million for the same period last year. The increase in compensation and
benefits expense was primarily due to the acquisition of LHO, additions relating to the Banks franchise lending
origination staff, and the development of Imperial Capital Express (ICE), the
Banks small balance commercial real estate lending platform. Non-interest
expense also increased due to infrastructure costs incurred in connection with
the Banks charter conversion. The Companys efficiency ratio (defined as
recurring general and administrative expenses as a percentage of net revenue) was
41.9 percent in the second quarter of 2003 as compared to 35.9 percent for the
same period in 2002.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary, consisting of trust income
earned by holders of our Trust Preferred securities, was $1.4 million during
the three month period ended June 30, 2003 as
compared to $797,000 for the same period last year. On a period-to-period
comparison, the increase was primarily due to the issuance of the $55.0 million
of additional Trust Preferred securities during the fourth quarter of 2002.

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Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

General

Consolidated net income totaled $18.5 million for the six months ended
June 30, 2003 compared to $9.5 million for the same period last year. The
increase in net income was primarily due to increases in net interest income
and non-interest income, partially offset by increases in the provision for
loan losses, non-interest expense and minority interest in income of
subsidiary. The increase in non-interest income was primarily due to the
Banks RAL program and its strategic relationship with Household. Diluted EPS
was $2.86 for the six months ended June 30, 2003, compared to $1.49 for the
same period last year, an increase of $1.37 per diluted share. The return on
average assets was 1.66% for the six months ended June 30, 2003, compared to
1.41% for the same period last year. The return on average shareholders
equity was 21.95% for the six months ended June 30, 2003, compared to 13.47%
for the same period last year.

Total loan production was $245.7 million for the six months ended June 30,
2003, compared to $229.9 million for the same period last year. During the
current six-month period, the Bank originated $209.0 million of commercial real
estate loans, $24.4 million of film finance loan and $12.3 million of franchise
loans. Loan production for the same period last year consisted of $223.9
million of originated and/or acquired commercial real estate loans, including
$36.8 million of loans acquired from Asahi Bank of California and $6.0 million
of acquired franchise loans.

Net Interest Income and Margin

The following table presents, for the six months ended June 30, 2003 and
2002, our condensed average balance sheet information, together with interest
income and yields earned on average interest-earning assets and interest
expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.

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|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |      |      |  
|---------------------------------------------------- | ------------------------------------------ | ---------------------- | --------- | --------------------------------- | --------- | ------- | ------ | ------ | ------ | ------- | ---- | ---------------------- | ---- | ------ | --------- | --------- | ------- | - | ------ | ------ | ------ |  | ---- | ---- | ---- | -
|                                                     |                                            |                        |           | For the Six Months Ended June 30,
|                                                     |                                            |                        |           |                                  
|                                                     |                                            |                        |           | 2003                              |           | 2002   
|                                                     |                                            |                        |           |                                   |           |        
|                                                     |                                            |                        |           | Average                           |           | Income/ |        | Yield/ |        | Average |      | Income/                |      | Yield/
|                                                     |                                            |                        |           | Balance                           |           | Expense |        | Rate   |        | Balance |      | Expense                |      | Rate  
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |       
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      | (dollars in thousands) |      |        |           |           |         |   |        |       
|Assets                                               |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Cash and investments                                 |                                            | $                      | 492,306   |                                   |           | $       | 3,731  |        |        |         | 1.53 | %                      |      | $      | 69,343    |           |         | $ | 1,525  |        |        |  | 4.43 | %   
|Loans receivable:                                    |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|                                                     | Loans                                      |                        |           | 1,314,484                         |           |         |        | 54,075 |        |         |      | 8.30                   | %    |        |           | 1,112,596 |         |   |        | 46,578 |        |  |      | 8.44 | %   
|                                                     | Real estate loans held in trust            |                        |           | 112,076                           |           |         |        | 3,629  |        |         |      | 6.53                   | %    |        |           | 153,511   |         |   |        | 5,502  |        |  |      | 7.23 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Total loans receivable                               |                                            |                        | 1,426,560 |                                   |           |         | 57,704 |        |        |         | 8.16 | %                      |      |        | 1,266,107 |           |         |   | 52,080 |        |        |  | 8.29 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Total interest-earning assets                        |                                            |                        | 1,918,866 |                                   |           | $       | 61,435 |        |        |         | 6.46 | %                      |      |        | 1,335,450 |           |         | $ | 53,605 |        |        |  | 8.09 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Non-interest-earning assets                          |                                            |                        | 76,406    |                                   |           |         |        |        |        |         |      |                        |      |        | 56,566    |           |         |   |        |        |        |  |      |     
|Allowance for loan losses                            |                                            |                        | (33,518   | )                                 |           |         |        |        |        |         |      |                        |      |        | (28,862   | )         |         |   |        |        |        |  |      |     
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|                                                     | Total assets                               |                        | $         | 1,961,754                         |           |         |        |        |        |         |      |                        |      |        | $         | 1,363,154 |         |   |        |        |        |  |      |      |     
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Liabilities and Shareholders
Equity                 |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Deposit accounts:                                    |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|                                                     | Money market and
passbook accounts         |                        | $         | 163,849                           |           |         | $      | 1,298  |        |         |      | 1.60                   | %    |        | $         | 154,631   |         |   | $      | 1,637  |        |  |      | 2.13 | %   
|                                                     | Time certificates                          |                        |           | 857,743                           |           |         |        | 11,839 |        |         |      | 2.78                   | %    |        |           | 757,821   |         |   |        | 13,751 |        |  |      | 3.66 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|                                                     |                                            | Total deposit accounts |           |                                   | 1,021,592 |         |        |        | 13,137 |         |      |                        | 2.59 | %      |           |           | 912,452 |   |        |        | 15,388 |  |      |      | 3.40 | %
|Collateralized mortgage
obligations                  |                                            |                        | 57,933    |                                   |           |         | 681    |        |        |         | 2.37 | %                      |      |        | 98,413    |           |         |   | 1,289  |        |        |  | 2.64 | %   
|FHLB advances                                        |                                            |                        | 167,667   |                                   |           |         | 2,488  |        |        |         | 2.99 | %                      |      |        | 173,736   |           |         |   | 2,888  |        |        |  | 3.35 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Total interest-bearing liabilities                   |                                            |                        | 1,247,192 |                                   |           | $       | 16,306 |        |        |         | 2.64 | %                      |      |        | 1,184,601 |           |         | $ | 19,565 |        |        |  | 3.33 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Non-interest-bearing liabilities                     |                                            |                        | 462,822   |                                   |           |         |        |        |        |         |      |                        |      |        | 7,854     |           |         |   |        |        |        |  |      |     
|Trust preferred securities                           |                                            |                        | 81,663    |                                   |           |         |        |        |        |         |      |                        |      |        | 28,142    |           |         |   |        |        |        |  |      |     
|Shareholders equity                                 |                                            |                        | 170,077   |                                   |           |         |        |        |        |         |      |                        |      |        | 142,557   |           |         |   |        |        |        |  |      |     
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|                                                     | Total liabilities
and shareholders equity |                        | $         | 1,961,754                         |           |         |        |        |        |         |      |                        |      |        | $         | 1,363,154 |         |   |        |        |        |  |      |      |     
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest spread                                  |                                            |                        |           |                                   |           |         |        |        |        |         | 3.82 | %                      |      |        |           |           |         |   |        |        |        |  | 4.76 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest income before
provision for loan losses |                                            |                        |           |                                   |           | $       | 45,129 |        |        |         |      |                        |      |        |           |           |         | $ | 34,040 |        |        |  |      |     
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     
|Net interest margin                                  |                                            |                        |           |                                   |           |         |        |        |        |         | 4.74 | %                      |      |        |           |           |         |   |        |        |        |  | 5.14 | %   
|                                                     |                                            |                        |           |                                   |           |         |        |        |        |         |      |                        |      |        |           |           |         |   |        |        |        |  |      |     

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

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|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |        |  
|------------------------------ | ----------------------------------- | --------------------------------------------- | - | --------------------------- | ------ | ------ | - | ------ | ------ |  | - | ------ | ------ | -
|                               |                                     |                                               |   | For the Six Months Ended   
|                               |                                     |                                               |   | June 30, 2003 and 2002     
|                               |                                     |                                               |   | Increase (Decrease) Due to:
|                               |                                     |                                               |   |                            
|                               |                                     |                                               |   | Rate                        |        | Volume |   | Total 
|                               |                                     |                                               |   |                             |        |        |   |       
|                               |                                     |                                               |   | (In thousands)             
|Interest and fees earned from: |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               | Cash and investment securities      |                                               | $ | (1,192                      | )      |        | $ | 3,398  |        |  | $ | 2,206  |       
|                               | Loans                               |                                               |   | (2,182                      | )      |        |   | 9,679  |        |  |   | 7,497  |       
|                               | Real estate loans held in trust     |                                               |   | (559                        | )      |        |   | (1,314 | )      |  |   | (1,873 | )     
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |       
|                               |                                     | Total increase (decrease) in interest income  |   |                             | (3,933 | )      |   |        | 11,763 |  |   |        | 7,830  |  
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|Interest paid on:              |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               | Deposit accounts                    |                                               |   | (3,656                      | )      |        |   | 1,405  |        |  |   | (2,251 | )     
|                               | Collateralized mortgage obligations |                                               |   | (132                        | )      |        |   | (476   | )      |  |   | (608   | )     
|                               | FHLB advances                       |                                               |   | (310                        | )      |        |   | (90    | )      |  |   | (400   | )     
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |        |       
|                               |                                     | Total increase (decrease) in interest
expense |   |                             | (4,098 | )      |   |        | 839    |  |   |        | (3,259 | )
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       
|                               |                                     | Increase in net interest income               |   | $                           | 165    |        |   | $      | 10,924 |  |   | $      | 11,089 |  
|                               |                                     |                                               |   |                             |        |        |   |        |        |  |   |       

Total interest income increased $7.8 million to $61.4 million in the six
months ended June 30, 2003, as compared to $53.6 million for the same period
last year. The net increase in interest income was primarily attributable to
the increase in the average volume of the Banks loans during the period, the
additional interest income earned on the increased liquidity maintained in
connection with the RAL program and a decline in our average cost of funds
partially offset by a decline in the yields earned on our interest earning
assets.

The average balance of loans held by the Bank was $1.3 billion and $1.1
billion for the six months ended June 30, 2003 and 2002, respectively. Loans
secured by income producing properties and construction loans were essentially
unchanged with an average balance of $1.1 billion during the six months ended
June 30, 2003 and 2002. The average balance of franchise loans was $56.0
million and $59.5 million during the six months ended June 30, 2003 and 2002,
respectively. The average balance of film finance loans was $111.3 million
during the six months ended June 30, 2003. The Company first began originating
film finance loans during the fourth quarter of 2002 when it acquired LHO.

The average balance of real estate loans held in trust decreased to $112.1
million for the six months ended June 30, 2003 as compared to $153.5 million
for the same period last year. This decrease was due to loan prepayments and
principal amortization.

The
average balance of our cash and investments increased to $492.3
million for the six months ended June 30, 2003 compared to $69.3 million during
the same period last year. The increase in our
average cash and investments was attributable to the increased liquidity
maintained in connection with the RAL program. The decline in the average
yield earned on cash and investments from 4.43% during the six months ended
June 30, 2002 to 1.53% during the same period in 2003 was caused by lower
yields earned on short-term and overnight investments as a significant portion
of the Companys excess liquidity was maintained in overnight investments in
connection with the RAL program.

The average yield earned on loans decreased 13 basis points to 8.16% for
the six months ended June 30, 2003 as compared to 8.29% in the same period last
year. The decrease in the yield on loans was primarily due to the origination
and repricing of variable rate loans at lower interest rates resulting from the
continuation of the relatively low interest rate environment, offset in part by
higher

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yields earned on our participation
interests in RAL loans. Our commercial real
estate loan portfolio is primarily comprised of adjustable rate mortgages
indexed to the six month LIBOR.

Total interest expense decreased by $3.3 million to $16.3 million for the
six months ended June 30, 2003, compared to $19.6 million for the same period
last year. This decrease was primarily attributable to lower interest rates
paid on all interest bearing liabilities and lower average balances on our FHLB
advances and CMOs partially offset by higher average balances on deposit
accounts.

Our average cost of funds decreased to 2.64% during the six months ended June
30, 2003, compared to 3.33% for the same period last year. This decrease in
funding costs was due primarily to lower rates being paid on our deposit
accounts and CMOs as compared to the same period last year due to the general
decline in market interest rates. The average rate paid on deposit accounts
was 2.59% during the six months ended June 30, 2003 compared to 3.40% for the
same period last year. The average rate paid on the CMOs was 2.37% during the six months ended June
30, 2003 compared to 2.64% for the same period last year. The average balance
of deposit accounts increased $109.1 million to $1.0 billion for the six months
ended June 30, 2003, compared to $912.5 million for the same period last year.
The average balance of our CMOs was $57.9 million during the six months ended
June 30, 2003, compared to $98.4 million for the same period last year. FHLB
advances averaged $167.7 million in the for the six months ended June 30, 2003,
compared to $173.7 million for the same period last year.

Net
interest margin decreased to 4.74% for the six months ended June 30,
2003 as compared to 5.14% for the same period last year. This decrease was
primarily due to the significant increase in average assets during the quarter
and the 163 basis point decrease in the average yield earned on interest-earning
assets as a result of lower yields earned on short-term and overnight
investments, as a significant portion of the Companys excess
liquidity resulting from the RAL program was maintained in overnight
investments.

Provision for Loan Losses

The consolidated provision for loan losses totaled $6.4 million for the
six months ended June 30, 2003, compared to $3.4 million for the same period
last year. The current period provision for loan losses was recorded to
provide for reserves based on an analysis of the factors referred to previously
and the valuation of certain nonperforming loans and other loans of concern.
During the six months ended June 30, 2003 and 2002, the Company had net loan
charge-offs of $5.8 million and $4.7 million, respectively. The charge-offs
during 2003 relate primarily to one commercial real estate loan.

Non-interest Income

Non-interest income totaled $13.8 million for the six months ended June
30, 2003, compared to $227,000 for the same period last year. Substantially
all of the increase was due to income earned in connection with the RAL
program.

Non-interest Expense

Non-interest expense totaled $19.2 million for the six months ended June
30, 2003, compared to $13.6 million for the same period last year.
Compensation and benefits expense totaled $10.1 million during the six months
ended June 30, 2003, compared to $6.5 million for the same period last year.
The increase in compensation and benefits expense was primarily due to the
acquisition of LHO, additions relating to the Banks franchise lending
origination staff, and the development of ICE, the Banks
small balance commercial real estate lending platform. The Companys efficiency
ratio (defined as recurring general and administrative expenses as percentage
of

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net revenue) was 32.3 percent for the six months ended June 30, 2003,
compared to 36.9 percent for the same period in 2002.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary was $3.0 million during the six
month period ended June 30, 2003 compared to $1.6 million for the same period
last year. The increase was primarily due to the issuance of $55.0 million of
additional Trust Preferred securities during the fourth quarter of 2002.

FINANCIAL CONDITION

Total assets decreased to $1.6 billion at June 30, 2003 as compared to
$1.7 billion at December 31, 2002. At June 30, 2003, loans, net totaled $1.2
billion, including approximately $1.1 billion of commercial real estate loans,
$61.6 million of franchise loans and $102.1 million of film finance loans.
During the six months ended June 30, 2003, the Banks loan portfolio decreased
$99.1 million and the REITs portfolio decreased $25.8 million. The decrease
in both the Banks and REITs loan portfolios reflect an increase in loan
prepayments experienced during the six months ended June 30, 2003 as compared
to prior periods. Additionally, cash and cash equivalents decreased $27.7
million primarily as a result of reducing excess liquidity that was maintained
to fund anticipated loan production at December 31, 2002. Total deposit
accounts, which are concentrated in time certificates, declined to $1.0 billion
at June 30, 2003 from $1.1 billion at December 31, 2002. FHLB advances
decreased $90.9 million to $247.8 million at June 30, 2003, compared to $338.7
million at December 31, 2002. Management believes that a significant portion
of deposits will remain with us upon maturity based on our historical
experience regarding retention of deposits. CMOs decreased $25.7 million to
$43.4 million at June 30, 2003 compared to $69.1 million at December 31, 2002
reflecting the decline in real estate loans held in trust. Accounts payable
and other liabilities increased $32.0 million primarily as a result of
outstanding checks and other liabilities related to the RAL program.

Residual Interest

In the first quarter of 2002, we formed a limited liability company to
issue $86.3 million of asset-backed notes in a securitization of substantially
all of our residential loan portfolio. These notes were rated AAA by Standard
& Poors, Aaa by Moodys, and are insured by Financial Security Assurance. In
the securitization, residential loans were sold to the limited liability
company for a cash purchase price and an interest in the loans securitized in
the form of the excess spread. The cash purchase price was raised through an
offering of asset-backed notes issued by the limited liability company. Note
holders are entitled to receive the principal collected on the loans and the
stated interest rate on the notes. We are entitled to receive the excess
spread. The excess spread generally represents, over the estimated life of the
loans, the excess of the weighted average coupon on the loans sold over the sum
of the note interest rate less other expenses including a trustee fee and an
insurance fee. Valuation of the excess spread includes an estimate of annual
future credit losses related to the loans securitized. These reported cash
flows are discounted when computing the value of the residual interest.

We recognized a gain on the sale of these loans, although cash
(representing the excess spread and servicing fees) is received by us over the
lives of the loans. Concurrent with recognizing such gain on sale, we recorded
the excess spread as a residual interest of $5.6 million which is indicated on
our consolidated balance sheets as Investment securities available for sale,
at fair value section. The value of the residual interest is subject to
substantial credit, prepayment and interest rate risk on the sold residential
loans.

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In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, we classified our residual interest as an available-for-sale
asset and, as such, they are recorded at fair value with the resultant changes
in fair value recorded as accumulated unrealized gain or loss in a separate
component of shareholders equity entitled accumulated other comprehensive
income or loss, until realized. We determine fair value on a monthly basis
based on a discounted cash flow analysis. These cash flows are projected over
the lives of the receivables using prepayment, default, and interest rate
assumptions that we believe market participants would use for similar financial
instruments.

During the six months ended June 30, 2003, the Company recognized an other
than temporary impairment of $500,000 in connection with its residual interest.
Impairments that are deemed to be other than temporary are charged to income,
as other expense. In evaluating impairments as other than temporary the
Company considers credit risk, as well as the magnitude and trend of default
rates and prepayment speeds of the underlying residential loans.

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

|                                         |  |          |       |  
|---------------------------------------- |  | -------- | ----- | -
|                                         |  | June 30,
|                                         |  | 2003    
|                                         |  |         
|Dollars in thousands, except percentages |  |          |       |  
|Fair value of retained interest          |  | $        | 5,368 |  
|Weighted average life (in years)         |  |          | 1.22  |  
|Weighted average annual prepayment speed |  |          | 35.0  | %
|Impact of 10% adverse change             |  | $        | (93   | )
|Impact of 25% adverse change             |  | $        | (225  | )
|Weighted average annual discount rate    |  |          | 15.0  | %
|Impact of 10% adverse change             |  | $        | (359  | )
|Impact of 25% adverse change             |  | $        | (857  | )
|Weighted average lifetime credit losses  |  |          | 3.3   | %
|Impact of 10% adverse change             |  | $        | (152  | )
|Impact of 25% adverse change             |  | $        | (380  | )

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

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CREDIT RISK

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

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

|                                                                    |                        |                                         |        |                        |        |              |        |       |        | 
|------------------------------------------------------------------- | ---------------------- | --------------------------------------- | ------ | ---------------------- | ------ | ------------ | ------ | ----- | ------ | 
|                                                                    |                        |                                         |        | June 30,               |        | December 31,
|                                                                    |                        |                                         |        | 2003                   |        | 2002        
|                                                                    |                        |                                         |        |                        |        |             
|                                                                    |                        |                                         |        | (dollars in thousands)
|Nonaccrual loans:                                                   |                        |                                         |        |                        |        |              |        |      
|                                                                    | Real estate            |                                         | $      | 2,697                  |        |              | $      | 3,913 |       
|                                                                    | Franchise              |                                         |        | 1,234                  |        |              |        | 1,986 |       
|                                                                    | Film finance           |                                         |        | 885                    |        |              |        |      |       
|                                                                    |                        |                                         |        |                        |        |              |        |      
|                                                                    | Total nonaccrual loans |                                         |        | 4,816                  |        |              |        | 5,899 |       
|Other real estate owned, net                                        |                        |                                         | 16,885 |                        |        |              | 12,593 |      
|                                                                    |                        |                                         |        |                        |        |              |        |      
|                                                                    |                        | Total nonperforming assets              |        |                        | 21,701 |              |        |       | 18,492 | 
|                                                                    |                        | Performing troubled debt restructurings |        |                        | 6,179  |              |        |       | 7,858  | 
|                                                                    |                        |                                         |        |                        |        |              |        |       |       
|                                                                    |                        | $                                       | 27,880 |                        |        | $            | 26,350 |      
|                                                                    |                        |                                         |        |                        |        |              |        |      
|Nonaccrual loans to total loans
and real estate loans held in trust |                        |                                         | 0.36   | %                      |        |              | 0.36   | %    
|Allowance for loan losses to nonaccrual loans                       |                        |                                         | 695.97 | %                      |        |              | 555.61 | %    
|Nonperforming assets to total assets                                |                        |                                         | 1.39   | %                      |        |              | 1.08   | %    

At June 30, 2003, other real estate owned consisted of five income
producing properties totaling $16.9 million.

As of June 30, 2003 and December 31, 2002, other loans of concern totaled
$27.5 million and $35.5 million, respectively. Other loans of concern consist
of loans with respect to which known information concerning possible credit
problems with the borrowers or the cash flows of the properties securing the
respective loans has caused management to be concerned about the ability of the
borrowers to comply with present loan repayment terms, which may result in the
future inclusion of such loans in the nonaccrual category. The decrease in
other loans of concern for the six months ended June 30, 2003 was primarily due
to $4.4 million of loans being paid-off, and $13.6 million of loans
migrating to nonaccrual status, partially offset by $10.2 million of new other
loans of concern.

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

|                                                                                |                          |   |                        |        |              |   |        |        | 
|------------------------------------------------------------------------------- | ------------------------ | - | ---------------------- | ------ | ------------ | - | ------ | ------ | 
|                                                                                |                          |   | For the Six            |        | For the Year
|                                                                                |                          |   | Months Ended           |        | Ended       
|                                                                                |                          |   | June 30,               |        | December 31,
|                                                                                |                          |   | 2003                   |        | 2002        
|                                                                                |                          |   |                        |        |             
|                                                                                |                          |   | (dollars in thousands)
|Balance at beginning of period                                                  |                          | $ | 33,009                 |        |              | $ | 26,650 |       
|Provision for loan losses                                                       |                          |   | 6,350                  |        |              |   | 9,030  |       
|Additions related to acquisitions                                               |                          |   |                       |        |              |   | 2,048  |       
|Charge-offs                                                                     |                          |   | (5,848                 | )      |              |   | (4,730 | )     
|Recoveries                                                                      |                          |   | 7                      |        |              |   | 11     |       
|                                                                                |                          |   |                        |        |              |   |        |       
|Net charge-offs                                                                 |                          |   | (5,841                 | )      |              |   | (4,719 | )     
|                                                                                |                          |   |                        |        |              |   |        |       
|                                                                                | Balance at end of period |   | $                      | 33,518 |              |   | $      | 33,009 | 
|                                                                                |                          |   |                        |        |              |   |        |       
|Allowance for loan losses as a percentage of
loans and loans held in trust, net |                          |   | 2.49                   | %      |              |   | 2.24   | %     

Liquidity

Liquidity refers to our ability to maintain cash flow adequate to fund
operations and meet obligations and other commitments on a timely basis,
including the payment of maturing deposits and the origination or purchase of
new loans. We maintain a cash and investment securities portfolio designed to
satisfy operating liquidity requirements while preserving capital and
maximizing yield. As of June 30, 2003, we held $133.1 million of cash and cash
equivalents (consisting primarily of short-term investments with original
maturities of 90 days or less) and $41.1 million of investment securities
classified as available for sale.

Short-term fixed income investments classified as cash equivalents
consisted of interest-bearing deposits at financial institutions, government
money market funds and short-term government agency securities, while
investment securities available for sale consisted primarily of fixed income
instruments, which were rated AAA, or equivalent by nationally recognized
rating agencies. In addition, our
liquidity position is supported by a credit facility with the Federal Home Loan
Bank of San Francisco. As of June 30, 2003, we had remaining available
borrowing capacity under this credit facility of $233.5 million, net of the
$12.3 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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Capital Resources

As of June 30, 2003, the Banks Leverage (Core), Tier I and Total
Risk-Based capital ratios were 13.64%, 15.26% and 16.53%, respectively. These
ratios were 13.02%, 13.18% and 14.44%, respectively, as of December 31, 2002.
The minimum regulatory requirement for Leverage (Core), Tier I and Total
Risk-Based capital are 4.0%, 4.0% and 8.0%, respectively. As of June 30, 2003,
the Banks capital position was designated as well capitalized for regulatory
purposes.

At June 30, 2003, shareholders equity totaled $175.4 million or 11.22
percent of total assets. The Companys book value per share of common stock
was $30.28 as of June 30, 2003, as compared to $27.11 as of December 31, 2002,
and $25.23 as of June 30, 2002.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our estimated sensitivity to interest rate risk, as measured by the
estimated interest earnings sensitivity profile and the interest sensitivity
gap analysis, has not materially changed from the information disclosed in our
annual report on Form 10-K for the year ended December 31, 2002.




ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures: An evaluation of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Act)) was carried out as of
June 30, 2003 under the supervision and with the participation of the Companys
Chief Executive Officer, Chief Financial Officer and several other members of
the Companys senior management. The Companys Chief
Executive Officer and Chief Financial Officer concluded that, as of
June 30, 2003, the Companys
disclosure controls and procedures are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or
submits under the Act is (i) accumulated and communicated to the Companys
management (including the Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms.

(b) 
Changes in Internal Control over Financial Reporting: During the
quarter ended June 30, 2003, no change occurred in the Companys internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

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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



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




Item 5.   Other Information



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




Item 6.   Exhibits and Reports on Form 8-K



| | (a) | See exhibit index                                                                         
| | --- | ------------------------------------------------------------------------------------------
|
| | (b) | During the second quarter of 2003, we filed or
furnished the following reports on Form 8-K

|       |  |                                                           |  |               
|------ |  | --------------------------------------------------------- |  | --------------
|Item # |  | Item Description                                          |  | Filing Date   
|       |  |                                                           |  |               
|5 & 7  |  | Announcement of Annual Shareholders Meeting
Press Release |  | April 30, 2003
|       |  |                                                           |  |               
|7 & 12 |  | First Quarter Earnings Press Release                      |  | May 8, 2003   

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SIGNATURES

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

ITLA CAPITAL CORPORATION

|                     |  |                                                                                  
|-------------------- |  | ---------------------------------------------------------------------------------
|Date:August 14, 2003 |  | /s/ George W. Haligowski                                                         
|                     |  |                                                                                  
|                     |  | George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer

|                     |  |                                                                      
|-------------------- |  | ---------------------------------------------------------------------
|Date:August 14, 2003 |  | /s/ Timothy M. Doyle                                                 
|                     |  |                                                                      
|                     |  | Timothy M. Doyle
Senior Managing Director and
Chief Financial Officer

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EXHIBIT INDEX

|           |  |                                                                                                                                                                                                                           |  |                   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Regulation |  |                                                                                                                                                                                                                           |  | Reference to Prior
|S-K        |  |                                                                                                                                                                                                                           |  | Filling or Exhibit
|Exhibit    |  |                                                                                                                                                                                                                           |  | Number Attached   
|Number     |  | Document                                                                                                                                                                                                                  |  | Hereto            
|           |  |                                                                                                                                                                                                                           |  |                   
|3.1        |  | Certificate of Incorporation                                                                                                                                                                                              |  | **                
|           |  |                                                                                                                                                                                                                           |  |                   
|3.2        |  | Bylaws, as amended                                                                                                                                                                                                        |  | ******            
|           |  |                                                                                                                                                                                                                           |  |                   
|4          |  | Instruments Defining the Rights of Security Holders,
Including Indentures                                                                                                                                                 |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|10.1       |  | 1995 Stock Option Plan For Nonemployee Directors                                                                                                                                                                          |  | *                 
|           |  |                                                                                                                                                                                                                           |  |                   
|10.2       |  | 1995 Employee Stock Incentive Plan                                                                                                                                                                                        |  | *******           
|           |  |                                                                                                                                                                                                                           |  |                   
|10.3       |  | Nonqualified Deferred Compensation Plan                                                                                                                                                                                   |  | ***               
|           |  |                                                                                                                                                                                                                           |  |                   
|10.4       |  | Supplemental Salary Savings Plan                                                                                                                                                                                          |  | *                 
|           |  |                                                                                                                                                                                                                           |  |                   
|10.5       |  | Data Processing Agreement                                                                                                                                                                                                 |  | *                 
|           |  |                                                                                                                                                                                                                           |  |                   
|10.6       |  | Employment Agreement with George W. Haligowski                                                                                                                                                                            |  | *                 
|           |  |                                                                                                                                                                                                                           |  |                   
|10.7       |  | Change of Control Agreements                                                                                                                                                                                              |  | ***               
|           |  |                                                                                                                                                                                                                           |  |                   
|10.8       |  | Recognition and Retention Plan                                                                                                                                                                                            |  | **                
|           |  |                                                                                                                                                                                                                           |  |                   
|10.9       |  | Voluntary Retainer Stock and Deferred Compensation Plan for
Outside Directors                                                                                                                                             |  | **                
|           |  |                                                                                                                                                                                                                           |  |                   
|10.10      |  | Supplemental Executive Retirement Plan                                                                                                                                                                                    |  | ***               
|           |  |                                                                                                                                                                                                                           |  |                   
|10.11      |  | ITLA Capital Corporation Rabbi Trust Agreement                                                                                                                                                                            |  | ***               
|           |  |                                                                                                                                                                                                                           |  |                   
|10.12      |  | Salary Continuation Plan                                                                                                                                                                                                  |  | ****              
|           |  |                                                                                                                                                                                                                           |  |                   
|10.13      |  | Licensing Agreement, dated October 30, 2002, between Imperial
Capital Bank and Beneficial Franchise Company, Inc.                                                                                                         |  | ********          
|           |  |                                                                                                                                                                                                                           |  |                   
|10.14      |  | Amended and Restated Sale and Servicing Agreement for
RALs and RACs, dated as of January 3, 2003, between
Imperial Capital Bank, Household Tax Masters Inc.,
and Household Tax Masters Acquisition Corporation            |  | ********          
|           |  |                                                                                                                                                                                                                           |  |                   
|11         |  | Statement Regarding Computation of Per Share Earnings                                                                                                                                                                     |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|13         |  | Quarterly Report to Security Holders                                                                                                                                                                                      |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|15         |  | Letter Regarding Unaudited Interim Financial Information                                                                                                                                                                  |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|18         |  | Letter Regarding Change in Accounting Principles                                                                                                                                                                          |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|19         |  | Report furnished to Security Holders                                                                                                                                                                                      |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|22         |  | Published Report Regarding Matters Submitted to Vote of
Security Holders                                                                                                                                                  |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|23         |  | Consent of Experts                                                                                                                                                                                                        |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|24         |  | Power of Attorney                                                                                                                                                                                                         |  | None              
|           |  |                                                                                                                                                                                                                           |  |                   
|31.1       |  | Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer                                                                                                                                                         |  | 31.1              
|           |  |                                                                                                                                                                                                                           |  |                   
|31.2       |  | Rule 13a-14(a)/15d-14(a) Certification of
Chief Financial Officer                                                                                                                                                         |  | 31.2              
|           |  |                                                                                                                                                                                                                           |  |                   
|32         |  | Section 1350 Certifications of Chief Executive Officer and
Chief Financial Officer                                                                                                                                        |  | 32                
|          
|          
|*          |  | Filed as an exhibit to Imperial Thrift and Loan Associations
Registration Statement on Form S-1 (File No. 33-96518) filed with
the Commission on September 1, 1995, pursuant to Section 5 of the
Securities Act of 1933.

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|        
|--------
|**      
|        
|***     
|        
|****    
|        
|*****   
|        
|******  
|        
|******* 
|        
|********

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