##### Table of Contents



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

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2002

OR

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

For the Transition Period from __________________ to __________________

Commission File Number 0-26960

ITLA CAPITAL CORPORATION

---

(Exact Name of Registrant as Specified in its Charter)


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

(858) 551-0511

---

(Registrants Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]   No [   ]

Number of shares of common stock of the registrant: 5,786,258 outstanding
as of August 7, 2002.





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TABLE OF CONTENTS



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



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##### Table of Contents



ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002
TABLE OF CONTENTS

|                                                                                              |                                                                                       |  |      |    | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                              |                                                                                       |  | Page
|                                                                                              |                                                                                       |  |     
|
|PART I  FINANCIAL INFORMATION                                                                |                                                                                       |  | 2    |   
|Item 1. Financial Statements                                                                  |                                                                                       |  |      |   
|                                                                                              | Consolidated Balance Sheets  June 30, 2002 and December 31, 2001                     |  |      | 3  | 
|                                                                                              | Consolidated Statements of Income  Three and Six Months
Ended June 30, 2002 and 2001 |  |      | 4  | 
|                                                                                              | Consolidated Statements of Cash Flows 
Six Months Ended June 30, 2002 and 2001       |  |      | 5  | 
|                                                                                              | Notes to Unaudited Consolidated Financial Statements                                  |  |      | 6  | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                       |  | 9    |   
|Item 3. Market Risk                                                                           |                                                                                       |  | 20   |   
|PART II  OTHER INFORMATION                                                                   |                                                                                       |  |      |   
|Item 1.Legal Proceedings                                                                      |                                                                                       |  | 21   |   
|Item 2.Changes in Securities                                                                  |                                                                                       |  | 21   |   
|Item 3.Defaults Upon Senior Securities                                                        |                                                                                       |  | 21   |   
|Item 4.Submission of Matters to a Vote of Security Holders                                    |                                                                                       |  | 21   |   
|Item 5.Other Information                                                                      |                                                                                       |  | 21   |   
|Item 6.Exhibits and Reports on Form 8-K                                                       |                                                                                       |  | 21   |   
|                                                                                              | Signatures                                                                            |  |      | 22 | 

Forward Looking Statements

Safe Harbor statement under the Private Securities Litigation Reform Act
of 1995: This Form 10-Q contains forward-looking statements that are subject
to risks and uncertainties, including, but not limited to; the economic impact
of the terrorist attacks on September 11, 2001 and the U.S. response to these
attacks, changes in economic conditions in our market areas, changes in
policies by regulatory agencies, the impact of competitive loan products, loan
demand risks, the quality or composition of the loan or investment portfolios,
including levels of nonperforming assets, fluctuations in interest rates, and
changes in the relative differences between short and long term interest rates,
and operating results and other risks detailed from time to time in our filings
with the Securities and Exchange Commission. We caution readers not to place
undue reliance on forward-looking statements. We do not undertake and
specifically disclaim any obligation to revise any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements. These risks could cause our
actual results for 2002 and beyond to differ materially from those expressed in
any forward-looking statements by, or on behalf of, us. As used throughout
this report, the terms we, our or Company refer to ITLA Capital
Corporation and its consolidated subsidiaries.




Part I  FINANCIAL INFORMATION

This filing
includes unaudited financial statements that have been reviewed in
accordance with Rule 10-01(d) of Regulation S-X promulgated by the
Securities and Exchange Commission. Because the Registrant elected to
change auditors from Arthur Andersen LLP to Ernst and Young LLP
during the second quarter ended June 30, 2002, the interim
financial statements from the previous quarter and current quarter
have been reviewed by Ernst and Young LLP in accordance with
Statement of Auditing Standards Number 71 without exception, but no
report of that independent public account need be presented.

2



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##### Table of Contents






ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |         |         |           | 
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ----------------------------------- | --------- | ------------ | ------- | ------- | --------- | 
|                                                                                                                |                                                                                                                                                               |                            |                                            |         | June 30,                            |           |              |         |        
|                                                                                                                |                                                                                                                                                               |                            |                                            |         | 2002                                |           | December 31,
|                                                                                                                |                                                                                                                                                               |                            |                                            |         | (unaudited)                         |           | 2001        
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |             
|                                                                                                                |                                                                                                                                                               |                            |                                            |         | (in thousands except share amounts)
|Assets                                                                                                          |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|Cash and cash equivalents                                                                                       |                                                                                                                                                               | $                          | 101,890                                    |         |                                     | $         | 134,241      |        
|Investment securities available for sale, at fair value                                                         |                                                                                                                                                               |                            | 38,879                                     |         |                                     |           | 29,411       |        
|Stock in Federal Home Loan Bank                                                                                 |                                                                                                                                                               |                            | 15,009                                     |         |                                     |           | 13,464       |        
|Real estate loans, net (net of allowance for loan losses of
$27,570 and $24,722 in 2002 and 2001, respectively) |                                                                                                                                                               |                            | 1,097,091                                  |         |                                     |           | 1,122,370    |        
|Real estate loans held in trust (net of allowance for loan
losses of $1,928 in 2002 and 2001, respectively)     |                                                                                                                                                               |                            | 142,349                                    |         |                                     |           | 162,158      |        
|Interest receivable                                                                                             |                                                                                                                                                               |                            | 8,927                                      |         |                                     |           | 11,144       |        
|Other real estate owned, net                                                                                    |                                                                                                                                                               |                            | 10,290                                     |         |                                     |           | 13,741       |        
|Premises and equipment, net                                                                                     |                                                                                                                                                               |                            | 2,792                                      |         |                                     |           | 2,177        |        
|Deferred income taxes                                                                                           |                                                                                                                                                               |                            | 11,754                                     |         |                                     |           | 11,869       |        
|Other assets                                                                                                    |                                                                                                                                                               |                            | 11,966                                     |         |                                     |           | 7,733        |        
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                |                                                                                                                                                               |                            | Total assets                               |         | $                                   | 1,440,947 |              |         | $       | 1,508,308 | 
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|Liabilities and Shareholders Equity                                                                            |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|Liabilities:                                                                                                    |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                | Deposit accounts                                                                                                                                              |                            | $                                          | 868,374 |                                     |           | $            | 953,654 |        
|                                                                                                                | Federal Home Loan Bank advances                                                                                                                               |                            |                                            | 300,185 |                                     |           |              | 269,285 |        
|                                                                                                                | Collateralized mortgage obligations                                                                                                                           |                            |                                            | 89,374  |                                     |           |              | 109,648 |        
|                                                                                                                | Accounts payable and other liabilities                                                                                                                        |                            |                                            | 8,794   |                                     |           |              | 9,674   |        
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                |                                                                                                                                                               |                            | Total liabilities                          |         |                                     | 1,266,727 |              |         |         | 1,342,261 | 
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|Commitments and contingencies                                                                                   |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                | Guaranteed preferred beneficial interests in the
Companys junior subordinated deferrable interest
debentures, net                                            |                            |                                            | 28,166  |                                     |           |              | 28,118  |        
|Shareholders equity:                                                                                           |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                | Preferred stock, 5,000,000 shares authorized, none issued                                                                                                     |                            |                                            |        |                                     |           |              |        |        
|                                                                                                                | Contributed capital-common stock, $.01 par value;
20,000,000 shares authorized, 8,222,414 and 8,212,749
issued and outstanding in 2002 and 2001, respectively |                            |                                            | 58,462  |                                     |           |              | 58,183  |        
|                                                                                                                | Retained earnings                                                                                                                                             |                            |                                            | 125,292 |                                     |           |              | 115,768 |        
|                                                                                                                | Accumulated
other comprehensive income (loss)                                                                                                                 |                            |                                            | 226     |                                     |           |              | (7      | )      
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                |                                                                                                                                                               |                            | 183,980                                    |         |                                     |           | 173,944      |        
|                                                                                                                | Less treasury stock, at cost  2,433,156 and 2,354,056
shares in 2002 and 2001, respectively                                                                  |                            |                                            | (37,926 | )                                   |           |              | (36,015 | )      
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                |                                                                                                                                                               | Total shareholders equity |                                            |         | 146,054                             |           |              |         | 137,929 |          
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        
|                                                                                                                |                                                                                                                                                               |                            | Total liabilities and shareholders equity |         | $                                   | 1,440,947 |              |         | $       | 1,508,308 | 
|                                                                                                                |                                                                                                                                                               |                            |                                            |         |                                     |           |              |        

See accompanying notes to the unaudited consolidated financial statements.

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##### Table of Contents






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

|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |        |        | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------ | --------------------------------------------------- | ------ | --------------------------------------- | ------ | ------------------------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                                                       |                                                     |                                      |                                                     |        | For the Three Months Ended              |        | For the Six Months Ended
|                                                                                       |                                                     |                                      |                                                     |        | June 30,                                |        | June 30,                
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                         
|                                                                                       |                                                     |                                      |                                                     |        | 2002                                    |        | 2001                     |        | 2002   |        | 2001  
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |       
|                                                                                       |                                                     |                                      |                                                     |        | (in thousands except per share amounts)
|Interest income:                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       | Real estate loans, including fees                   |                                      | $                                                   | 23,062 |                                         |        | $                        | 26,635 |        |        | $      | 46,578 |        |        | $      | 53,418 |       
|                                                                                       | Real estate loans held in trust                     |                                      |                                                     | 2,662  |                                         |        |                          | 4,006  |        |        |        | 5,502  |        |        |        | 8,328  |       
|                                                                                       | Cash and investment securities                      |                                      |                                                     | 846    |                                         |        |                          | 787    |        |        |        | 1,525  |        |        |        | 1,948  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest income                |                                                     |        | 26,570                                  |        |                          |        | 31,428 |        |        |        | 53,605 |        |        |        | 63,694 |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|Interest expense:                                                                      |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       | Deposit accounts                                    |                                      |                                                     | 7,095  |                                         |        |                          | 14,097 |        |        |        | 15,388 |        |        |        | 29,911 |       
|                                                                                       | Federal Home Loan Bank advances                     |                                      |                                                     | 1,350  |                                         |        |                          | 1,127  |        |        |        | 2,888  |        |        |        | 1,658  |       
|                                                                                       | Collateralized mortgage obligations                 |                                      |                                                     | 631    |                                         |        |                          | 1,689  |        |        |        | 1,289  |        |        |        | 3,982  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total interest expense               |                                                     |        | 9,076                                   |        |                          |        | 16,913 |        |        |        | 19,565 |        |        |        | 35,551 |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Net
interest income before provisionfor loan losses |        |                                         | 17,494 |                          |        |        | 14,515 |        |        |        | 34,040 |        |        |        | 28,143 | 
|Provision for loan losses                                                              |                                                     |                                      | 2,100                                               |        |                                         |        | 500                      |        |        |        | 3,425  |        |        |        | 950    |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Net
interest income after provisionfor loan losses  |        |                                         | 15,394 |                          |        |        | 14,015 |        |        |        | 30,615 |        |        |        | 27,193 | 
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|Non-interest income:                                                                   |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       | Fee income from mortgage banking activities         |                                      |                                                     |       |                                         |        |                          |       |        |        |        |       |        |        |        | 60     |       
|                                                                                       | Gain on sale of loans, net                          |                                      |                                                     |       |                                         |        |                          |       |        |        |        | 32     |        |        |        |       |       
|                                                                                       | Other                                               |                                      |                                                     | 102    |                                         |        |                          | 239    |        |        |        | 195    |        |        |        | 493    |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total non-interest income            |                                                     |        | 102                                     |        |                          |        | 239    |        |        |        | 227    |        |        |        | 553    |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|Non-interest expense:                                                                  |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       | Compensation and benefits                           |                                      |                                                     | 3,159  |                                         |        |                          | 3,097  |        |        |        | 6,478  |        |        |        | 5,853  |       
|                                                                                       | Occupancy and equipment                             |                                      |                                                     | 738    |                                         |        |                          | 750    |        |        |        | 1,455  |        |        |        | 1,443  |       
|                                                                                       | FDIC assessment                                     |                                      |                                                     | 42     |                                         |        |                          | 48     |        |        |        | 84     |        |        |        | 93     |       
|                                                                                       | Other                                               |                                      |                                                     | 2,373  |                                         |        |                          | 1,886  |        |        |        | 4,613  |        |        |        | 3,523  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total general and administrative     |                                                     |        | 6,312                                   |        |                          |        | 5,781  |        |        |        | 12,630 |        |        |        | 10,912 |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       | Real estate owned expense, net                      |                                      |                                                     | 168    |                                         |        |                          | 35     |        |        |        | 254    |        |        |        | 50     |       
|                                                                                       | Provision for losses on other real estate owned     |                                      |                                                     | 283    |                                         |        |                          | 81     |        |        |        | 796    |        |        |        | 203    |       
|                                                                                       | Loss (gain) on sale of other real estate owned, net |                                      |                                                     | 57     |                                         |        |                          | (69    | )      |        |        | (75    | )      |        |        | (37    | )     
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     | Total real estate owned expense, net |                                                     |        | 508                                     |        |                          |        | 47     |        |        |        | 975    |        |        |        | 216    |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       |                                                     |                                      | Total non-interest expense                          |        |                                         | 6,820  |                          |        |        | 5,828  |        |        |        | 13,605 |        |        |        | 11,128 | 
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes and
minority interest in income of subsidiary |                                                     |                                      | 8,676                                               |        |                                         |        | 8,426                    |        |        |        | 17,237 |        |        |        | 16,618 |       
|Minority interest in income of subsidiary                                              |                                                     |                                      | 797                                                 |        |                                         |        | 796                      |        |        |        | 1,596  |        |        |        | 1,370  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|Income before provision for income taxes                                               |                                                     |                                      | 7,879                                               |        |                                         |        | 7,630                    |        |        |        | 15,641 |        |        |        | 15,248 |       
|Provision for income taxes                                                             |                                                     |                                      | 3,074                                               |        |                                         |        | 2,911                    |        |        |        | 6,117  |        |        |        | 5,816  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       | NET INCOME                                          |                                      | $                                                   | 4,805  |                                         |        | $                        | 4,719  |        |        | $      | 9,524  |        |        | $      | 9,432  |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       
|                                                                                       | BASIC EARNINGS PER SHARE                            |                                      | $                                                   | 0.80   |                                         |        | $                        | 0.71   |        |        | $      | 1.59   |        |        | $      | 1.41   |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |        |       
|                                                                                       | DILUTED EARNINGS PER SHARE                          |                                      | $                                                   | 0.75   |                                         |        | $                        | 0.69   |        |        | $      | 1.49   |        |        | $      | 1.36   |       
|                                                                                       |                                                     |                                      |                                                     |        |                                         |        |                          |        |        |        |        |        |        |        |        |       

See accompanying notes to the unaudited consolidated financial statements.

4



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##### Table of Contents






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

|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |          |        |        |  
|------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------------------------ | ------- | ------- | -------- | ------ | ------ | -
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         | For the Six Months Ended
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         | June 30,                
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                         
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         | 2002                     |         | 2001   
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         | (in thousands)          
|Cash Flows From Operating Activities: |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      | Net Income                                                                        |                                                                    | $                                                                                | 9,524                                                |         |                          | $       | 9,432   |         
|                                      | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    | Depreciation and amortization of premises and equipment                          |                                                      |         | 444                      |         |         |          | 405    |       
|                                      |                                                                                   |                                                                    | Amortization of premium on purchased loans                                       |                                                      |         | 216                      |         |         |          | 1,615  |       
|                                      |                                                                                   |                                                                    | Amortization of original issue discount and deferred debt
issuance costs on CMOs |                                                      |         | 97                       |         |         |          | 166    |       
|                                      |                                                                                   |                                                                    | Accretion of deferred loan origination fees, net of costs                        |                                                      |         | (418                     | )       |         |          | (915   | )     
|                                      |                                                                                   |                                                                    | Provision for loan losses                                                        |                                                      |         | 3,425                    |         |         |          | 950    |       
|                                      |                                                                                   |                                                                    | Provision for losses on other real estate owned                                  |                                                      |         | 796                      |         |         |          | 203    |       
|                                      |                                                                                   |                                                                    | Gain on sale of real estate loans, net                                           |                                                      |         | (32                      | )       |         |          |       |       
|                                      |                                                                                   |                                                                    | Gain in the sale of other real estate owned                                      |                                                      |         | (75                      | )       |         |          | (37    | )     
|                                      |                                                                                   |                                                                    | Decrease in interest receivable                                                  |                                                      |         | 2,217                    |         |         |          | 888    |       
|                                      |                                                                                   |                                                                    | (Increase) decrease in other assets                                              |                                                      |         | (1,711                   | )       |         |          | 244    |       
|                                      |                                                                                   |                                                                    | (Decrease) increase in accounts payable and other liabilities                    |                                                      |         | (976                     | )       |         |          | 185    |       
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    |                                                                                  | Net cash provided by operating activities            |         |                          | 13,507  |         |          |        | 13,136 |  
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|Cash Flows From Investing Activities: |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      |                                                                                   | Proceeds from securitization and sale of real estate loans         |                                                                                  |                                                      | 98,155  |                          |         |         | 356      |       
|                                      |                                                                                   | (Increase)
decrease in real estate loans, net                      |                                                                                  |                                                      | (24,524 | )                        |         |         | 82,488   |       
|                                      |                                                                                   | Net cash paid to acquire Asahi Bank of California                  |                                                                                  |                                                      | (14,872 | )                        |         |         |         |       
|                                      |                                                                                   | Repayment of real estate loans held in trust                       |                                                                                  |                                                      | 19,148  |                          |         |         | 26,118   |       
|                                      |                                                                                   | Purchases of real estate loans                                     |                                                                                  |                                                      | (15,791 | )                        |         |         | (119,852 | )     
|                                      |                                                                                   | Purchases of investment securities available for sale              |                                                                                  |                                                      | (23,418 | )                        |         |         | (11,000  | )     
|                                      |                                                                                   | Proceeds from maturity of investment securities available for sale |                                                                                  |                                                      | 15,000  |                          |         |         | 43,260   |       
|                                      |                                                                                   | Increase in stock in Federal Home Loan Bank                        |                                                                                  |                                                      | (1,545  | )                        |         |         | (5,344   | )     
|                                      |                                                                                   | Proceeds from the sale of other real estate owned                  |                                                                                  |                                                      | 2,730   |                          |         |         | 1,723    |       
|                                      |                                                                                   | Other, net                                                         |                                                                                  |                                                      | (749    | )                        |         |         | (198     | )     
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    |                                                                                  | Net cash provided by investing activities            |         |                          | 54,134  |         |          |        | 17,551 |  
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|Cash Flows From Financing Activities: |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      |                                                                                   | Decrease in deposit accounts                                       |                                                                                  |                                                      | (94,049 | )                        |         |         | (88,787  | )     
|                                      |                                                                                   | Net proceeds from borrowings from the Federal Home Loan Bank       |                                                                                  | 30,900                                               |         |                          |         | 106,885 |         
|                                      |                                                                                   | Repayment of Asahi repurchase agreement, net                       |                                                                                  |                                                      | (14,693 | )                        |         |         |         |       
|                                      |                                                                                   | Principal repayments on collateralized mortgage obligations        |                                                                                  |                                                      | (20,371 | )                        |         |         | (26,864  | )     
|                                      |                                                                                   | Cash paid to acquire treasury stock                                |                                                                                  |                                                      | (1,911  | )                        |         |         | (9,167   | )     
|                                      |                                                                                   | Proceeds from exercise of employee stock options                   |                                                                                  |                                                      | 132     |                          |         |         | 48       |       
|                                      |                                                                                   | Proceeds from issuance of trust preferred securities               |                                                                                  |                                                      |        |                          |         |         | 14,549   |       
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    |                                                                                  | Net cash used in financing activities                |         |                          | (99,992 | )       |          |        | (3,336 | )
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    |                                                                                  | Net (decrease) increase in cash and cash equivalents |         |                          | (32,351 | )       |          |        | 27,351 |  
|                                      |                                                                                   |                                                                    |                                                                                  | Cash and cash equivalents at beginning of the period |         |                          | 134,241 |         |          |        | 70,950 |  
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|                                      |                                                                                   |                                                                    |                                                                                  | Cash and cash equivalents at end of period           |         | $                        | 101,890 |         |          | $      | 98,301 |  
|                                      |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |         |         
|Supplemental Cash Flow Information:   |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      |                                                                                   |                                                                    | Cash paid during the period for interest                                         |                                                      | $       | 19,767                   |         |         | $        | 35,729 |       
|                                      |                                                                                   |                                                                    | Cash paid during the period for income taxes                                     |                                                      | $       | 7,725                    |         |         | $        | 5,800  |       
|Noncash Investing Transactions:       |                                                                                   |                                                                    |                                                                                  |                                                      |         |                          |         |        
|                                      |                                                                                   |                                                                    | Loans transferred to other real estate owned                                     |                                                      | $       | 548                      |         |         | $        | 1,773  |       

See accompanying notes to the unaudited consolidated financial statements.

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##### Table of Contents






ITLA CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION

The unaudited
consolidated financial statements of ITLA Capital Corporation
(the Company) included herein reflect all normal
recurring adjustments which are, in the opinion of management,
necessary to present fairly the results of operations and financial
position of the Company, as of and for the interim periods indicated. The unaudited
consolidated financial statements include the accounts of ITLA Capital and its
wholly owned subsidiaries, Imperial Capital Bank (the Bank) and Imperial Capital Real
Estate Investment Trust (Imperial Capital REIT), ITLA Capital Statutory Trust
I (Trust I) and ITLA Capital Statutory Trust II (Trust II). All
intercompany transactions and balances have been eliminated. Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. The results of operations for the
three and six months ended June 30, 2002 are not necessarily indicative of the
results of operations for the remainder of the year.

These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31,
2001.

NOTE 2  EARNINGS PER SHARE

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

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

|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|-------------------------------- |  | ------------------------------------- | ----- | --------------------------------- |  | --------- | ----- | ------ |  | ----------- | ----- | ------ |  | ------- | ----- | --------- |  |  | ----- |  |  | - | ----- | -
|                                 |  | For the Three Months Ended June 30,   |       | For the Six Months Ended June 30,
|                                 |  |                                       |       |                                  
|                                 |  |                                       |       |                                   |  | Weighted- |       |        |  |             |       |        |  |         |       | Weighted- |  |  |       | 
|                                 |  |                                       |       |                                   |  | Average   |       | Per    |  |             |       |        |  | Average |       | Per      
|                                 |  | Net                                   |       | Shares                            |  | Share     |       | Net    |  | Shares      |       | Share 
|                                 |  | Income                                |       | Outstanding                       |  | Amount    |       | Income |  | Outstanding |       | Amount
|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |       
|                                 |  | (in thousands, except per share data)
|2002                             |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                     | 4,805 |                                   |  |           | 5,979 |        |  | $           | 0.80  |        |  | $       | 9,524 |           |  |  | 5,995 |  |  | $ | 1.59  |  
|Effect of dilutive
stock options |  |                                       |      |                                   |  |           | 465   |        |  |             | (0.05 | )      |  |         |      |           |  |  | 406   |  |  |   | (0.10 | )
|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                     | 4,805 |                                   |  |           | 6,444 |        |  | $           | 0.75  |        |  | $       | 9,524 |           |  |  | 6,401 |  |  | $ | 1.49  |  
|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|2001                             |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|Basic EPS                        |  | $                                     | 4,719 |                                   |  |           | 6,633 |        |  | $           | 0.71  |        |  | $       | 9,432 |           |  |  | 6,676 |  |  | $ | 1.41  |  
|Effect of dilutive
stock options |  |                                       |      |                                   |  |           | 221   |        |  |             | (0.02 | )      |  |         |      |           |  |  | 236   |  |  |   | (0.05 | )
|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  
|Diluted EPS                      |  | $                                     | 4,719 |                                   |  |           | 6,854 |        |  | $           | 0.69  |        |  | $       | 9,432 |           |  |  | 6,912 |  |  | $ | 1.36  |  
|                                 |  |                                       |       |                                   |  |           |       |        |  |             |       |        |  |         |       |           |  |  |       |  |  |   |       |  

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##### Table of Contents



NOTE 3  COMPREHENSIVE INCOME

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

|                                   |                                                                                                                                                                                                                                                                                  |   |                    |     |                  |   |       |    |      |   |       |     |  |   |       |     |  
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | --- | ---------------- | - | ----- | -- | ---- | - | ----- | --- |  | - | ----- | --- | -
|                                   |                                                                                                                                                                                                                                                                                  |   | Three Months Ended |     | Six Months Ended
|                                   |                                                                                                                                                                                                                                                                                  |   | June 30,           |     | June 30,        
|                                   |                                                                                                                                                                                                                                                                                  |   |                    |     |                 
|                                   |                                                                                                                                                                                                                                                                                  |   | 2002               |     | 2001             |   | 2002  |    | 2001
|                                   |                                                                                                                                                                                                                                                                                  |   |                    |     |                  |   |       |    |     
|                                   |                                                                                                                                                                                                                                                                                  |   | (in thousands)    
|Net Income                         |                                                                                                                                                                                                                                                                                  | $ | 4,805              |     |                  | $ | 4,719 |    |      | $ | 9,524 |     |  | $ | 9,432 |    
|Other comprehensive income (loss): |                                                                                                                                                                                                                                                                                  |   |                    |     |                  |   |       |    |      |   |       |     |  |   |       |    
|                                   | Unrealized gain (loss) on
investment securities
available for sale, net of tax
expense of $68 and $20 for the
three months ended June 30,
2002 and 2001, and net of tax
expense of $156 and net tax
benefit of $47 for the six
months ended June 30, 2002 and
2001, respectively |   |                    | 102 |                  |   |       | 30 |      |   |       | 233 |  |   |       | (70 | )
|                                   |                                                                                                                                                                                                                                                                                  |   |                    |     |                  |   |       |    |      |   |       |     |  |   |       |    
|Comprehensive income               |                                                                                                                                                                                                                                                                                  | $ | 4,907              |     |                  | $ | 4,749 |    |      | $ | 9,757 |     |  | $ | 9,362 |    
|                                   |                                                                                                                                                                                                                                                                                  |   |                    |     |                  |   |       |    |      |   |       |     |  |   |       |    

NOTE 4  IMPAIRED LOANS RECEIVABLE

As of June 30, 2002 and December 31, 2001, the recorded investment in
impaired real estate loans and impaired real estate loans held in trust was
$10.1 million and $16.7 million, respectively. The average recorded investment
in impaired loans was $9.1 million for the three months ended June 30, 2002 and
$28.5 million for the same period last year. The average recorded investment in
impaired loans was $11.8 million for the six months ended June 30, 2002 and
$25.2 million for the same period last year. Interest income recognized on
impaired loans totaled $35,000 and $79,000 for the three and six months ended
June 30, 2002 as compared to $12,000 for the same periods last year.

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

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

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

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##### Table of Contents



NOTE 6  RESIDUAL INTEREST IN
SECURITIZATION

During the quarter
ended March 31, 2002, the Company formed a limited liability
company to issue $86.3 million of asset-backed notes in a
securitization of substantially all of its residential loan
portfolio. The Company recognized a gain of $3.7 million on the
securitization of these loans, although cash (representing the excess
spread and servicing fees) is received by us over the lives of the
loans. Concurrent with recognizing such gain on sale, the Company
recorded the excess spread as a residual interest of
$5.6 million which is recorded on the consolidated balance sheet
in the Investment securities available for sale, at fair
value. The value of the residual interest is subject to
substantial credit, prepayment, and interest rate risk on the sold
residential loans. In accordance with the provisions of Statement of
Financial Accounting Standards, or SFAS 115, Accounting
for Certain Investments in Debt and Equity Securities, the
residual interest is classified as available-for-sale
asset and, as such, recorded at fair value with the resultant
changes in fair value recorded as unrealized gain or loss in a
separate component of shareholders equity entitled accumulated
other comprehensive income or loss, until realized. Fair value
is determined on a monthly basis based on a discounted cash flow
analysis. These cash flows are projected over the lives of the
receivables using prepayment, default, and interest rate assumptions
that we believe market participants would use for similar financial
instruments.

At June 30, 2002, key assumptions used to estimate the fair value of the
residual interest based on projected cash flows, and the sensitivity of the
value to immediate adverse changes in those assumptions is as follows:

|                                         |  |                                          |       |  
|---------------------------------------- |  | ---------------------------------------- | ----- | -
|                                         |  | June 30, 2002                           
|                                         |  |                                         
|                                         |  | Dollars in thousands, except percentages
|Fair value of retained interest          |  | $                                        | 5,619 |  
|Weighted average life (in years)         |  |                                          | 1.73  |  
|Weighted average annual prepayment speed |  |                                          | 35.0  | %
|Impact of 10% adverse change             |  | $                                        | (119  | )
|Impact of 25% adverse change             |  | $                                        | (445  | )
|Weighted average annual discount rate    |  |                                          | 15.0  | %
|Impact of 10% adverse change             |  | $                                        | (262  | )
|Impact of 25% adverse change             |  | $                                        | (626  | )
|Weighted average lifetime credit losses  |  |                                          | 3.3   | %
|Impact of 10% adverse change             |  | $                                        | (281  | )
|Impact of 25% adverse change             |  | $                                        | (679  | )

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

NOTE 7  ACQUISITION OF ASAHI
BANK OF CALIFORNIA

During the first
quarter ended March 31, 2002, the Bank completed its acquisition
of Asahi Bank of California a wholly-owned subsidiary of Asahi Bank
Ltd. - Japan, for approximately $14.9 million. The acquisition
was structured as a statutory merger of Asahi Bank of California into
the Bank. On the date of acquisition,
Asahi Bank of California had total assets of approximately
$50.0 million, including $35.0 million of commercial real
estate and business loans and $15.0 million of cash and
securities which were acquired by the Bank at the closing of the
transaction.

8



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##### Table of Contents






|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2: |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis is intended to identify the major
factors that influenced the financial condition and results of operations for
the three months and six months ended June 30, 2002.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

General

Consolidated net income totaled $4.8 million for the three months ended
June 30, 2002 compared to $4.7 million for the same period last year, an
increase of 2.1%. The increase in net income was primarily due to an increase
in net interest income, partially offset by an increase in the provision for
loan losses and an increase in non-interest expense. Diluted EPS was $0.75 for
the three months ended June 30, 2002 compared to $0.69 for the same period last
year, an increase of 8.7%.

The return on average assets was 1.46% for the three months ended June 30,
2002 compared to 1.37% for the same period last year. The return on average
shareholders equity was 13.31% for the three months ended June 30, 2002,
compared to 13.69% for the same period last year.

Total loan production was $127.2 million for the three months ended June
30, 2002, consisting of the origination and/or purchase of $121.2 million of commercial real
estate loans and $6.0 million of franchise loans. Loan production during the
same period last year totaled $118.1 million, consisting of the origination
and/or purchase of $99.4 million of commercial real estate loans, the purchase
of $2.5 million of residential real estate loans and $16.2 million of franchise
loans.

9



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##### Table of Contents



Net Interest Income and Margin

The following table presents, for the three months ended June 30, 2002 and
2001, our condensed average balance sheet information, together with interest
income and yields earned on average interest-earning assets and interest
expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.

|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |      |      |      |  
|---------------------------------------------------- | ------------------------------- | ------------------------------------------ | ---------------------- | --------- | ----------------------------------- | ------- | ------- | ------ | ------ | ----- | ------- | ---- | ------- | ---- | --------- | --------- | --------- | ------- | ------ | ------ | ------ | ------ | ---- | ---- | ---- | ---- | -
|                                                     |                                 |                                            |                        |           | For the Three Months Ended June 30,
|                                                     |                                 |                                            |                        |           |                                    
|                                                     |                                 |                                            |                        |           | 2002                                |         | 2001   
|                                                     |                                 |                                            |                        |           |                                     |         |        
|                                                     |                                 |                                            |                        |           | Average                             |         | Income/ |        | Yield/ |       | Average |      | Income/ |      | Yield/   
|                                                     |                                 |                                            |                        |           | Balance                             |         | Expense |        | Rate   |       | Balance |      | Expense |      | Rate     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |          
|                                                     |                                 |                                            |                        |           | (dollars in thousands)             
|Assets                                               |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Cash and investments                                 |                                 | $                                          | 66,610                 |           |                                     | $       | 846     |        |        |       | 5.09    | %    |         | $    | 63,279    |           |           | $       | 787    |        |        |        | 4.99 | %   
|Loans receivable:                                    |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|                                                     | Real estate loans               |                                            |                        | 1,094,054 |                                     |         |         | 23,062 |        |       |         | 8.45 | %       |      |           | 1,114,223 |           |         |        | 26,635 |        |        |      | 9.59 | %   
|                                                     | Real estate loans
held in trust |                                            |                        | 149,000   |                                     |         |         | 2,662  |        |       |         | 7.17 | %       |      |           | 195,059   |           |         |        | 4,006  |        |        |      | 8.24 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Total loans receivable                               |                                 |                                            | 1,243,054              |           |                                     |         | 25,724  |        |        |       | 8.30    | %    |         |      | 1,309,282 |           |           |         | 30,641 |        |        |        | 9.39 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Total interest-earning assets                        |                                 |                                            | 1,309,664              |           |                                     | $       | 26,570  |        |        |       | 8.14    | %    |         |      | 1,372,561 |           |           | $       | 31,428 |        |        |        | 9.18 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Non-interest-earning assets                          |                                 |                                            | 42,374                 |           |                                     |         |         |        |        |       |         |      |         |      | 32,345    |           |           |         |        |        |        |        |      |     
|Allowance for loan losses                            |                                 |                                            | (29,169                | )         |                                     |         |         |        |        |       |         |      |         |      | (27,401   | )         |           |         |        |        |        |        |      |     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|                                                     |                                 | Total assets                               |                        | $         | 1,322,869                           |         |         |        |        |       |         |      |         |      |           | $         | 1,377,505 |         |        |        |        |        |      |      |      |     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Liabilities and
Shareholders Equity                 |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Deposit accounts:                                    |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|                                                     |                                 | Money market and
passbook accounts         |                        | $         | 142,849                             |         |         | $      | 691    |       |         |      | 1.94    | %    |           | $         | 105,619   |         |        | $      | 1,139  |        |      |      | 4.33 | %   
|                                                     |                                 | Time certificates                          |                        |           | 739,216                             |         |         |        | 6,404  |       |         |      | 3.47    | %    |           |           | 860,915   |         |        |        | 12,958 |        |      |      | 6.04 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|                                                     |                                 |                                            | Total deposit accounts |           |                                     | 882,065 |         |        |        | 7,095 |         |      |         | 3.23 | %         |           |           | 966,534 |        |        |        | 14,097 |      |      |      | 5.85 | %
|Collateralized mortgage
obligations                  |                                 |                                            | 93,673                 |           |                                     |         | 631     |        |        |       | 2.70    | %    |         |      | 140,575   |           |           |         | 1,689  |        |        |        | 4.82 | %   
|FHLB advances                                        |                                 |                                            | 168,755                |           |                                     |         | 1,350   |        |        |       | 3.21    | %    |         |      | 89,164    |           |           |         | 1,127  |        |        |        | 5.07 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Total interest-bearing
liabilities                   |                                 |                                            | 1,144,493              |           |                                     | $       | 9,076   |        |        |       | 3.18    | %    |         |      | 1,196,273 |           |           | $       | 16,913 |        |        |        | 5.67 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Non-interest-bearing
liabilities                     |                                 |                                            | 5,467                  |           |                                     |         |         |        |        |       |         |      |         |      | 14,934    |           |           |         |        |        |        |        |      |     
|Trust preferred securities                           |                                 |                                            | 28,154                 |           |                                     |         |         |        |        |       |         |      |         |      | 28,063    |           |           |         |        |        |        |        |      |     
|Shareholders equity                                 |                                 |                                            | 144,755                |           |                                     |         |         |        |        |       |         |      |         |      | 138,235   |           |           |         |        |        |        |        |      |     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|                                                     |                                 | Total liabilities
and shareholders equity |                        | $         | 1,322,869                           |         |         |        |        |       |         |      |         |      |           | $         | 1,377,505 |         |        |        |        |        |      |      |      |     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Net interest spread                                  |                                 |                                            |                        |           |                                     |         |         |        |        |       | 4.96    | %    |         |      |           |           |           |         |        |        |        |        | 3.51 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Net interest income
before provision for
loan losses |                                 |                                            |                        |           |                                     | $       | 17,494  |        |        |       |         |      |         |      |           |           |           | $       | 14,515 |        |        |        |      |     
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     
|Net interest margin                                  |                                 |                                            |                        |           |                                     |         |         |        |        |       | 5.36    | %    |         |      |           |           |           |         |        |        |        |        | 4.24 | %   
|                                                     |                                 |                                            |                        |           |                                     |         |         |        |        |       |         |      |         |      |           |           |           |         |        |        |        |        |      |     

10



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##### Table of Contents



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

|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |        |        |  
|------------------------------------------ | ----------------------------------- | ---------------------------------- | ---- | --------------------------- | ------ | ---- | ----- | ------ | ------ | - | ----- | ------ | ------ | -
|                                           |                                     |                                    |      | For the Three Months Ended 
|                                           |                                     |                                    |      | June 30, 2002 and 2001     
|                                           |                                     |                                    |      |                            
|                                           |                                     |                                    |      | Increase (Decrease) Due to:
|                                           |                                     |                                    |      |                            
|                                           |                                     |                                    |      | Volume                      |        | Rate |       | Total 
|                                           |                                     |                                    |      |                             |        |      |       |       
|                                           |                                     |                                    |      | (In thousands)             
|Interest and fees earned from:             |                                     |                                    |      |                             |        |      |       |        |        |   |       |       
|                                           | Real estate loans                   |                                    | $    | (424                        | )      |      | $     | (3,149 | )      |   | $     | (3,573 | )     
|                                           | Real estate loans held in trust     |                                    |      | (822                        | )      |      |       | (522   | )      |   |       | (1,344 | )     
|                                           | Cash and investment securities      |                                    |      | 43                          |        |      |       | 16     |        |   |       | 59     |       
|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |        |       
|                                           |                                     | Total decrease in interest income  |      | $                           | (1,203 | )    |       |        | (3,655 | ) |       |        | (4,858 | )
|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |       
|Interest paid on:                          |                                     |                                    |      |                             |        |      |       |        |        |   |       |       
|                                           | Deposit accounts                    |                                    |      | (679                        | )      |      |       | (6,323 | )      |   |       | (7,002 | )     
|                                           | Collateralized mortgage obligations |                                    |      | (316                        | )      |      |       | (742   | )      |   |       | (1,058 | )     
|                                           | FHLB advances                       |                                    |      | 637                         |        |      |       | (414   | )      |   |       | 223    |       
|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |        |       
|                                           |                                     | Total decrease in interest expense |      |                             | (358   | )    |       |        | (7,479 | ) |       |        | (7,837 | )
|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |       
|(Decrease) increase in net interest income |                                     | $                                  | (845 | )                           |        | $    | 3,824 |        |        | $ | 2,979 |       
|                                           |                                     |                                    |      |                             |        |      |       |        |        |   |       |       

Total interest income decreased $4.8 million to $26.6 million in the
second quarter of 2002 compared to $31.4 million for the same period last year.
The decrease in interest income was due primarily to lower yields on interest
earning assets.

The average balance of real estate loans held by the Bank was essentially
the same at $1.1 billion for the three months ended June 30, 2002 as compared
to the same period last year. Loans secured by income producing properties and
construction loans had an average balance of $1.0 billion during the quarter
ended June 30, 2002 compared to $956.8 million during the same period last
year. The average balance of purchased single family residential mortgages was
$540,000 during the quarter ended June 30, 2002, compared to $136.5 million in
the same period in the prior year as a result of the disposition of
substantially all of our single family loan portfolio during the first quarter
of 2002.

The average balance of real estate loans held in trust was $149.0 million
for the three months ended June 30, 2002 as compared to $195.1 million for the
same period last year. This decrease was due to loan prepayments and principal
amortization.

The average yield earned on real estate loans decreased 114 basis points
to 8.45% in the quarter ended June 30, 2002 as compared to 9.59% in the same
period last year. The decrease in the yield on real estate loans was primarily
due to the repricing of variable rate loans at lower interest rates resulting
from the general decline in market interest rates. Our commercial real estate
loan portfolio is primarily comprised of adjustable rate mortgages indexed to
the six month LIBOR.

Approximately 90.8% of our real estate loan portfolio (including real
estate loans held in trust) are adjustable rate mortgages at June 30, 2002.
These adjustable rate mortgages generally reprice on a quarterly basis and
approximately $1.1 billion or 94.6% of our real estate loan portfolio contain
interest rate floors, below which the loans contractual interest rate may not
adjust. At June 30, 2002, the weighted average floor interest rate of these
loans was 8.3%. At that date, approximately $1.0 billion or 95.9% of those
loans were at the floor interest rate, approximately $11.9 million or 1.1% were
within 50 basis points of their floor interest rate, and approximately $13.3
million or 1.2% were greater than 50 but less than 100 basis points from their
floor interest rate. If market rates decline further,
because most
of our portfolio has reached the floor interest rates, our loans may
be more susceptible to prepayments.

11



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##### Table of Contents



Total interest expense decreased by $7.8 million to $9.1 million in the
second quarter of 2002, compared to $16.9 million for the same period last
year. This decrease was primarily attributable to lower interest rates paid on
all interest bearing liabilities and lower average balances on deposit accounts
and Collateralized Mortgage Obligations (CMOs), partially offset by higher
average balances on Federal Home Loan Bank (FHLB) advances.

Our cost of funds decreased to 3.18% during the three months ended June
30, 2002, compared to 5.67% for the same period last year. This decrease in
funding costs was due primarily to lower rates being paid on our deposit
accounts and CMOs, as compared to the same period last year due to the general
decline in market interest rates, and to a lesser extent, lower average
balances of interest-bearing liabilities. The average rate paid on deposit
accounts was 3.23% during the three months ended June 30, 2002, compared to
5.85% for the same period last year. The average rate paid on CMOs was 2.70%
during the three months ended June 30, 2002 compared to 4.82% for the same
period last year. The average balance of deposit accounts decreased $84.4
million to $882.1 million for the three months ended June 30, 2002, compared to
$966.5 million for the same period last year. The average balance of our CMOs
was $93.7 million during the second quarter of 2002, compared to $140.6 million
for the same period last year. FHLB advances averaged $168.8 million in the
current quarter, compared to $89.2 million for the same period last year.

Net interest margin increased to 5.36% for the three months ended June 30,
2002 as compared to 4.24% for the same period last year primarily due to the
249 basis point decrease in the average cost of funds partially offset by the 104 basis
point decrease in the average yield on interest-earning assets.

Provision for Loan Losses

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



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

Accordingly, the calculation of the adequacy of the allowance for loan
losses is not based solely on the level of nonperforming assets. Management
believes that the allowance for loan losses as of June 30, 2002 was adequate to
absorb the known and inherent risks of loss in the loan portfolio at that date.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be required
will not adversely impact our financial condition and results of operations.
In addition, the determination of the amount of the Banks allowance for loan
losses is subject to review by the Banks regulators, as part of the routine
examination process, which may result in the establishment of additional
reserves based upon their judgment of information available to them at the time
of their examination.

The consolidated provision for loan losses totaled $2.1 million in the
second quarter of 2002, compared to $500,000 for the same period in the prior
year. The current period provision for loan losses was recorded to provide for
reserves based on an analysis of the factors referred to above and the
valuation of certain nonperforming loans and other loans of concern. The
allowance for loan losses was 2.32% of total real estate loans and real estate
loans held in trust at June 30, 2002 as compared to 2.03% at December 31, 2001.
See also-Financial Condition-Credit Risk.

12



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##### Table of Contents



Non-interest Income

Non-interest income decreased to $102,000 for the three months ended June
30, 2002, compared to $239,000 for the same period last year. The decrease was
primarily related to the lower late/collection fees on mortgage loans.

Non-interest Expense

Non-interest expense totaled $6.8 million for the three months ended June
30, 2002, compared to $5.8 million for the same period last year. The increase
was primarily attributable to certain infrastructure costs relating to the
Banks charter conversion activities including core processing system
conversion costs and additions to the information technology and savings
operations staff.

For the three months ended June 30, 2002, our ratio of consolidated
general and administrative expense to average assets, on an annualized basis,
increased to 1.91% compared to 1.68% for the same period last year. Our
efficiency ratio, (excluding real estate operations), which is defined as
general and administrative expenses as a percentage of net interest income and
non-interest income was 35.87% for the quarter ended June 30, 2002, compared to
39.18% for the same period last year.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary was $797,000 during the three
month period ended June 30, 2002 as compared to $796,000 for the same period
last year, consisting of accrued distributions payable on our Trust Preferred
securities. See Note 5 to the unaudited Consolidated Financial Statements for
further information.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

General

Consolidated net income totaled $9.5 million for the six months ended June
30, 2002 compared to $9.4 million for the same period last year. The increase
in net income was primarily due to increases in net interest income, partially
offset by increases in the provision for loan losses, non-interest expense and
in minority interest in income of subsidiary. Diluted EPS was $1.49 for the
six months ended June 30, 2002, compared to $1.36 for the same period last
year, an increase of 9.6%. The return on average assets was 1.41% for the six
months ended June 30, 2002, compared to 1.38% for the same period last year.
The return on average shareholders equity was 13.47% for the six months ended
June 30, 2002, compared to 13.87% for the same period last year.

Total loan production was $229.9 million for the six months ended June 30,
2002, consisting of the origination and/or purchase of $223.9 million of
commercial real estate loans including $36.8 million of loans
acquired from the Asahi Bank of California, and $6.0
million of franchise loans. Loan production during the same period last year
totaled $247.4 million, consisting of the origination and/or purchase of $200.1
million of commercial real estate loans, $17.8 million of residential real
estate loans and $29.5 million of franchise loans.

13



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##### Table of Contents



Net Interest Income and Margin

The following table presents, for the six months ended June 30, 2002 and
2001, our condensed average balance sheet information, together with interest
income and yields earned on average interest-earning assets and interest
expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.

|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |      |      |      |  
|---------------------------------------------------- | ------------------------------- | ---------------------------------- | ---------------------- | --------- | --------------------------------- | --------- | ------- | ------ | ------ | ------ | ------- | ---- | ------- | ---- | --------- | --------- | ------- | --------- | ------ | ------ | ------ | ------ | ---- | ---- | ---- | ---- | -
|                                                     |                                 |                                    |                        |           | For the Six Months Ended June 30,
|                                                     |                                 |                                    |                        |           |                                  
|                                                     |                                 |                                    |                        |           | 2002                              |           | 2001   
|                                                     |                                 |                                    |                        |           |                                   |           |        
|                                                     |                                 |                                    |                        |           | Average                           |           | Income/ |        | Yield/ |        | Average |      | Income/ |      | Yield/   
|                                                     |                                 |                                    |                        |           | Balance                           |           | Expense |        | Rate   |        | Balance |      | Expense |      | Rate     
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |          
|                                                     |                                 |                                    |                        |           | (dollars in thousands)           
|Assets                                               |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Cash and investments                                 |                                 | $                                  | 69,343                 |           |                                   | $         | 1,525   |        |        |        | 4.43    | %    |         | $    | 71,581    |           |         | $         | 1,948  |        |        |        | 5.49 | %   
|Loans receivable:                                    |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|                                                     | Real estate loans               |                                    |                        | 1,112,596 |                                   |           |         | 46,578 |        |        |         | 8.44 | %       |      |           | 1,094,841 |         |           |        | 53,418 |        |        |      | 9.84 | %   
|                                                     | Real estate loans
held in trust |                                    |                        | 153,511   |                                   |           |         | 5,502  |        |        |         | 7.23 | %       |      |           | 202,218   |         |           |        | 8,328  |        |        |      | 8.30 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Total loans receivable                               |                                 |                                    | 1,266,107              |           |                                   |           | 52,080  |        |        |        | 8.29    | %    |         |      | 1,297,059 |           |         |           | 61,746 |        |        |        | 9.60 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Total interest-earning assets                        |                                 |                                    | 1,335,450              |           |                                   | $         | 53,605  |        |        |        | 8.09    | %    |         |      | 1,368,640 |           |         | $         | 63,694 |        |        |        | 9.38 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Non-interest-earning assets                          |                                 |                                    | 56,566                 |           |                                   |           |         |        |        |        |         |      |         |      | 32,854    |           |         |           |        |        |        |        |      |     
|Allowance for loan losses                            |                                 |                                    | (28,862                | )         |                                   |           |         |        |        |        |         |      |         |      | (27,451   | )         |         |           |        |        |        |        |      |     
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|                                                     |                                 |                                    | Total assets           |           | $                                 | 1,363,154 |         |        |        |        |         |      |         |      |           |           | $       | 1,374,043 |        |        |        |        |      |      |      |      |  
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Liabilities and
Shareholders Equity                 |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Deposit accounts:                                    |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|                                                     |                                 | Money market and
passbook accounts |                        | $         | 154,631                           |           |         | $      | 1,637  |        |         |      | 2.13    | %    |           | $         | 105,319 |           |        | $      | 2,491  |        |      |      | 4.77 | %   
|                                                     |                                 | Time certificates                  |                        |           | 757,821                           |           |         |        | 13,751 |        |         |      | 3.66    | %    |           |           | 882,750 |           |        |        | 27,420 |        |      |      | 6.26 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|                                                     |                                 |                                    | Total deposit accounts |           |                                   | 912,452   |         |        |        | 15,388 |         |      |         | 3.40 | %         |           |         | 988,069   |        |        |        | 29,911 |      |      |      | 6.10 | %
|Collateralized mortgage
obligations                  |                                 |                                    | 98,413                 |           |                                   |           | 1,289   |        |        |        | 2.64    | %    |         |      | 147,731   |           |         |           | 3,982  |        |        |        | 5.44 | %   
|FHLB advances                                        |                                 |                                    | 173,736                |           |                                   |           | 2,888   |        |        |        | 3.35    | %    |         |      | 62,300    |           |         |           | 1,658  |        |        |        | 5.37 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Total interest-bearing liabilities                   |                                 |                                    | 1,184,601              |           |                                   | $         | 19,565  |        |        |        | 3.33    | %    |         |      | 1,198,100 |           |         | $         | 35,551 |        |        |        | 5.98 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Non-interest-bearing liabilities                     |                                 |                                    | 7,854                  |           |                                   |           |         |        |        |        |         |      |         |      | 14,909    |           |         |           |        |        |        |        |      |     
|Trust preferred securities                           |                                 |                                    | 28,142                 |           |                                   |           |         |        |        |        |         |      |         |      | 23,887    |           |         |           |        |        |        |        |      |     
|Shareholders equity                                 |                                 |                                    | 142,557                |           |                                   |           |         |        |        |        |         |      |         |      | 137,147   |           |         |           |        |        |        |        |      |     
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Total liabilities
and shareholders equity           |                                 | $                                  | 1,363,154              |           |                                   |           |         |        |        |        |         |      |         | $    | 1,374,043 |           |         |           |        |        |        |        |      |     
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Net interest spread                                  |                                 |                                    |                        |           |                                   |           |         |        |        |        | 4.76    | %    |         |      |           |           |         |           |        |        |        |        | 3.40 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Net interest income
before provision for
loan losses |                                 |                                    |                        |           |                                   | $         | 34,040  |        |        |        |         |      |         |      |           |           |         | $         | 28,143 |        |        |        |      |     
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     
|Net interest margin                                  |                                 |                                    |                        |           |                                   |           |         |        |        |        | 5.14    | %    |         |      |           |           |         |           |        |        |        |        | 4.15 | %   
|                                                     |                                 |                                    |                        |           |                                   |           |         |        |        |        |         |      |         |      |           |           |         |           |        |        |        |        |      |     

14



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##### Table of Contents



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

|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |         |         |  
|------------------------------------------ | ----------------------------------- | ---------------------------------- | ---- | --------------------------- | ------ | ---- | ----- | ------- | ------- | - | ----- | ------- | ------- | -
|                                           |                                     |                                    |      | For the Six Months Ended   
|                                           |                                     |                                    |      | June 30, 2002 and 2001     
|                                           |                                     |                                    |      |                            
|                                           |                                     |                                    |      | Increase (Decrease) Due to:
|                                           |                                     |                                    |      |                            
|                                           |                                     |                                    |      | Volume                      |        | Rate |       | Total  
|                                           |                                     |                                    |      |                             |        |      |       |        
|                                           |                                     |                                    |      | (In thousands)             
|Interest and fees earned from:             |                                     |                                    |      |                             |        |      |       |         |         |   |       |        
|                                           | Real estate loans                   |                                    | $    | 744                         |        |      | $     | (7,584  | )       |   | $     | (6,840  | )      
|                                           | Real estate loans held in trust     |                                    |      | (1,749                      | )      |      |       | (1,077  | )       |   |       | (2,826  | )      
|                                           | Cash and investments                |                                    |      | (49                         | )      |      |       | (374    | )       |   |       | (423    | )      
|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |         |        
|                                           |                                     | Total decrease in interest income  |      | $                           | (1,054 | )    |       |         | (9,035  | ) |       | $       | (10,089 | )
|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |        
|Interest paid on:                          |                                     |                                    |      |                             |        |      |       |         |         |   |       |        
|                                           | Deposit accounts                    |                                    |      | (1,277                      | )      |      |       | (13,246 | )       |   |       | (14,523 | )      
|                                           | Collateralized mortgage obligations |                                    |      | (645                        | )      |      |       | (2,048  | )       |   |       | (2,693  | )      
|                                           | FHLB advances                       |                                    |      | 1,853                       |        |      |       | (623    | )       |   |       | 1,230   |        
|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |         |        
|                                           |                                     | Total decrease in interest expense |      |                             | (69    | )    |       |         | (15,917 | ) |       |         | (15,986 | )
|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |        
|(Decrease) increase in net interest income |                                     | $                                  | (985 | )                           |        | $    | 6,882 |         |         | $ | 5,897 |        
|                                           |                                     |                                    |      |                             |        |      |       |         |         |   |       |        

Total interest income decreased $10.1 million to $53.6 million in the six
months ended June 30, 2002, compared to $63.7 million for the same period last
year. The net decrease in interest income was due primarily to lower yields on
interest earning assets.

The average balance of real estate loans held by the Bank was essentially
the same at $1.1 billion for the six months ended June 30, 2002 as compared to
the same period last year. Loans secured by income producing properties and
construction loans had an average balance of $1.1 billion during the six months
ended June 30, 2002 compared to $959.6 million during the same period last
year. The average balance of purchased single family residential mortgages
decreased to $32.0 million during the six months ended June 30, 2002, compared to
$135.3 million in the same period in the prior year, as a result of the
disposition of substantially all of our single family loan portfolio during the
first quarter of 2002.

The average balance of real estate loans held in trust decreased to $153.5
million for the six months ended June 30, 2002 as compared to $202.2 million
for the same period last year, due to loan prepayments and principal
amortization.

The average yield earned on real estate loans decreased 140 basis points
to 8.44% for the six months ended June 30, 2002 as compared to 9.84% in the
same period last year. The decrease in the yield on real estate loans was
primarily due to the repricing of variable rate loans at lower interest rates
resulting from the general decline in market interest rates. Our commercial
real estate loan portfolio is primarily comprised of adjustable rate mortgages
indexed to the six month LIBOR.

Total interest expense decreased by $16.0 million to $19.6 million for the
six months ended June 30, 2002, compared to $35.6 million for the same period
last year. This decrease was primarily attributable to lower interest rates
paid on all interest bearing liabilities and lower average balances on our
deposit accounts and Collateralized Mortgage Obligations (CMOs) partially
offset by higher average balances on Federal Home Loan Bank (FHLB) advances.

Our average cost of funds decreased to 3.33% during the six months ended June 30,
2002, compared to 5.98% for the same period last year. This decrease in
funding costs was due primarily to lower rates being paid on our CMOs and
deposit accounts as compared to the same period last year due to the general
decline in market interest rates. The average rate paid on deposit accounts
was 3.40% during the six months ended June 30, 2002 compared to 6.10% for the
same period last year. The average rate paid on the CMOs was 2.64% during the
six

15



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months ended June 30, 2002 compared to 5.44% for the same period last
year. The average balance of deposit accounts decreased $75.6 million to $912.5
million for the six months ended June 30, 2002, compared to $988.1 million for
the same period last year. The average balance of our CMOs was $98.4 million
during the six months ended June 30, 2002, compared to $147.7 million for the
same period last year. FHLB advances averaged $173.7 million in the for the
six months ended June 30, 2002, compared to $62.3 million for the same period
last year.

Net interest margin increased to 5.14% for the six months ended June 30,
2002 as compared to 4.15% for the same period last year primarily due to the
265 basis point decrease in cost of funds partially offset by the 129 basis
point decrease in the yield on interest-earning assets.

Provision for Loan Losses

The consolidated provision for loan losses totaled $3.4 million for the
six months ended June 30, 2002, compared to $950,000 for the same period last
year. The current period provision for loan losses was recorded to provide for
reserves based on an analysis of the factors referred to previously and the
valuation of certain nonperforming loans and other loans of concern.

Non-interest Income

Non-interest income totaled $227,000 for the six months ended June 30,
2002, compared to $553,000 for the same period last year. The decrease was
primarily related to the lower fees on mortgage banking activities and
late/collection fees on mortgage loans, partially offset by the net gain on
sale and securitization of single family mortgage loans. During the
quarter ended March 31, 2002, we securitized $86.3 million
and sold $17.6 million of our residential loan portfolio for a
net gain of $32,000.

Non-interest Expense

Non-interest expense totaled $13.6 million for the six months ended June
30, 2002, compared to $11.1 million for the same period last year.
Compensation and benefits expense totaled $6.5 million during the six months
ended June 30, 2002, compared to $5.9 million for the same period last year.
The increase was primarily attributable to additions made to the Banks retail
and wholesale loan origination sales and operations staff and certain
infrastructure costs relating to its charter conversion activities including
core processing system conversion costs and additions to the information
technology and savings operations staff. In addition, full time equivalent
associates totaled 155 at June 30, 2002, compared to 130
at June 30, 2001.

For the six months ended June 30, 2002, our ratio of consolidated general
and administrative expense to average assets, on an annualized basis, increased
to 1.85% compared to 1.59% for the same period last year. Our efficiency ratio
(excluding real estate operations) which is defined as general and
administrative expenses as a percentage of net interest income and non-interest
income was 36.86% for the six months ended June 30, 2002 compared to 38.03% for
the same period last year.

Minority Interest in Income of Subsidiary

Minority interest in income of subsidiary was $1.6 million during the six
month period ended June 30, 2002 compared to $1.4 million for the same period
last year consisting of accrued distributions payable on our Trust Preferred
securities. See Note 5 to the unaudited Consolidated Financial Statements for
further information.

FINANCIAL CONDITION

Total assets decreased $67.4 million to $1.44 billion at June 30, 2002 as
compared to $1.51 billion at December 31, 2001. At June 30, 2002, real estate
loans, net totaled $1.1 billion, including approximately $61.4 million of
franchise loans. During the six months ended June 30, 2002, the Banks loan
portfolio decreased $25.3 million primarily due to the sale and securitization of
$103.9 million of our residential loan portfolio, partially offset
by approximately $78.6 million of net growth in the commercial
loan portfolio. Real estate loans held in
trust decreased by $19.8 million during the current six month period. These
decreases were partially offset by a $9.5 million increase in investment
securities available for sale and a $4.2 million increase in

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other assets. The increase in investment securities
available for sale was
due primarily to the $5.6 million residual interest recorded in
connection with our residential
loan securitization described below. The increase in other assets was primarily due to the
addition of $2.2 million of goodwill related to the acquisition of Asahi Bank
of California. Total deposit accounts, which are concentrated in time
certificates, decreased to $868.4 million at June 30, 2002 as compared to
$953.7 million at December 31, 2001. FHLB advances increased $30.9 million to
$300.2 million at June 30, 2002, compared to $269.3 million at December 31,
2001. Management believes that a significant portion of deposits will remain
with us upon maturity based on our historical experience regarding retention of
deposits. CMOs decreased $20.2 million to $89.4 million at June 30, 2002
compared to $109.6 million at December 31, 2001.

Residual Interest

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

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

At June 30, 2002, key assumptions used to estimate the fair value of the
residual interest based on projected cash flows, and the sensitivity of the
value to immediate adverse changes in those assumptions is as follows:

|                                         |  |                                          |       |  
|---------------------------------------- |  | ---------------------------------------- | ----- | -
|                                         |  | June 30, 2002                           
|                                         |  |                                         
|                                         |  | Dollars in thousands, except percentages
|Fair value of retained interest          |  | $                                        | 5,619 |  
|Weighted average life (in years)         |  |                                          | 1.73  |  
|Weighted average annual prepayment speed |  |                                          | 35.0  | %
|Impact of 10% adverse change             |  | $                                        | (119  | )
|Impact of 25% adverse change             |  | $                                        | (445  | )
|Weighted average annual discount rate    |  |                                          | 15.0  | %
|Impact of 10% adverse change             |  | $                                        | (262  | )
|Impact of 25% adverse change             |  | $                                        | (626  | )
|Weighted average lifetime credit losses  |  |                                          | 3.3   | %
|Impact of 10% adverse change             |  | $                                        | (281  | )
|Impact of 25% adverse change             |  | $                                        | (679  | )

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

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CREDIT RISK

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

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

|                                                                                |                        |                                        |        |                        |        |                   |        |        |        | 
|------------------------------------------------------------------------------- | ---------------------- | -------------------------------------- | ------ | ---------------------- | ------ | ----------------- | ------ | ------ | ------ | 
|                                                                                |                        |                                        |        | June 30, 2002          |        | December 31, 2001
|                                                                                |                        |                                        |        |                        |        |                  
|                                                                                |                        |                                        |        | (dollars in thousands)
|Nonaccrual loans:                                                               |                        |                                        |        |                        |        |                   |        |       
|                                                                                | Real estate            |                                        | $      | 7,441                  |        |                   | $      | 13,690 |       
|                                                                                | Construction           |                                        |        | 1,313                  |        |                   |        | 1,600  |       
|                                                                                |                        |                                        |        |                        |        |                   |        |       
|                                                                                | Total nonaccrual loans |                                        |        | 8,754                  |        |                   |        | 15,290 |       
|Other real estate owned, net                                                    |                        |                                        | 10,290 |                        |        |                   | 13,741 |       
|                                                                                |                        |                                        |        |                        |        |                   |        |       
|                                                                                |                        | Total nonperforming assets             |        |                        | 19,044 |                   |        |        | 29,031 | 
|                                                                                |                        | Performing troubled debt restructuring |        |                        | 3,815  |                   |        |        | 3,752  | 
|                                                                                |                        |                                        |        |                        |        |                   |        |        |       
|                                                                                |                        | $                                      | 22,859 |                        |        | $                 | 32,783 |       
|                                                                                |                        |                                        |        |                        |        |                   |        |       
|Nonaccrual loans to total real estate loans
and real estate loans held in trust |                        |                                        | 0.69   | %                      |        |                   | 1.17   | %     
|Allowance for loan losses to nonaccrual loans                                   |                        |                                        | 336.97 | %                      |        |                   | 174.30 | %     
|Nonperforming assets to total assets                                            |                        |                                        | 1.32   | %                      |        |                   | 1.92   | %     

At June 30,
2002, other real estate owned consisted of four income producing
properties totaling $10.3 million.

As of June 30, 2002 and December 31, 2001, other loans of concern totaled
$23.9 million and $21.5 million, respectively. Other loans of concern consist
of loans with respect to which known information concerning possible credit
problems with the borrowers or the cash flows of the properties securing the
respective loans has caused management to be concerned about the ability of the
borrowers to comply with present loan repayment terms, which may result in the
future inclusion of such loans in the nonaccrual category. The increase in
other loans of concern for the six months ended June 30, 2002 was primarily due
to $13.4 million of new other loans of concern, partially offset
by $5.4 million of loans migrating to nonaccrual status, $4.0 million of loans being
sold or paid-off and $1.6 million of loans being upgraded due to improving
conditions.

Our loan delinquencies (delinquent loans greater than 30 days) decreased
to $22.2 million or 1.74% of the gross loan portfolio at June 30, 2002 as
compared to $32.9 million or 2.52% of gross loan portfolio at December 31,
2001.

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

|                                                                                            |                    |                   |                          |        |                        |        |              |        |        |        | 
|------------------------------------------------------------------------------------------- | ------------------ | ----------------- | ------------------------ | ------ | ---------------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                                                            |                    |                   |                          |        | For Six                |        | For the Year
|                                                                                            |                    |                   |                          |        | Months Ended           |        | Ended       
|                                                                                            |                    |                   |                          |        | June 30,               |        | December 31,
|                                                                                            |                    |                   |                          |        | 2002                   |        | 2001        
|                                                                                            |                    |                   |                          |        |                        |        |             
|                                                                                            |                    |                   |                          |        | (dollars in thousands)
|Balance at beginning of period                                                              |                    | $                 | 26,650                   |        |                        | $      | 27,186       |       
|Provision for loan losses                                                                   |                    |                   | 3,425                    |        |                        |        | 4,575        |       
|Acquired
from Asahi Bank of California                                                      |                    |                   | 1,639                    |        |                        |        |             |       
|Charge-offs:                                                                                |                    |                   |                          |        |                        |        |              |       
|                                                                                            | Real estate loans  |                   |                          | (2,229 | )                      |        |              | (2,845 | )     
|                                                                                            | Construction loans |                   |                          |       |                        |        |              | (2,419 | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    | Total charge-offs |                          |        | (2,229                 | )      |              |        | (5,264 | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Recoveries:                                                                                 |                    |                   |                          |        |                        |        |              |       
|                                                                                            | Real estate loans  |                   |                          | 13     |                        |        |              | 153    |       
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    | Total recoveries  |                          |        | 13                     |        |              |        | 153    |       
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Net charge-offs                                                                             |                    |                   | (2,216                   | )      |                        |        | (5,111       | )     
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|                                                                                            |                    |                   | Balance at end of period |        | $                      | 29,498 |              |        | $      | 26,650 | 
|                                                                                            |                    |                   |                          |        |                        |        |              |       
|Allowance for loan losses as a
percentage of real estate loans and
loans held in trust, net |                    |                   | 2.32                     | %      |                        |        | 2.03         | %     

Liquidity

Liquidity refers to our ability to maintain cash flow adequate to fund
operations and meet obligations and other commitments on a timely basis,
including the payment of maturing deposits and the origination or purchase of
new real estate loans. We maintain a cash and investment securities portfolio
designed to satisfy operating liquidity requirements while preserving capital
and maximizing yield. As of June 30, 2002, we held approximately $101.9
million of cash and cash equivalents (consisting primarily of short-term
investments with original maturities of 90 days or less) and $38.9 million of
investment securities classified as available for sale.

Short-term fixed income investments classified as cash equivalents
consisted of interest-bearing deposits at financial institutions, government
money market funds and short-term government agency securities, while
investment securities available for sale consisted primarily of fixed income
instruments which were rated AAA or equivalent by nationally recognized
rating agencies. As of June 30, 2002 and December 31, 2001, the Banks
liquidity ratios were 15.5% and 17.0%, respectively. In addition, our
liquidity position is supported by a credit facility with the Federal Home Loan
Bank of San Francisco. As of June 30, 2002, we had remaining available
borrowing capacity under this credit facility of $46.5 million, net of the $2.5
million of additional Federal Home Loan Bank Stock that we would be required to
purchase to support those additional borrowings, and $30.0 million of unused
federal funds credit facilities under established lines of credit with two
banks.

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Capital Resources

As of June 30, 2002, the Banks Leverage (Core), Tier I and Total
Risk-Based capital ratios were 10.5%, 10.6% and 11.9%, respectively. These
ratios were 10.1%, 10.7% and 12.0%, respectively, as of
December 31, 2001. The
minimum regulatory requirement for Leverage (Core), Tier I and Total Risk-Based
capital are 4.0%, 4.0% and 8.0%, respectively. As of June 30, 2002, the Banks
capital position was designated as well capitalized for regulatory purposes.

At June 30, 2002, our consolidated shareholders equity totaled $146.1
million or 10.14% of total assets. The Company continued to repurchase shares
of its common stock in the open market during the second quarter of 2002.
During the second quarter of 2002, the Company repurchased 17,700 shares of
common stock at an average price of $28.93 per share. For the six months
ending June 30, 2002, the Company repurchased 79,100 shares of common stock at
an average price of $24.16 per share. Since beginning share repurchases in
April of 1997, the Company has repurchased a total of 2,152,319 shares or
approximately 26% of the outstanding shares of common stock, returning
approximately $35.4 million of capital to its shareholders at an average price
of $16.45 per share. Through our stock repurchase program, 100% of the
Companys secondary public offering, which raised $22.6 million in April of
1996 has been retired along with returning to our shareholders approximately
$12.8 million of proceeds from the Companys initial public offering completed
in October 1995. The Companys book value per share of common stock was $25.23
as of June 30, 2002, as compared to $23.54 as of December 31, 2001, and $21.74
as of June 30, 2001.




ITEM 3: MARKET RISK

Our estimated sensitivity to interest rate risk, as measured by the
estimated interest earnings sensitivity profile and the interest sensitivity
gap analysis, has not materially changed from the information disclosed in our
annual report on Form 10-K for the year ended December 31, 2001.

20



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##### Table of Contents






Part II  OTHER INFORMATION




|       |  |                                                                                                                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1 |  | Legal Proceedings                                                                                                                                                                                                                     
|      
|       |  | We are party to certain legal proceedings incidental to our
business. Management believes that the outcome of such
proceedings, in the aggregate, will not have a material effect on
our financial condition or results of operations.




|       |  |                      
|------ |  | ---------------------
|Item 2 |  | Changes in Securities
|      
|       |  | Not applicable.      




|       |  |                                
|------ |  | -------------------------------
|Item 3 |  | Defaults Upon Senior Securities
|      
|       |  | Not applicable.                




|       |  |                                                    
|------ |  | ---------------------------------------------------
|Item 4 |  | Submission of Matters to a Vote of Security Holders
|      
|       |  | None.                                              




|       |  |                  
|------ |  | -----------------
|Item 5 |  | Other Information
|      
|       |  | None.            




|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6 |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       |  | The registrant filed a report on Form 8-K on June 5, 2002. The
filing reported that on May 29, 2002, the Board of Directors of
ITLA Capital Corporation (the Company), dismissed the Companys
current independent auditors, Arthur Andersen LLP, and upon
recommendation by its Audit Committee, approved the engagement of
Ernst & Young LLP as the Companys independent auditors for the
year ending December 31, 2002.

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##### Table of Contents






SIGNATURES

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

ITLA CAPITAL CORPORATION

|                      |  |  |  |                                                                                  
|--------------------- |  |  |  | ---------------------------------------------------------------------------------
|Date: August 14, 2002 |  |  |  | /s/ George W. Haligowski                                                         
|                      |  |  |  |                                                                                  
|                      |  |  |  | George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer



|                      |  |  |  |                                                                     
|--------------------- |  |  |  | --------------------------------------------------------------------
|Date: August 14, 2002 |  |  |  | /s/ Timothy M. Doyle                                                
|                      |  |  |  |                                                                     
|                      |  |  |  | Timothy M. Doyle
Senior Managing Director andChief
Financial Officer




CERTIFICATION

Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby
certifies in his capacity as an officer of ITLA Capital Corporation
(the Company) that the Quarterly Report of the Company on
Form 10-Q for the quarterly period ended June 30, 2002
fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained in
such report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of the dates
and for the periods presented in the financial statements included in
such report.

|                      |  |  |  |                                                                                   
|--------------------- |  |  |  | ----------------------------------------------------------------------------------
|Date: August 14, 2002 |  |  |  | /s/ George W. Haligowski                                                          
|                      |  |  |  |                                                                                   
|                      |  |  |  | George W. Haligowski
Chairman of the Board, President, and
Chief Executive Officer



|                      |  |  |  |                                                                      
|--------------------- |  |  |  | ---------------------------------------------------------------------
|Date: August 14, 2002 |  |  |  | /s/ Timothy M. Doyle                                                 
|                      |  |  |  |                                                                      
|                      |  |  |  | Timothy M. Doyle
Senior Managing Director and
Chief Financial Officer

22