----

----

**FORM      10-Q**

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

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

|   | **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 Section 13 or 15(d) of the Securities Exchange Act of                1934                during the preceding 12 months (or for such shorter period that the                registrant was required to file such reports), and (2) has been subject                to                such filing requirements for the past 90 days. Yes R                No                £. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Indicate                by check mark whether the registrant is a large accelerated filer,                an                accelerated filer, or a non-accelerated filer. See definition of                “accelerated filer” in Rule 12b-2 of the Exchange Act. Large Accelerated                Filer £                Accelerated Filer R                Non-Accelerated Filer £                                                                                                               |
|  Indicate                by check mark whether the Registrant is a shell company (as                defined in Rule 12b-2 of the Exchange Act). Yes £                No                R.                                                                                                                                                                                                                                                                                                                             |
|  Number                of shares of common stock of the registrant: 5,524,002 outstanding                as of                August 1, 2006.                                                                                                                                                                                                                                                                                                                                                                              |

----

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**Table          of Contents**

**ITLA      CAPITAL CORPORATION **

**FORM      10-Q**

**FOR      THE THREE AND SIX MONTHS ENDED JUNE 30, 2006**

**TABLEOF      CONTENTS**

| **PART                I - FINANCIAL                INFORMATION** |                                                                                                                                |
|------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
| Item                1.                                           | Financial                Statements                                                                                                 | 3 |
|                                                             | Consolidated                Balance Sheets - June 30, 2006 (Unaudited)                and December 31, 2005                         | 3 |
|                                                             | Consolidated                Statements of Income - Three and Six Months                Ended June 30, 2006 and 2005 (Unaudited)     | 4 |
|                                                             | Consolidated                Statements of Cash Flows - Three and Six                Months Ended June 30, 2006 and 2005 (Unaudited) | 5 |
|                                                             | Notes                to the Unaudited Consolidated Financial                Statements                                              | 6 |
| Item                2.                                           | Management’s                Discussion and Analysis of Financial                Condition and Results of Operations           | 13 |
| Item                3.                                           | Quantitative                and Qualitative Disclosures about Market                Risk                                            | 26 |
| Item                4.                                           | Controls                and Procedures                                                                                              | 26 |
|                                                             |                                                                                                                                |   |
| **PART                II - OTHER                INFORMATION**    |                                                                                                                                |
| Item                1.                                           | Legal                Proceedings                                                                                                    | 28 |
| Item                1A.                                          | Risk                Factors                                                                                                         | 28 |
| Item                2.                                           | Unregistered                Sales of Equity Securities and Use of                Proceeds                                           | 28 |
| Item                3.                                           | Defaults                Upon Senior Securities                                                                                      | 28 |
| Item                4.                                           | Submission                of Matters to a Vote of Security                Holders                                                   | 28 |
| Item                5.                                           | Other                Information                                                                                                    | 28 |
| Item                6.                                           | Exhibits                                                                                                                            | 28 |
|                                                             | Signatures                                                                                                                          | 29 |
|                                                             | Certifications                                                                                                                      | 31 |
| Exhibit              31.1                                        |                                                                                                                                |   |
| Exhibit              31.2                                        |                                                                                                                                |   |
| Exhibit              32                                          |                                                                                                                                |   |

**Forward      Looking Statements**

----

**Table          of Contents**

**PART      I - FINANCIAL INFORMATION**

| **ITLA                CAPITAL CORPORATION AND                SUBSIDIARIES**                                                                                                                                                          |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONSOLIDATED                BALANCE SHEETS**                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   | **June                30,** |   |   |   |
|                                                                                                                                                                                                                                 |   | **2006** |   | **December                31,** |   |
|                                                                                                                                                                                                                                 |   | **(unaudited)** |   | **2005** |   |
|                                                                                                                                                                                                                                 |   | **(in                thousands, except share data)** |   |
| **Assets**                                                                                                                                                                                                                           |   |   |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                             |   | $ | 144,097 |   | $ | 93,747 |   |
| Investment                securities available-for-sale, at fair value                                                                                                                                                               |   |   | 93,084 |   |   | 92,563 |   |
| Investment                securities held-to-maturity, at amortized cost                                                                                                                                                             |   |   | 217,460 |   |   | 233,880 |   |
| Stock                in Federal Home Loan Bank                                                                                                                                                                                       |   |   | 47,719 |   |   | 43,802 |   |
| Loans,                net (net of allowance for loan losses of $46,655 and $43,817 as                of June 30, 2006 and December 31, 2005, respectively)                                                                           |   |   | 2,632,749 |   |   | 2,523,480 |   |
| Interest                receivable                                                                                                                                                                                                   |   |   | 17,323 |   |   | 16,287 |   |
| Other                real estate owned, net                                                                                                                                                                                          |   |   | 5,707 |   |   | 3,960 |   |
| Premises                and equipment, net                                                                                                                                                                                           |   |   | 7,290 |   |   | 6,718 |   |
| Deferred                income taxes                                                                                                                                                                                                 |   |   | 12,828 |   |   | 12,717 |   |
| Goodwill                                                                                                                                                                                                                             |   |   | 3,118 |   |   | 3,118 |   |
| Other                assets                                                                                                                                                                                                          |   |   | 20,775 |   |   | 20,924 |   |
| Total                assets                                                                                                                                                                                                          |   | $ | 3,202,150 |   | $ | 3,051,196 |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| **Liabilities                and Shareholders’ Equity**                                                                                                                                                                        |   |   |   |   |   |   |   |
| Liabilities:                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Deposit                accounts                                                                                                                                                                                                      |   | $ | 1,811,009 |   | $ | 1,735,428 |   |
| Federal                Home Loan Bank advances and other borrowings                                                                                                                                                                  |   |   | 1,075,891 |   |   | 992,557 |   |
| Accounts                payable and other liabilities                                                                                                                                                                                |   |   | 19,727 |   |   | 32,130 |   |
| Junior                subordinated debentures                                                                                                                                                                                        |   |   | 86,600 |   |   | 86,600 |   |
| Total                liabilities                                                                                                                                                                                                     |   |   | 2,993,227 |   |   | 2,846,715 |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                         |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Shareholders’                equity:                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Preferred                stock, 5,000,000 shares authorized, none issued                                                                                                                                                             |   |   | — |   |   | — |   |
| Contributed                capital - common stock, $.01 par value; 20,000,000 shares authorized,                8,987,998 and 8,978,998 issued as of June 30, 2006 and December 31,                2005,                respectively |   |   | 78,458 |   |   | 78,004 |   |
| Retained                earnings                                                                                                                                                                                                     |   |   | 231,509 |   |   | 220,095 |   |
| Accumulated                other comprehensive loss, net                                                                                                                                                                             |   |   | (434 | ) |   | (364 | ) |
|                                                                                                                                                                                                                                 |   |   | 309,533 |   |   | 297,735 |   |
| Less                treasury stock, at cost 3,732,251 and 3,576,695 shares as of June                30, 2006 and December 31, 2005, respectively                                                                                    |   |   | (100,610 | ) |   | (93,254 | ) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                shareholders' equity                                                                                                                                                                                            |   |   | 208,923 |   |   | 204,481 |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                liabilities and shareholders' equity                                                                                                                                                                            |   | $ | 3,202,150 |   | $ | 3,051,196 |   |

----

**Table          of Contents**

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

|                                                                  |   |                                                                         |    |                                                                       |   |
|-----------------------------------------------------------------------|--------|------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------|--------|
|                                                                  |   | **For                  the Three Months Ended****June                  30,** |    | **For                  the Six Months Ended****June                  30,** |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |
|                                                                  |   | **2006**                                                                     |    | **2005**                                                                   |   | **2006** |   | **2005** |   |
|                                                                  |   | **(in                  thousands, except per share data)**                   |    |
| Interest                  income:                                     |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Loans,                  including fees                                |   | $                                                                            | 51,082  |                                                                       | $      | 37,210 |   | $ | 98,219 |   | $ | 69,121 |   |
| Cash                  and investment securities                       |   |                                                                         | 4,678   |                                                                       |   | 4,470 |   |   | 8,969 |   |   | 9,311 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  interest income                                |   |                                                                         | 55,760  |                                                                       |   | 41,680 |   |   | 107,188 |   |   | 78,432 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Interest                  expense:                                    |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Deposit                  accounts                                     |   |                                                                         | 19,773  |                                                                       |   | 11,897 |   |   | 36,971 |   |   | 21,395 |   |
| Federal                  Home Loan Bank advances and other borrowings |   |                                                                         | 9,977   |                                                                       |   | 5,900 |   |   | 19,339 |   |   | 9,732 |   |
| Junior                  subordinated debentures                       |   |                                                                         | 2,026   |                                                                       |   | 1,754 |   |   | 3,984 |   |   | 3,434 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  interest expense                               |   |                                                                         | 31,776  |                                                                       |   | 19,551 |   |   | 60,294 |   |   | 34,561 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Net                  interest income before provision for loan losses |   |                                                                         | 23,984  |                                                                       |   | 22,129 |   |   | 46,894 |   |   | 43,871 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Provision                  for loan losses                            |   |                                                                         | 1,500   |                                                                       |   | 1,500 |   |   | 2,250 |   |   | 2,250 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Net                  interest income after provision for loan losses  |   |                                                                         | 22,484  |                                                                       |   | 20,629 |   |   | 44,644 |   |   | 41,621 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Non-interest                  income:                                 |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Late                  and collection fees                             |   |                                                                         | 261     |                                                                       |   | 130 |   |   | 484 |   |   | 203 |   |
| Other                                                                 |   |                                                                         | 346     |                                                                       |   | 379 |   |   | 840 |   |   | 286 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  non-interest income                            |   |                                                                         | 607     |                                                                       |   | 509 |   |   | 1,324 |   |   | 489 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Non-interest                  expense:                                |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Compensation                  and benefits                            |   |                                                                         | 5,075   |                                                                       |   | 5,376 |   |   | 11,095 |   |   | 11,267 |   |
| Occupancy                  and equipment                              |   |                                                                         | 1,876   |                                                                       |   | 1,750 |   |   | 3,682 |   |   | 3,401 |   |
| Other                                                                 |   |                                                                         | 4,882   |                                                                       |   | 3,943 |   |   | 9,093 |   |   | 7,631 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  general and administrative                     |   |                                                                         | 11,833  |                                                                       |   | 11,069 |   |   | 23,870 |   |   | 22,299 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Real                  estate owned expense, net                       |   |                                                                         | (177    | )                                                                          |   | — |   |   | (71 | ) |   | — |   |
| Gain                  on sale of other real estate owned, net         |   |                                                                         | — |                                                                       |   | — |   |   | — |   |   | (11 | ) |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  real estate owned expense, net                 |   |                                                                         | (177    | )                                                                          |   | — |   |   | (71 | ) |   | (11 | ) |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Total                  non-interest expense                           |   |                                                                         | 11,656  |                                                                       |   | 11,069 |   |   | 23,799 |   |   | 22,288 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Income                  before provision for income taxes             |   |                                                                         | 11,435  |                                                                       |   | 10,069 |   |   | 22,169 |   |   | 19,822 |   |
| Provision                  for income taxes                           |   |                                                                         | 4,689   |                                                                       |   | 4,230 |   |   | 9,091 |   |   | 8,332 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| NET                  INCOME                                           |   | $                                                                            | 6,746   |                                                                       | $      | 5,839 |   | $ | 13,078 |   | $ | 11,490 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share                             |   | $                                                                            | 1.22    |                                                                       | $      | 1.01 |   | $ | 2.34 |   | $ | 1.99 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Diluted                  earnings per share                           |   | $                                                                            | 1.18    |                                                                       | $      | 0.98 |   | $ | 2.28 |   | $ | 1.90 |   |
|                                                                  |   |                                                                         |    |                                                                       |   |   |   |   |   |   |   |   |   |
| Dividends                  declared per share of common stock         |   | $                                                                            | 0.15    |                                                                       | $      | — |   | $ | 0.30 |   | $ | — |   |
|                                                                  |

----

**Table          of Contents**

| **ITLA                CAPITAL CORPORATION AND                SUBSIDIARIES**                                       |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
| **CONSOLIDATED                STATEMENTS OF CASH FLOWS**                                                          |   |
| **(Unaudited)**                                                                                                   |   |
|                                                                                                              |   | **For                the Six Months Ended****June                30,** |   |
|                                                                                                              |   | **2006** |   | **2005** |   |
|                                                                                                              |   | **(in                thousands)** |   |
| Cash                Flows From Operating Activities:                                                              |   |   |   |   |   |   |   |
| Net                Income                                                                                         |   | $ | 13,078 |   | $ | 11,490 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:   |   |   |   |   |   |   |   |
| Depreciation                and amortization of premises and equipment                                            |   |   | 1,349 |   |   | 1,232 |   |
| Amortization                of premium on purchased loans                                                         |   |   | 2,349 |   |   | 1,078 |   |
| Accretion                of deferred loan origination fees, net of costs                                          |   |   | (1,728 | ) |   | (1,391 | ) |
| Provision                for loan losses                                                                          |   |   | 2,250 |   |   | 2,250 |   |
| Other,                net                                                                                         |   |   | (998 | ) |   | (418 | ) |
| Increase                in interest receivable                                                                    |   |   | (1,036 | ) |   | (3,267 | ) |
| Decrease                in other assets                                                                           |   |   | 149 |   |   | 1,848 |   |
| (Decrease)                increase in accounts payable and other liabilities                                      |   |   | (13,235 | ) |   | 3,054 |   |
|                                                                                                              |   |   |   |   |   |   |   |
| Net                cash provided by operating activities                                                          |   |   | 2,178 |   |   | 15,876 |   |
|                                                                                                              |   |   |   |   |   |   |   |
| Cash                Flows From Investing Activities:                                                              |   |   |   |   |   |   |   |
| Purchases                of investment securities available-for-sale                                              |   |   | (14,863 | ) |   | (22,876 | ) |
| Proceeds                from maturity and calls of investment securities                available-for-sale        |   |   | 14,235 |   |   | 2,219 |   |
| Purchases                of investment securities held-to-maturity                                                |   |   | (7,771 | ) |   | — |   |
| Proceeds                from the maturity and redemption of investment securities                held-to-maturity |   |   | 24,138 |   |   | 26,273 |   |
| Purchase                of stock in Federal Home Loan Bank                                                        |   |   | (2,800 | ) |   | (10,221 | ) |
| Purchase                of loans                                                                                  |   |   | (226,436 | ) |   | (493,171 | ) |
| Other                decreases (increases) in loans, net                                                          |   |   | 112,549 |   |   | (75,458 | ) |
| Proceeds                from sale of other real estate owned                                                      |   |   | — |   |   | 81 |   |
| Cash                paid for capital expenditures                                                                 |   |   | (1,921 | ) |   | (1,485 | ) |
|                                                                                                              |   |   |   |   |   |   |   |
| Net                cash used in investing activities                                                              |   |   | (102,869 | ) |   | (574,638 | ) |
|                                                                                                              |   |   |   |   |   |   |   |
| Cash                Flows From Financing Activities:                                                              |   |   |   |   |   |   |   |
| Proceeds                and excess tax benefits from exercise of employee stock                options            |   |   | 314 |   |   | 3,026 |   |
| Cash                paid to acquire treasury stock                                                                |   |   | (7,356 | ) |   | (13,954 | ) |
| Cash                paid for dividends                                                                            |   |   | (832 | ) |   | — |   |
| Increase                in deposit accounts                                                                       |   |   | 75,581 |   |   | 284,777 |   |
| Net                proceeds from (repayments of) short-term borrowings                                            |   |   | 31,795 |   |   | (166,000 | ) |
| Proceeds                from long-term borrowings                                                                 |   |   | 89,869 |   |   | 397,554 |   |
| Repayments                of long-term borrowings                                                                 |   |   | (38,330 | ) |   | (1,100 | ) |
|                                                                                                              |   |   |   |   |   |   |   |
| Net                cash provided by financing activities                                                          |   |   | 151,041 |   |   | 504,303 |   |
|                                                                                                              |   |   |   |   |   |   |   |
| Net                increase (decrease) in cash and cash equivalents                                               |   |   | 50,350 |   |   | (54,459 | ) |
| Cash                and cash equivalents at beginning of period                                                   |   |   | 93,747 |   |   | 87,580 |   |
|                                                                                                              |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of period                                                         |   | $ | 144,097 |   | $ | 33,121 |   |
|                                                                                                              |   |   |   |   |   |   |   |
| Supplemental                Cash Flow Information:                                                                |   |   |   |   |   |   |   |
| Cash                paid during the period for interest                                                           |   | $ | 58,405 |   | $ | 33,756 |   |
| Cash                paid during the period for income taxes                                                       |   | $ | 9,816 |   | $ | 8,429 |   |
| Non-Cash                Investing and Financing Transactions:                                                     |   |   |   |   |   |   |   |
| Loans                transferred to other real estate owned                                                       |   | $ | 1,747 |   | $ | 70 |   |
| Cash                dividends declared but not yet paid                                                           |   | $ | 832 |   | $ | — |   |
|                                                                                                              |   |   |   |   |   |   |   |

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**Table          of Contents**

**ITLA      CAPITAL CORPORATION AND SUBSIDIARIES**

**NOTES      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      1 - BASIS OF PRESENTATION**

**NOTE      2 - ACCOUNTING FOR STOCK-BASED COMPENSATION**

|                                                                                                                                                                                   |   | **For                the Three Months Ended****June                30, 2005** |   | **For                the Six Months Ended****June                30, 2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|
|                                                                                                                                                                                   |   | **(in                thousands, except per share data)**                      |   |
|                                                                                                                                                                                   |   |                                                                          |   |                                                                        |   |
| Net                income, as reported                                                                                                                                                 |   | $                                                                             | 5,839  |                                                                        | $      | 11,490 |   |
| Less:                Stock-based employee compensation expense determined under the fair                value                method, net of tax benefit of $264 and $307, respectively |   |                                                                          | 396    |                                                                        |   | 461 |   |
| Pro                forma net income                                                                                                                                                    |   | $                                                                             | 5,443  |                                                                        | $      | 11,029 |   |
| Earnings                per share:                                                                                                                                                     |   |                                                                          |   |                                                                        |   |   |   |
| Basic                - as reported                                                                                                                                                     |   | $                                                                             | 1.01   |                                                                        | $      | 1.99 |   |
| Basic                - pro forma                                                                                                                                                       |   | $                                                                             | 0.95   |                                                                        | $      | 1.91 |   |
| Diluted                - as reported                                                                                                                                                   |   | $                                                                             | 0.98   |                                                                        | $      | 1.90 |   |
| Diluted                - pro forma                                                                                                                                                     |   | $                                                                             | 0.91   |                                                                        | $      | 1.83 |   |

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**Table          of Contents**

|                                    |   | **Weighted-Average                Assumptions****for                Option Grants** |
|-----------------------------------------|--------|-------------------------------------------------------------------------------------|
|                                    |   | **2006**                                                                            |   | **2005** |
|                                    |   |                                                                                |   |   |
| Dividend                Yield           |   | 1.20%                                                                               |   | 0.00% |
| Expected                Volatility      |   | 22.94%                                                                              |   | 36.06% |
| Risk-Free                Interest Rates |   | 5.00%                                                                               |   | 3.89% |
| Expected                Lives           |   | Five                Years                                                           |   | Seven                Years |

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**Table          of Contents**

**NOTE      3 - EARNINGS PER SHARE**

|                                                             |   |                                                 |    |
|------------------------------------------------------------------|--------|------------------------------------------------------|---------|
|                                                             |   |   **Net                Income**            |    | **Weighted-****Average                Shares****Outstanding** |   | **Per****Share****Amount** |   |
|                                                             |   | **(in                thousands, except share data)** |    |
| **For                the Three Months Ended June 30,**           |   |                                                 |    |   |   |   |   |
| **2006**                                                         |   |                                                 |    |   |   |   |   |
| Basic                EPS                                         |   | $                                                    | 6,746   |   |   | 5,550 |   | $ | 1.22 |   |
| Effect                of dilutive stock options                  |   |                                                 | — |   |   | 147 |   |   | (0.04 | ) |
| Diluted                EPS                                       |   | $                                                    | 6,746   |   |   | 5,697 |   | $ | 1.18 |   |
|                                                             |   |                                                 |    |   |   |   |   |   |   |   |
| **2005**                                                         |   |                                                 |    |   |   |   |   |   |   |   |
| Basic                EPS                                         |   | $                                                    | 5,839   |   |   | 5,755 |   | $ | 1.01 |   |
| Effect                of dilutive stock options                  |   |                                                 | — |   |   | 212 |   |   | (0.03 | ) |
| Diluted                EPS                                       |   | $                                                    | 5,839   |   |   | 5,967 |   | $ | 0.98 |   |
|   **For                the Six Months Ended June 30,** |   |                                                 |
| **2006**                                                         |   |                                                 |    |   |   |   |   |   |   |   |
| Basic                EPS                                         |   | $                                                    | 13,078  |   |   | 5,587 |   | $ | 2.34 |   |
| Effect                of dilutive stock options                  |   |                                                 | — |   |   | 144 |   |   | (0.06 | ) |
| Diluted                EPS                                       |   | $                                                    | 13,078  |   |   | 5,731 |   | $ | 2.28 |   |
|                                                             |   |                                                 |    |   |   |   |   |   |   |   |
| **2005**                                                         |   |                                                 |    |   |   |   |   |   |   |   |
| Basic                EPS                                         |   | $                                                    | 11,490  |   |   | 5,780 |   | $ | 1.99 |   |
| Effect                of dilutive stock options                  |   |                                                 | — |   |   | 256 |   |   | (0.09 | ) |
| Diluted                EPS                                       |   | $                                                    | 11,490  |   |   | 6,036 |   | $ | 1.90 |   |

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**Table          of Contents**

**NOTE      4 - COMPREHENSIVE INCOME**

|                                                                                                                                                                                                                                                                                                                                                                                                            |   | **Three                  Months Ended**June                30, |   | **Six                  Months Ended**June                30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                            |   | **2006**                                                       |   | **2005**                                                     |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                            |   | **(in                thousands)**                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                           |   |                                                         |   |   |   |   |   |
| Net                Income                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                                              | 6,746  |                                                         | $      | 5,839 |   | $ | 13,078 |   | $ | 11,490 |   |
| Other                comprehensive (loss) income:                                                                                                                                                                                                                                                                                                                                                               |   |                                                           |   |                                                         |   |   |   |   |   |   |   |   |   |
| Change                in unrealized gains (losses) on investment securities available-for-sale,                net of tax benefit (expense) of $51 and $(107) for the three months                ended                June 30, 2006 and 2005, respectively, and net of tax benefit of $48                and                $137 for the six months ended June 30, 2006 and 2005,                respectively. |   |                                                           | (76    | )                                                            |   | 162 |   |   | (70 | ) |   | (209 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                           |   |                                                         |   |   |   |   |   |   |   |   |   |
| Comprehensive                Income                                                                                                                                                                                                                                                                                                                                                                             |   | $                                                              | 6,670  |                                                         | $      | 6,001 |   | $ | 13,008 |   | $ | 11,281 |   |

**NOTE      5 - IMPAIRED LOANS RECEIVABLE **

**NOTE      6 - RESIDUAL INTEREST IN SECURITIZATION**

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**Table          of Contents**

|                                                                    |   | **June                30,****2006**       |      | **December                31,****2005** |   |
|-------------------------------------------------------------------------|--------|-------------------------------------------|-----------|-----------------------------------------|--------|
|                                                                    |   | **(dollars                in thousands)** |      |
|                                                                    |   |                                      |      |
| **Fair                value of retained interest**                      |   | **$**                                     | **2,814** |                                    | **$**  | **3,570** |   |
| **Weighted                average life (in years) - securities**        |   |                                      | **0.54**  |                                    |   | **0.56** |   |
| **Weighted                average life (in years) - residual interest** |   |                                      | **2.76**  |                                    |   | **2.92** |   |
| **Weighted                average annual prepayment speed**             |   |                                      | **40.0**  | **%**                                   |   | **40.0** | **%** |
| Impact                of 10% adverse change                             |   | $                                         | (22       | )                                       | $      | (22 | ) |
| Impact                of 25% adverse change                             |   | $                                         | (45       | )                                       | $      | (34 | ) |
| **Weighted                average annual discount rate**                |   |                                      | **13.0**  | **%**                                   |   | **13.0** | **%** |
| Impact                of 10% adverse change                             |   | $                                         | (88       | )                                       | $      | (117 | ) |
| Impact                of 25% adverse change                             |   | $                                         | (214      | )                                       | $      | (284 | ) |
| **Weighted                average lifetime credit losses**              |   |                                      | **20.2**  | **%**                                   |   | **14.3** | **%** |
| Impact                of 10% adverse change                             |   | $                                         | (114      | )                                       | $      | (79 | ) |
| Impact                of 25% adverse change                             |   | $                                         | (290      | )                                       | $      | (211 | ) |

**NOTE      7 - NEW ACCOUNTING PRONOUNCEMENTS**

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**Table          of Contents**

**NOTE      8 - BUSINESS SEGMENT INFORMATION**

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**Table          of Contents**

|                                                       |   | **Lending**                           |    |                             |   |             |   |             |    |
|------------------------------------------------------------|--------|---------------------------------------|---------|----------------------------------|--------|------------------|--------|------------------|---------|
|                                                       |   | **Operations**                        |    | **All                    Other** |   | **Eliminations** |   | **Consolidated** |    |
|                                                       |   | **(in                    thousands)** |    |
| **For                    the three months ended June 30,** |   |                                  |    |                             |   |             |   |             |    |
| **2006**                                                   |   |                                  |    |                             |   |             |   |             |    |
| Revenues                    from external customers        |   | $                                     | 56,441  |                             | $      | (74              | )      | $                | — |   | $ | 56,367 |   |
| Total                    interest income                   |   |                                  | 55,632  |                             |   | 128              |   |             | — |   |   | 55,760 |   |
| Total                    interest expense                  |   |                                  | 29,750  |                             |   | 2,026            |   |             | — |   |   | 31,776 |   |
| Net                    income                              |   |                                  | 8,504   |                             |   | (1,758           | )      |             | — |   |   | 6,746 |   |
|                                                       |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| **2005**                                                   |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| Revenues                    from external customers        |   | $                                     | 41,707  |                             | $      | 482              |   | $                | — |   | $ | 42,189 |   |
| Total                    interest income                   |   |                                  | 41,279  |                             |   | 401              |   |             | — |   |   | 41,680 |   |
| Total                    interest expense                  |   |                                  | 17,797  |                             |   | 1,754            |   |             | — |   |   | 19,551 |   |
| Net                    income                              |   |                                  | 7,177   |                             |   | (1,338           | )      |             | — |   |   | 5,839 |   |
|                                                       |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
|                                                       |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| **For                    the six months ended June 30,**   |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| **2006**                                                   |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| Revenues                    from external customers        |   | $                                     | 108,369 |                             | $      | 143              |   | $                | — |   | $ | 108,512 |   |
| Total                    interest income                   |   |                                  | 106,894 |                             |   | 294              |   |             | — |   |   | 107,188 |   |
| Total                    interest expense                  |   |                                  | 56,310  |                             |   | 3,984            |   |             | — |   |   | 60,294 |   |
| Net                    income                              |   |                                  | 16,302  |                             |   | (3,224           | )      |             | — |   |   | 13,078 |   |
|                                                       |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| **2005**                                                   |   |                                  |    |                             |   |             |   |             |    |   |   |   |   |
| Revenues                    from external customers        |   | $                                     | 77,874  |                             | $      | 1,047            |   | $                | — |   | $ | 78,921 |   |
| Total                    interest income                   |   |                                  | 77,020  |                             |   | 1,412            |   |             | — |   |   | 78,432 |   |
| Total                    interest expense                  |   |                                  | 31,127  |                             |   | 3,434            |   |             | — |   |   | 34,561 |   |
| Net                    income                              |   |                                  | 14,008  |                             |   | (2,518           | )      |             | — |   |   | 11,490 |   |

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**Table          of Contents**

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

**Application      of Critical Accounting Policies and Accounting Estimates**

----

**Table          of Contents**

**RESULTS      OF OPERATIONS**

**Three      Months Ended June 30, 2006 Compared to Three Months Ended June 30,      2005**

**Executive      Summary**

**Net      Interest Income and Margin**

----

**Table          of Contents**

|                                                                               |   | **For                the Three Months Ended June 30,** |      |
|------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|
|                                                                               |   | **2006**                                               |      | **2005** |   |
|                                                                               |   | **Average****Balance**                                 |      | **Income/****Expense** |   | **Yield/****Rate** |   | **Average****Balance** |   | **Income/****Expense** |   | **Yield/****Rate** |   |
|                                                                               |   | **(dollars                in thousands)**              |      |
| **Assets**                                                                         |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |
| Cash                and investment securities                                      |   | $                                                      | 428,488   |   | $ | 4,678 |   |   | 4.38 | %   | $ | 443,035 |   | $ | 4,470 |   |   | 4.05 | % |
| Loans                receivable:                                                   |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real                estate loans                                                   |   |                                                   | 2,563,859 |   |   | 49,526 |   |   | 7.75 | % |   | 1,862,892 |   |   | 32,020 |   |   | 6.89 | % |
| Other                loans                                                         |   |                                                   | 72,328    |   |   | 1,556 |   |   | 8.63 | % |   | 246,569 |   |   | 5,190 |   |   | 8.44 | % |
| Total                loans receivable                                              |   |                                                   | 2,636,187 |   |   | 51,082 |   |   | 7.77 | % |   | 2,109,461 |   |   | 37,210 |   |   | 7.08 | % |
|                                                                               |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                interest earning assets                                       |   |                                                   | 3,064,675 |   | $ | 55,760 |   |   | 7.30 | % |   | 2,552,496 |   | $ | 41,680 |   |   | 6.55 | % |
| Non-interest                earning assets                                         |   |                                                   | 68,229    |   |   |   |   |   |   |   |   | 48,556 |   |   |   |   |   |   |   |
| Allowance                for loan losses                                           |   |                                                   | (45,951   | ) |   |   |   |   |   |   |   | (36,755 | ) |   |   |   |   |   |   |
| Total                assets                                                        |   | $                                                      | 3,086,953 |   |   |   |   |   |   |   | $ | 2,564,297 |   |   |   |   |   |   |   |
|                                                                               |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities                and Shareholders’ Equity**                      |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing deposit accounts:                                  |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing demand                                             |   | $                                                      | 30,541    |   | $ | 211 |   |   | 2.77 | % | $ | 53,878 |   | $ | 320 |   |   | 2.38 | % |
| Money                market and passbook                                           |   |                                                   | 212,145   |   |   | 2,307 |   |   | 4.36 | % |   | 171,425 |   |   | 1,223 |   |   | 2.86 | % |
| Time                certificates                                                   |   |                                                   | 1,540,731 |   |   | 17,255 |   |   | 4.49 | % |   | 1,326,175 |   |   | 10,354 |   |   | 3.13 | % |
| Total                interest bearing deposit accounts                             |   |                                                   | 1,783,417 |   |   | 19,773 |   |   | 4.45 | % |   | 1,551,478 |   |   | 11,897 |   |   | 3.08 | % |
| FHLB                advances and other borrowings                                  |   |                                                   | 965,379   |   |   | 9,977 |   |   | 4.15 | % |   | 690,322 |   |   | 5,900 |   |   | 3.43 | % |
| Junior                subordinated debentures                                      |   |                                                   | 86,600    |   |   | 2,026 |   |   | 9.38 | % |   | 86,600 |   |   | 1,754 |   |   | 8.12 | % |
|                                                                               |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                interest bearing liabilities                                  |   |                                                   | 2,835,396 |   | $ | 31,776 |   |   | 4.50 | % |   | 2,328,400 |   | $ | 19,551 |   |   | 3.37 | % |
| Non-interest                bearing demand accounts                                |   |                                                   | 13,362    |   |   |   |   |   |   |   |   | 15,036 |   |   |   |   |   |   |   |
| Other                non-interest bearing liabilities                              |   |                                                   | 30,937    |   |   |   |   |   |   |   |   | 25,459 |   |   |   |   |   |   |   |
| Shareholders’                equity                                          |   |                                                   | 207,258   |   |   |   |   |   |   |   |   | 195,402 |   |   |   |   |   |   |   |
| Total                liabilities and shareholders’                equity     |   | $                                                      | 3,086,953 |   |   |   |   |   |   |   | $ | 2,564,297 |   |   |   |   |   |   |   |
| Net                interest spread *(1)*                                           |   |                                                   |      |   |   |   |   |   | 2.80 | % |   |   |   |   |   |   |   | 3.18 | % |
|                                                                               |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income before provision for                loan losses |   |                                                   |      |   | $ | 23,984 |   |   |   |   |   |   |   | $ | 22,129 |   |   |   |   |
| Net                interest margin *(2)*                                           |   |                                                   |      |   |   |   |   |   | 3.14 | % |   |   |   |   |   |   |   | 3.48 | % |
|                                                                               |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

*(1)*
*Average      yield on interest earning assets minus average rate paid on interest bearing      liabilities. *

*(2)*
*Net      interest income divided by total average interest earning assets.*

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**Table          of Contents**

|                                                      |   | **For                the Three Months Ended****June                30, 2006 and 2005** |   |
|-----------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|
|                                                      |   | **Increase                (Decrease) Due to:**                                         |   |
|                                                      |   | **Rate**                                                                               |   | **Volume** |   | **Total** |   |
|                                                      |   | **(in                thousands)**                                                      |   |
| Interest                and fees earned from:             |   |                                                                                   |   |   |   |   |   |
| Cash                and investment securities             |   | $                                                                                      | 358    |   | $ | (150 | ) | $ | 208 |   |
| Loans                                                     |   |                                                                                   | 3,894  |   |   | 9,978 |   |   | 13,872 |   |
|                                                      |   |                                                                                   |   |   |   |   |   |   |   |   |
| Total                increase in interest income          |   |                                                                                   | 4,252  |   |   | 9,828 |   |   | 14,080 |   |
|                                                      |   |                                                                                   |   |   |   |   |   |   |   |   |
| Interest                paid on:                          |   |                                                                                   |   |   |   |   |   |   |   |   |
| Deposit                accounts                           |   |                                                                                   | 5,895  |   |   | 1,981 |   |   | 7,876 |   |
| FHLB                advances and other borrowings         |   |                                                                                   | 1,407  |   |   | 2,670 |   |   | 4,077 |   |
| Junior                subordinated debentures             |   |                                                                                   | 272    |   |   | — |   |   | 272 |   |
|                                                      |   |                                                                                   |   |   |   |   |   |   |   |   |
| Total                increase in interest expense         |   |                                                                                   | 7,574  |   |   | 4,651 |   |   | 12,225 |   |
|                                                      |   |                                                                                   |   |   |   |   |   |   |   |   |
| Increase                (decrease) in net interest income |   | $                                                                                      | (3,322 | ) | $ | 5,177 |   | $ | 1,855 |   |

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**Table          of Contents**

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**Table          of Contents**

**Provision      for Loan Losses**

| · | the                  risk characteristics of various classifications of                  loans; |
|--------|-------------------------------------------------------------------------------------------------|

| · | general                  portfolio trends relative to asset and portfolio size; |
|--------|---------------------------------------------------------------------------------|

| · | asset                  categories; |
|--------|------------------------------------|

| · | potential                  credit and geographic concentrations; |
|--------|------------------------------------------------------------------|

| · | delinquency                  trends and nonaccrual loan levels; |
|--------|-----------------------------------------------------------------|

| · | historical                  loss experience and risks associated with changes in economic,                  social and                  business conditions; and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                  underwriting standards in effect when the loan was                  made. |
|--------|------------------------------------------------------------------------------------------------|

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**Table          of Contents**

**Non-Interest      Income**

**Non-Interest      Expense**

**Six      Months Ended June 30, 2006 Compared to Six Months Ended June 30,      2005**

**Executive      Summary**

----

**Table          of Contents**

**Net      Interest Income and Margin**

----

**Table          of Contents**

|                                                                               |   | **For                the Six Months Ended June 30,** |      |
|------------------------------------------------------------------------------------|--------|------------------------------------------------------|-----------|
|                                                                               |   | **2006**                                             |      | **2005** |   |
|                                                                               |   | **Average****Balance**                               |      | **Income/****Expense** |   | **Yield/****Rate** |   | **Average****Balance** |   | **Income/****Expense** |   | **Yield/****Rate** |   |
|                                                                               |   | **(dollars                in thousands)**            |      |
| **Assets**                                                                         |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |
| Cash                and investment securities                                      |   | $                                                    | 418,229   |   | $ | 8,969 |   |   | 4.32 | %   | $ | 429,743 |   | $ | 9,311 |   |   | 4.37 | % |
| Loans                receivable:                                                   |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real                estate loans                                                   |   |                                                 | 2,514,072 |   |   | 94,979 |   |   | 7.62 | % |   | 1,718,277 |   |   | 58,884 |   |   | 6.91 | % |
| Other                loans                                                         |   |                                                 | 77,273    |   |   | 3,240 |   |   | 8.46 | % |   | 248,977 |   |   | 10,237 |   |   | 8.29 | % |
| Total                loans receivable                                              |   |                                                 | 2,591,345 |   |   | 98,219 |   |   | 7.64 | % |   | 1,967,254 |   |   | 69,121 |   |   | 7.09 | % |
|                                                                               |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                interest earning assets                                       |   |                                                 | 3,009,574 |   | $ | 107,188 |   |   | 7.18 | % |   | 2,396,997 |   | $ | 78,432 |   |   | 6.60 | % |
| Non-interest                earning assets                                         |   |                                                 | 66,869    |   |   |   |   |   |   |   |   | 48,386 |   |   |   |   |   |   |   |
| Allowance                for loan losses                                           |   |                                                 | (45,322   | ) |   |   |   |   |   |   |   | (36,322 | ) |   |   |   |   |   |   |
| Total                assets                                                        |   | $                                                    | 3,031,121 |   |   |   |   |   |   |   | $ | 2,409,061 |   |   |   |   |   |   |   |
|                                                                               |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities                and Shareholders’ Equity**                      |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing deposit accounts:                                  |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing demand                                             |   | $                                                    | 33,328    |   | $ | 458 |   |   | 2.77 | % | $ | 61,197 |   | $ | 681 |   |   | 2.24 | % |
| Money                market and passbook                                           |   |                                                 | 206,321   |   |   | 4,219 |   |   | 4.12 | % |   | 168,782 |   |   | 2,209 |   |   | 2.64 | % |
| Time                certificates                                                   |   |                                                 | 1,503,404 |   |   | 32,294 |   |   | 4.33 | % |   | 1,261,224 |   |   | 18,505 |   |   | 2.96 | % |
| Total                interest bearing deposit accounts                             |   |                                                 | 1,743,053 |   |   | 36,971 |   |   | 4.28 | % |   | 1,491,203 |   |   | 21,395 |   |   | 2.89 | % |
| FHLB                advances and other borrowings                                  |   |                                                 | 950,113   |   |   | 19,339 |   |   | 4.10 | % |   | 594,958 |   |   | 9,732 |   |   | 3.30 | % |
| Junior                subordinated debentures                                      |   |                                                 | 86,600    |   |   | 3,984 |   |   | 9.28 | % |   | 86,600 |   |   | 3,434 |   |   | 8.00 | % |
|                                                                               |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                interest bearing liabilities                                  |   |                                                 | 2,779,766 |   | $ | 60,294 |   |   | 4.37 | % |   | 2,172,761 |   | $ | 34,561 |   |   | 3.21 | % |
| Non-interest                bearing demand accounts                                |   |                                                 | 13,927    |   |   |   |   |   |   |   |   | 14,517 |   |   |   |   |   |   |   |
| Other                non-interest bearing liabilities                              |   |                                                 | 31,269    |   |   |   |   |   |   |   |   | 26,397 |   |   |   |   |   |   |   |
| Shareholders’                equity                                          |   |                                                 | 206,159   |   |   |   |   |   |   |   |   | 195,386 |   |   |   |   |   |   |   |
| Total                liabilities and shareholders’                equity     |   | $                                                    | 3,031,121 |   |   |   |   |   |   |   | $ | 2,409,061 |   |   |   |   |   |   |   |
| Net                interest spread *(1)*                                           |   |                                                 |      |   |   |   |   |   | 2.81 | % |   |   |   |   |   |   |   | 3.39 | % |
|                                                                               |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income before provision for                loan losses |   |                                                 |      |   | $ | 46,894 |   |   |   |   |   |   |   | $ | 43,871 |   |   |   |   |
| Net                interest margin *(2)*                                           |   |                                                 |      |   |   |   |   |   | 3.14 | % |   |   |   |   |   |   |   | 3.69 | % |
|                                                                               |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

*(1)*
*Average      yield on interest earning assets minus average rate paid on interest bearing      liabilities. *

*(2)*
*Net      interest income divided by total average interest earning assets.*

----

**Table          of Contents**

|                                                      |   | **For                the Six Months Ended****June                30, 2006 and 2005** |   |
|-----------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|
|                                                      |   | **Increase                (Decrease) Due to:**                                       |   |
|                                                      |   | **Rate**                                                                             |   | **Volume** |   | **Total** |   |
|                                                      |   | **(in                thousands)**                                                    |   |
| Interest                and fees earned from:             |   |                                                                                 |   |   |   |   |   |
| Cash                and investment securities             |   | $                                                                                    | (103   | ) | $ | (239 | ) | $ | (342 | ) |
| Loans                                                     |   |                                                                                 | 5,717  |   |   | 23,381 |   |   | 29,098 |   |
|                                                      |   |                                                                                 |   |   |   |   |   |   |   |   |
| Total                increase in interest income          |   |                                                                                 | 5,614  |   |   | 23,142 |   |   | 28,756 |   |
|                                                      |   |                                                                                 |   |   |   |   |   |   |   |   |
| Interest                paid on:                          |   |                                                                                 |   |   |   |   |   |   |   |   |
| Deposit                accounts                           |   |                                                                                 | 11,528 |   |   | 4,048 |   |   | 15,576 |   |
| FHLB                advances and other borrowings         |   |                                                                                 | 2,774  |   |   | 6,833 |   |   | 9,607 |   |
| Junior                subordinated debentures             |   |                                                                                 | 550    |   |   | — |   |   | 550 |   |
|                                                      |   |                                                                                 |   |   |   |   |   |   |   |   |
| Total                increase in interest expense         |   |                                                                                 | 14,852 |   |   | 10,881 |   |   | 25,733 |   |
|                                                      |   |                                                                                 |   |   |   |   |   |   |   |   |
| Increase                (decrease) in net interest income |   | $                                                                                    | (9,238 | ) | $ | 12,261 |   | $ | 3,023 |   |

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**Table          of Contents**

**Provision      for Loan Losses**

**Non-Interest      Income**

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**Table          of Contents**

**Non-Interest      Expense**

**FINANCIAL      CONDITION**

**CREDIT      RISK**

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

|                                                                                                 |   | **June                30,****2006**       |   | **December                31,****2005** |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                 |   | **(dollars                in thousands)** |   |
| Nonaccrual                loans:                                                                     |   |                                      |   |                                    |   |
| Real                estate                                                                           |   | $                                         | 6,472  |                                    | $      | 6,117 |   |
| Franchise                                                                                            |   |                                      | 7,314  |                                    |   | 7,366 |   |
| Entertainment                finance                                                                 |   |                                      | 10,177 |                                    |   | 10,780 |   |
| Total                nonaccrual loans                                                                |   |                                      | 23,963 |                                    |   | 24,263 |   |
| Other                real estate owned, net                                                          |   |                                      | 5,707  |                                    |   | 3,960 |   |
| Total                nonperforming assets                                                            |   |                                      | 29,670 |                                    |   | 28,223 |   |
| Performing                troubled debt restructurings                                               |   |                                      | 8,099  |                                    |   | 10,758 |   |
| Total                nonperforming assets and performing troubled debt                restructurings |   | $                                         | 37,769 |                                    | $      | 38,981 |   |
|                                                                                                 |   |                                      |   |                                    |   |   |   |
| Nonaccrual                loans to total loans                                                       |   |                                      | 0.90   | %                                       |   | 0.95 | % |
| Allowance                for loan losses to nonaccrual loans                                         |   |                                      | 194.70 | %                                       |   | 180.59 | % |
| Nonperforming                assets to total assets                                                  |   |                                      | 0.93   | %                                       |   | 0.92 | % |

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**Table          of Contents**

|                                                                                  |   | **For                the****Six****Months                Ended****June                30,****2006** |   | **For                the****Year****Ended****December                31,****2005** |   | **For                the****Six                Months Ended****June                30, ****2005** |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|
|                                                                                  |   | **(dollars                in thousands)**                                                           |   |
|                                                                                  |   |                                                                                                |   |                                                                               |   |                                                                                                   |   |
| Balance                at beginning of period                                         |   | $                                                                                                   | 43,817 |                                                                               | $      | 35,483                                                                                                 |   | $ | 35,483 |   |
| Provision                for loan losses                                              |   |                                                                                                | 2,250  |                                                                               |   | 10,250                                                                                                 |   |   | 2,250 |   |
| Charge-offs                                                                           |   |                                                                                                | (533   | )                                                                                  |   | (2,430                                                                                                 | )      |   | (709 | ) |
| Recoveries                                                                            |   |                                                                                                | 1,121  |                                                                               |   | 514                                                                                                    |   |   | 378 |   |
| Net                recoveries (charge-offs)                                           |   |                                                                                                | 588    |                                                                               |   | (1,916                                                                                                 | )      |   | (331 | ) |
|                                                                                  |   |                                                                                                |   |                                                                               |   |                                                                                                   |   |   |   |   |
| Balance                at end of period                                               |   | $                                                                                                   | 46,655 |                                                                               | $      | 43,817                                                                                                 |   | $ | 37,402 |   |
|                                                                                  |   |                                                                                                |   |                                                                               |   |                                                                                                   |   |   |   |   |
| Allowance                for loan losses as a percentage of                loans, net |   |                                                                                                | 1.74   | %                                                                                  |   | 1.71                                                                                                   | %      |   | 1.56 | % |

**Liquidity**

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**Table          of Contents**

**Capital      Resources**

**Item      3. Quantitative and Qualitative Disclosures      About**
**      Market Risk**

**Item      4. Controls and Procedures**

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**Table          of Contents**

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**Table          of Contents**

**PART      II - OTHER INFORMATION**

**Item      1.**
**Legal      Proceedings**

**Item      1A.**
**Risk      Factors**

**Item      2.** **UnregisteredSales      of Equity Securities and Use of Proceeds**

|     **Period**                                  |   |    **Total                Number of Shares Purchased** |    |    **Average                Price Paid per Share** |   | **Total                Number of Shares Purchased as Part of Publicly Announced Plans or                Programs** |   | **Maximum                Number of Shares that May Yet Be Purchased Under the Plans or                Programs****(1)** |    |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|---------|
|  April                1, 2006 to April                30, 2006 |   |                                                                  | — |                                                              | $      | —                                                                                                            |   |                                                                                                                    | — |   |   | 393,961 |   |
| May                1, 2006 to May                31, 2006           |   |                                                                  | — |                                                              |   | —                                                                                                            |   |                                                                                                                    | — |   |   | 393,961 |   |
| June                1, 2006 to June                30, 2006         |   |                                                                  | 22,775  |                                                              |   | 50.40                                                                                                              |   |                                                                                                                    | 22,775  |   |   | 371,186 |   |
|  Total                                                         |   |                                                                  | 22,775  |                                                              | $      | 50.40                                                                                                              |   |                                                                                                                    | 22,775  |   |   | 371,186 |   |

**Item      3** **.** **Defaults      Upon Senior Securities**

**Item      4** **.** **Submissionof      Matters to a Vote of Security      Holders**

**Item      5** **.** **Other      Information**

**Item      6** **.** **Exhibits      **

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**Table            of Contents**

**SIGNATURES**

|                                  | **ITLA                  CAPITAL CORPORATION**         |   |
|---------------------------------------|-------------------------------------------------------|--------|
|                                  |                                                  |   |
| Date:                  August 9, 2006 | /s/                  George W. Haligowski             |   |
|                                  | George                  W. Haligowski                 |   |
|                                  | Chairman                  of the Board, President and |   |
|                                  | Chief                  Executive Officer              |   |

| Date:                  August 9, 2006 | /s/                  Timothy M. Doyle            |   |
|---------------------------------------|--------------------------------------------------|--------|
|                                  | Timothy                  M. Doyle                |   |
|                                  | Executive                  Managing Director and |   |
|                                  | Chief                  Financial Officer         |   |

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**Table            of Contents**

**EXHIBIT        INDEX**

| **Regulation                  S-K Exhibit Number** |   | **Document**                                                                                                                                                        |   | **Reference                  to Prior Filling or Exhibit Number Attached                  Hereto** |
|----------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                               |   |                                                                                                                                                                |   |                                                                                               |
| 3.1                                                |   | Certificate                  of Incorporation                                                                                                                       |   | **                                                                                                 |
| 3.2                                                |   | Bylaws,                  as amended                                                                                                                                 |   | ***                                                                                                |
| 4                                                  |   | Instruments                  Defining the Rights of Security Holders, Including                  Indentures                                                         |   | *********                                                                                          |
| 10.1                                               |   | 2005                  Re-Designated, Amended and Restated Stock Option Plan For Nonemployee                  Directors (“NEDP”)                         |   | *****                                                                                              |
| 10.2                                               |   | Amended                  and Restated 2005 Re-Designated, Amended and Restated Employee                  Stock                  Incentive Plan (“ESIP”) |   | ********                                                                                           |
| 10.3a                                              |   | Nonqualified                  (Non-Employer Securities) Deferred Compensation Plan                                                                                  |   | ********                                                                                           |
| 10.3b                                              |   | Nonqualified                  (Employer Securities Only) Deferred Compensation Plan                                                                                 |   | ********                                                                                           |
| 10.4                                               |   | Supplemental                  Salary Savings Plan                                                                                                                   |   | *                                                                                                  |
| 10.5                                               |   | Data                  Processing Agreement                                                                                                                          |   | *                                                                                                  |
| 10.6a                                              |   | Amended                  and Restated Employment Agreement with George W.                  Haligowski                                                               |   | ********                                                                                           |
| 10.6b                                              |   | Non-Competition                  and Non-Solicitation Agreement with George W. Haligowski                                                                           |   | ********                                                                                           |
| 10.7                                               |   | Change                  in Control Severance Agreement with Norval L. Bruce                                                                                         |   | ********                                                                                           |
| 10.8                                               |   | Change                  in Control Severance Agreement with Timothy M. Doyle                                                                                        |   | ********                                                                                           |
| 10.9                                               |   | Change                  in Control Severance Agreement with Lyle C. Lodwick                                                                                         |   | ********                                                                                           |
| 10.10                                              |   | Change                  in Control Severance Agreement with Maria P. Kunac                                                                                          |   | ********                                                                                           |
| 10.11                                              |   | Recognition                  and Retention Plan                                                                                                                     |   | **                                                                                                 |
| 10.12                                              |   | Voluntary                  Retainer Stock and Deferred Compensation Plan for Outside                  Directors                                                     |   | ****                                                                                               |
| 10.13                                              |   | Amended                  and Restated Supplemental Executive Retirement Plan                                                                                        |   | ********                                                                                           |
| 10.14                                              |   | Amended                  and Restated ITLA Capital Corporation Rabbi Trust                  Agreement                                                               |   | 10.14                                                                                              |
| 10.15                                              |   | Amended                  and Restated Salary Continuation Plan                                                                                                      |   | ********                                                                                           |
| 10.16                                              |   | Form                  of Incentive Stock Option Agreement under ESIP                                                                                                |   | ******                                                                                             |
| 10.17                                              |   | Form                  of Non-Qualified Stock Option Agreement under the ESIP                                                                                        |   | ******                                                                                             |
| 10.18                                              |   | Form                  of Non-Qualified Stock Option Agreement under the NEDP                                                                                        |   | *******                                                                                            |
| 10.19                                              |   | Description                  of Named Executive Officer Salary, Bonus and Perquisite Arrangements                  for 2006                                         |   | **********                                                                                         |
| 10.20                                              |   | Description                  of Director Fee Arrangements                                                                                                           |   | **********                                                                                         |
| 11                                                 |   | Statement                  Regarding Computation of Per Share Earnings                                                                                              |   | Not                  Required                                                                      |
| 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                                                                                               |
| 23.1                                               |   | Consent                  of Experts                                                                                                                                 |   | Not                  Required                                                                      |
| 24                                                 |   | Power                  of Attorney                                                                                                                                  |   | None                                                                                               |
| 31.1                                               |   | Rule                  13a-14(a)/15d-14(a) Certification of Chief Executive                  Officer                                                                 |   | 31.1                                                                                               |
| 31.2                                               |   | Rule                  13a-14(a)/15d-14(a) Certification of Chief Financial                  Officer                                                                 |   | 31.2                                                                                               |
| 32                                                 |   | Section                  1350 Certifications of Chief Executive Officer and Chief Financial                  Officer                                                |   | 32                                                                                                 |

| *                                                     | Filed                  as an exhibit to Imperial’s Registration Statement on Form S-1 (File No.                  33-96518) filed with the Commission on September 1, 1995, pursuant                  to                  Section 5 of the Securities Act of 1933. |
|-------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *                  *                                  | Filed                  as an exhibit to the Company’s Registration Statement on Form S-4 (File                  No. 333-03551) filed with the Commission on May 10, 1996, pursuant                  to                  Section 5 of the Securities Act of 1933.  |
| *                  *                  *               | Filed                  as an exhibit to the Company’s Form 10-Q for the quarter ended June 30,                  2000 (File No. 0-26960).                                                                                                                          |
| *                  *                  * *             | Filed                  as an exhibit to Amendment No. Two to the Company’s Registration Statement                  on Form S-4 (File No. 333-03551) filed with the Commission on June                  19,                  1996.                                 |
| *                  *                  * * *           | Filed                  as an appendix to the Company’s definitive proxy materials filed on June                  27, 2005.                                                                                                                                        |
| *                  *                  * * * *         | Filed                  as an exhibit to the Company’s Current Report on Form 8-K filed on August                  9, 2005.                                                                                                                                        |
| *                  *                  * * * * *       | Filed                  as an exhibit to the Company’s Current Report on Form 8-K filed on                  November 4, 2005.                                                                                                                                      |
| *                  *                  * * * * * *     | Filed                  as an exhibit to the Company’s Current Report on Form 8-K filed on                  February 24, 2006.                                                                                                                                     |
| *                  *                  * * * * * * *   | The                  Company hereby agrees to furnish the SEC, upon request, copies                  of the                  instruments defining the rights of the holders of each issue of                  the                  Company's long-term debt.            |
| *                  *                  * * * * * * * * | Filed                  as an exhibit to the Company’s Form 10-K for the year ended December 31,                  2005.                                                                                                                                            |

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