##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from ___to ___
  ITLA CAPITAL CORPORATION
  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)
  
  þ o
 þ o




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ITLA
CAPITAL CORPORATION
 FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    3Consolidated Balance Sheets  June 30, 2005 (Unaudited) and December 31, 2004
    
    3Consolidated Statements of Income  Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    5Notes to the Unaudited Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    26Item 4.
    
    Controls and Procedures
    
    27PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    28Item 5.
    
    Other Information
    
    28Item 6.
    
    Exhibits
    
    28Signatures
    
    29Certifications
    
    31Exhibit 31.1Exhibit 31.2Exhibit 32
  Forward Looking Statements
   2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 ITLA CAPITAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 June 30,2005
    
    December 31,(unaudited)
    
    2004(in thousands, except share data)AssetsCash and cash equivalents
    
    $
    33,121
    
    
    $
    87,580Investment securities available for sale, at fair value
    
    
    87,097
    
    
    
    66,845Investment securities held-to-maturity, at amortized cost
    
    
    269,724
    
    
    
    296,028Stock in Federal Home Loan Bank
    
    
    33,975
    
    
    
    23,200Loans, net (net of allowance for loan losses of $37,402 and $35,483
as of June 30, 2005 and December 31, 2004, respectively)
    
    
    2,360,437
    
    
    
    1,793,815Interest receivable
    
    
    13,962
    
    
    
    10,695Other real estate owned, net
    
    
    
    
    
    
    Premises and equipment, net
    
    
    6,898
    
    
    
    6,645Deferred income taxes
    
    
    10,600
    
    
    
    10,468Goodwill
    
    
    3,118
    
    
    
    3,118Other assets
    
    
    20,916
    
    
    
    19,677Total assets
    
    $
    2,839,848
    
    
    $
    2,318,071Liabilities and Shareholders EquityLiabilities:Deposit accounts
    
    $
    1,716,809
    
    
    $
    1,432,032Federal Home Loan Bank advances and other borrowings
    
    
    814,678
    
    
    
    584,224Accounts payable and other liabilities
    
    
    23,545
    
    
    
    20,491Junior subordinated debentures
    
    
    86,600
    
    
    
    86,600Total liabilities
    
    
    2,641,632
    
    
    
    2,123,347Commitments and contingenciesShareholders equity:Preferred stock, 5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Contributed capital  common stock, $.01 par value; 20,000,000
shares authorized, 8,905,143 and 8,703,894 issued as of June 30,
2005 and December 31, 2004, respectively
    
    
    75,492
    
    
    
    69,327Retained earnings
    
    
    207,522
    
    
    
    196,032Accumulated other comprehensive (loss) income, net
    
    
    (131
    )
    
    
    78282,883
    
    
    
    265,437Less treasury stock, at cost 3,420,988 and 3,154,290 shares as of
June 30, 2005 and December 31, 2004, respectively
    
    
    (84,667
    )
    
    
    (70,713
    )Total shareholders equity
    
    
    198,216
    
    
    
    194,724Total liabilities and shareholders equity
    
    $
    2,839,848
    
    
    $
    2,318,071
  3




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##### Table of Contents



ITLA CAPITAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(in thousands, except per share data)Interest income:Loans, including fees
    
    $
    37,210
    
    
    $
    27,220
    
    
    $
    69,121
    
    
    $
    56,860Cash and investment securities
    
    
    4,470
    
    
    
    968
    
    
    
    9,311
    
    
    
    3,411Total interest income
    
    
    41,680
    
    
    
    28,188
    
    
    
    78,432
    
    
    
    60,271Interest expense:Deposit accounts
    
    
    11,897
    
    
    
    6,485
    
    
    
    21,395
    
    
    
    12,999Federal Home Loan Bank advances and other borrowings
    
    
    5,900
    
    
    
    833
    
    
    
    9,732
    
    
    
    1,976Junior subordinated debentures
    
    
    1,754
    
    
    
    1,501
    
    
    
    3,434
    
    
    
    2,990Total interest expense
    
    
    19,551
    
    
    
    8,819
    
    
    
    34,561
    
    
    
    17,965Net interest income before provision for loan losses
    
    
    22,129
    
    
    
    19,369
    
    
    
    43,871
    
    
    
    42,306Provision for loan losses
    
    
    1,500
    
    
    
    950
    
    
    
    2,250
    
    
    
    2,350Net interest income after provision for loan losses
    
    
    20,629
    
    
    
    18,419
    
    
    
    41,621
    
    
    
    39,956Non-interest income:Premium on sale of loans, net
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    9,284Late and collection fees
    
    
    130
    
    
    
    84
    
    
    
    203

    
    
    
    185Other
    
    
    379
    
    
    
    701
    
    
    
    286
    
    
    
    4,970Total non-interest income
    
    
    509
    
    
    
    1,045
    
    
    
    489
    
    
    
    14,439Non-interest expense:Compensation and benefits
    
    
    5,376
    
    
    
    5,446
    
    
    
    11,267
    
    
    
    11,602Occupancy and equipment
    
    
    1,750
    
    
    
    1,522
    
    
    
    3,401
    
    
    
    2,850Other
    
    
    3,943
    
    
    
    3,520
    
    
    
    7,631
    
    
    
    7,388Total general and administrative
    
    
    11,069
    
    
    
    10,488
    
    
    
    22,299
    
    
    
    21,840Real estate owned expense, net
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    81Provision for losses on other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Gain on sale of other real estate owned, net
    
    
    
    
    
    
    (315
    )
    
    
    (11
    )
    
    
    (354
    )Total real estate owned expense, net
    
    
    
    
    
    
    (330
    )
    
    
    (11
    )
    
    
    727Total non-interest expense
    
    
    11,069
    
    
    
    10,158
    
    
    
    22,288
    
    
    
    22,567Income before provision for income taxes
    
    
    10,069
    
    
    
    9,306
    
    
    
    19,822
    
    
    
    31,828Provision for income taxes
    
    
    4,230
    
    
    
    3,676
    
    
    
    8,332
    
    
    
    12,414NET INCOME
    
    $
    5,839
    
    
    $
    5,630
    
    
    $
    11,490
    
    
    $
    19,414BASIC EARNINGS PER SHARE
    
    $
    1.01
    
    
    $
    0.91
    
    
    $
    1.99
    
    
    $
    3.12DILUTED EARNINGS PER SHARE
    
    $
    0.98
    
    
    $
    0.86
    
    
    $
    1.90
    
    
    $
    2.93
  4




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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Six Months EndedJune 30,2005
    
    2004(in thousands)Cash Flows From Operating Activities:Net Income
    
    $
    11,490
    
    
    $
    19,414Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of premises and equipment
    
    
    1,232
    
    
    
    985Amortization of premium on purchased loans
    
    
    1,078
    
    
    
    1,101Accretion of deferred loan origination fees, net of costs
    
    
    (1,391
    )
    
    
    (1,143
    )Provision for loan losses
    
    
    2,250
    
    
    
    2,350Premium on sale of RAL loans, net
    
    
    
    
    
    
    (9,284
    )Other, net
    
    
    (418
    )
    
    
    241(Increase) decrease in interest receivable
    
    
    (3,267
    )
    
    
    647Decrease in other assets
    
    
    1,848
    
    
    
    3,352Increase in accounts payable and other liabilities
    
    
    3,054
    
    
    
    17,541Net cash provided by operating activities
    
    
    15,876
    
    
    
    35,204Cash Flows From Investing Activities:Purchases of investment securities available for sale
    
    
    (22,876
    )
    
    
    (13,985
    )Proceeds from maturity and calls of investment securities available for sale
    
    
    2,219
    
    
    
    10,639Proceeds from repayments of investment securities held-to-maturity
    
    
    26,273
    
    
    
    (Purchase) sale of stock in Federal Home Loan Bank
    
    
    (10,221
    )
    
    
    295Purchase of loans
    
    
    (493,171
    )
    
    
    Origination of RAL loans
    
    
    
    
    
    
    (12,949,433
    )Proceeds from participation in RAL loans
    
    
    
    
    
    
    12,956,989Increase in loans, net
    
    
    (75,458
    )
    
    
    (57,025
    )Proceeds from sale of other real estate owned
    
    
    81
    
    
    
    7,314Cash paid for capital expenditures
    
    
    (1,485
    )
    
    
    (1,483
    )Net cash used in investing activities
    
    
    (574,638
    )
    
    
    (46,689
    )Cash Flows From Financing Activities:Proceeds from exercise of employee stock options
    
    
    3,026
    
    
    
    1,456Cash paid to acquire treasury stock
    
    
    (13,954
    )
    
    
    (5,590
    )Principal payments on collateralized mortgage obligations
    
    
    
    
    
    
    (15,870
    )Net increase in deposit accounts
    
    
    284,777
    
    
    
    28,078Net (decrease) increase in short-term borrowings
    
    
    (166,000
    )
    
    
    66,000Proceeds from long-term borrowings
    
    
    397,554
    
    
    
    10,000Repayments of long-term borrowings
    
    
    (1,100
    )
    
    
    (55,600
    )Net cash provided by financing activities
    
    
    504,303
    
    
    
    28,474Net (decrease) increase in cash and cash equivalents
    
    
    (54,459
    )
    
    
    16,989Cash and cash equivalents at beginning of period
    
    
    87,580
    
    
    
    178,318Cash and cash equivalents at end of period
    
    $
    33,121
    
    
    $
    195,307Supplemental Cash Flow Information:Cash paid during the period for interest
    
    $
    33,756
    
    
    $
    17,857Cash paid during the period for income taxes
    
    $
    8,429
    
    
    $
    4,600Non-Cash Investing Transactions:Loans transferred to other real estate owned
    
    $
    70
    
    
    $
    1,897
  5




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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
 
 NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  ACCOUNTING FOR STOCK-BASED COMPENSATION
  6




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For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004(in thousands, except per share data)Net income, as reported
    
    $
    5,839
    
    
    $
    5,630
    
    
    $
    11,490
    
    
    $
    19,414Less: Stock-based employee
compensation expense
determined under the fair
value method, net of tax
    
    
    396
    
    
    
    337
    
    
    
    461
    
    
    
    674Pro forma net income
    
    $
    5,443
    
    
    $
    5,293
    
    
    $
    11,029
    
    
    $
    18,740Earnings per share:Basic  as reported
    
    $
    1.01
    
    
    $
    0.91
    
    
    $
    1.99
    
    
    $
    3.12Basic  pro forma
    
    $
    0.95
    
    
    $
    0.85
    
    
    $
    1.91
    
    
    $
    3.01Diluted  as reported
    
    $
    0.98
    
    
    $
    0.86
    
    
    $
    1.90
    
    
    $
    2.93Diluted  pro forma
    
    $
    0.91
    
    
    $
    0.80
    
    
    $
    1.83
    
    
    $
    2.83
  Weighted-Average Assumptions forOption Grants2005
    
    2004Dividend Yield
    
    
    0.00
    %
    
    
    0.00
    %Expected Volatility
    
    
    36.06
    %
    
    
    38.04
    %Risk-Free Interest Rates
    
    
    3.89
    %
    
    
    4.28
    %Expected Lives
    
    Seven Years
    
    Seven Years
 NOTE 3  EARNINGS PER SHARE
  7




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Weighted-
    
    PerAverage Shares
    
    ShareNet Income
    
    Outstanding
    
    Amount(in thousands, except per share data)For the Three Months Ended June 30,
2005Basic EPS
    
    $
    5,839
    
    
    
    5,755
    
    
    $
    1.01Effect of dilutive stock options
    
    
    
    
    
    
    212
    
    
    
    (0.03
    )Diluted EPS
    
    $
    5,839
    
    
    
    5,967
    
    
    $
    0.982004Basic EPS
    
    $
    5,630
    
    
    
    6,207
    
    
    $
    0.91Effect of dilutive stock options
    
    
    
    
    
    
    372
    
    
    
    (0.05
    )Diluted EPS
    
    $
    5,630
    
    
    
    6,579
    
    
    $
    0.86For the Six Months Ended June 30,
2005Basic EPS
    
    $
    11,490
    
    
    
    5,780
    
    
    $
    1.99Effect of dilutive stock options
    
    
    
    
    
    
    256
    
    
    
    (0.09
    )Diluted EPS
    
    $
    11,490
    
    
    
    6,036
    
    
    $
    1.902004Basic EPS
    
    $
    19,414
    
    
    
    6,224
    
    
    $
    3.12Effect of dilutive stock options
    
    
    
    
    
    
    402
    
    
    
    (0.19
    )Diluted EPS
    
    $
    19,414
    
    
    
    6,626
    
    
    $
    2.93
 NOTE 4  COMPREHENSIVE INCOME
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(in thousands)Net Income
    
    $
    5,839
    
    
    $
    5,630
    
    
    $
    11,490
    
    
    $
    19,414Other comprehensive income (loss):Change in unrealized gains
(losses) on investment
securities available for sale,
net of tax (expense) benefit
of $(107) and $239 for the
three months ended June 30,
2005 and 2004, and net of tax
benefit of $137 and $161 for
the six months ended June 30,
2005 and 2004, respectively
    
    
    162
    
    
    
    (359
    )
    
    
    (209
    )
    
    
    (242
    )Comprehensive Income
    
    $
    6,001
    
    
    $
    5,271
    
    
    $
    11,281
    
    
    $
    19,172
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NOTE 5  IMPAIRED LOANS RECEIVABLE
  NOTE 6  RESIDUAL INTEREST IN SECURITIZATION
   June 30,
    
    December 31,2005
    
    2004Dollars in thousandsFair value of retained interest
    
    $
    5,000
    
    
    $
    5,368Weighted average life (in years)  securities
    
    
    0.56
    
    
    
    0.68Weighted average life (in years)  residual interest
    
    
    2.87
    
    
    
    3.61Weighted average annual prepayment speed
    
    
    40.0
    %
    
    
    26.5
    %Impact of 10% adverse change
    
    $
    (183
    )
    
    $
    (236
    )Impact of 25% adverse change
    
    $
    (269
    )
    
    $
    (630
    )Weighted average annual discount rate
    
    
    13.0
    %
    
    
    15.0
    %Impact of 10% adverse change
    
    $
    (149
    )
    
    $
    (243
    )Impact of 25% adverse change
    
    $
    (367
    )
    
    $
    (630
    )Weighted average lifetime credit losses
    
    
    15.6
    %
    
    
    25.0
    %Impact of 10% adverse change
    
    $
    (122
    )
    
    $
    (262
    )Impact of 25% adverse change
    
    $
    (302
    )
    
    $
    (700
    )
  9




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NOTE 7  NEW ACCOUNTING PRONOUNCEMENTS
   10




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##### Table of Contents



NOTE 8  BUSINESS SEGMENT INFORMATION
    11




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##### Table of Contents



LendingOperations
    
    All Other
    
    Eliminations
    
    Consolidated(in thousands)For the three months ended June 30, 2005Revenues from external customers
    
    $
    41,707
    
    
    $
    482
    
    
    $
    
    
    
    $
    42,189Total interest income
    
    
    41,279
    
    
    
    401
    
    
    
    
    
    
    
    41,680Total interest expense
    
    
    17,797
    
    
    
    1,754
    
    
    
    
    
    
    
    19,551Net income
    
    
    7,177
    
    
    
    (1,338
    )
    
    
    
    
    
    
    5,8392004Revenues from external customers
    
    $
    29,155
    
    
    $
    327
    
    
    $
    
    
    
    $
    29,482Total interest income
    
    
    28,185
    
    
    
    327
    
    
    
    (324
    )
    
    
    28,188Total interest expense
    
    
    7,641
    
    
    
    1,502
    
    
    
    (324
    )
    
    
    8,819Net income
    
    
    7,008
    
    
    
    (1,378
    )
    
    
    
    
    
    
    5,630For the six months ended June 30, 2005Revenues from external customers
    
    $
    77,874
    
    
    $
    1,047
    
    
    $
    
    
    
    $
    78,921Total interest income
    
    
    77,020
    
    
    
    1,412
    
    
    
    
    
    
    
    78,432Total interest expense
    
    
    31,127
    
    
    
    3,434
    
    
    
    
    
    
    
    34,561Net income
    
    
    14,008
    
    
    
    (2,518
    )
    
    
    
    
    
    
    11,4902004Revenues from external customers
    
    $
    74,566
    
    
    $
    641
    
    
    $
    
    
    
    $
    75,207Total interest income
    
    
    60,151
    
    
    
    641
    
    
    
    (521
    )
    
    
    60,271Total interest expense
    
    
    15,322
    
    
    
    3,164
    
    
    
    (521
    )
    
    
    17,965Net income
    
    
    22,670
    
    
    
    (3,256
    )
    
    
    
    
    
    
    19,414
 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Application of Critical Accounting Policies and Accounting Estimates
    13




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RESULTS OF OPERATIONS
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Executive Summary
     14




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##### Table of Contents



Net Interest Income and Margin
  For the Three Months Ended June 30,2005
    
    2004Average
    
    Income/
    
    Yield/
    
    Average Balance
    
    Income/
    
    Yield/Balance
    
    Expense
    
    Rate
    
    
    
    
    
    Expense
    
    Rate(dollars in thousands)AssetsCash and investment securities
    
    $
    443,035
    
    
    $
    4,470
    
    
    
    4.05
    %
    
    $
    150,621
    
    
    $
    968
    
    
    
    2.58
    %Loans receivable:Loans
    
    
    2,080,691
    
    
    
    36,740
    
    
    
    7.08
    %
    
    
    1,507,288
    
    
    
    26,424
    
    
    
    7.05
    %Real estate loans held at REIT
    
    
    28,770
    
    
    
    470
    
    
    
    6.55
    %
    
    
    53,092
    
    
    
    796
    
    
    
    6.03
    %Total loans receivable
    
    
    2,109,461
    
    
    
    37,210
    
    
    
    7.08
    %
    
    
    1,560,380
    
    
    
    27,220
    
    
    
    7.02
    %Total interest earning assets
    
    
    2,552,496
    
    
    $
    41,680
    
    
    
    6.55
    %
    
    
    1,711,001
    
    
    $
    28,188
    
    
    
    6.63
    %Non-interest earning assets
    
    
    48,556
    
    
    
    
    
    
    
    
    
    
    
    60,211Allowance for loan losses
    
    
    (36,755
    )
    
    
    
    
    
    
    
    
    
    
    (35,291
    )Total assets
    
    $
    2,564,297
    
    
    
    
    
    
    
    
    
    
    $
    1,735,921Liabilities and
Shareholders EquityInterest bearing deposit accounts:Interest bearing demand
    
    $
    53,878
    
    
    $
    320
    
    
    
    2.38
    %
    
    $
    78,256
    
    
    $
    368
    
    
    
    1.89
    %Money market and passbook
    
    
    171,425
    
    
    
    1,223
    
    
    
    2.86
    %
    
    
    132,836
    
    
    
    537
    
    
    
    1.63
    %Time certificates
    
    
    1,326,175
    
    
    
    10,354
    
    
    
    3.13
    %
    
    
    986,730
    
    
    
    5,580
    
    
    
    2.27
    %Total interest bearing deposit
accounts
    
    
    1,551,478
    
    
    
    11,897
    
    
    
    3.08
    %
    
    
    1,197,822
    
    
    
    6,485
    
    
    
    2.18
    %FHLB advances and other borrowings
    
    
    690,322
    
    
    
    5,900
    
    
    
    3.43
    %
    
    
    129,901
    
    
    
    833
    
    
    
    2.58
    %Junior subordinated debentures
    
    
    86,600
    
    
    
    1,754
    
    
    
    8.12
    %
    
    
    86,600
    
    
    
    1,501
    
    
    
    6.97
    %Total interest bearing liabilities
    
    
    2,328,400
    
    
    $
    19,551
    
    
    
    3.37
    %
    
    
    1,414,323
    
    
    $
    8,819
    
    
    
    2.51
    %Non-interest bearing demand accounts
    
    
    15,036
    
    
    
    
    
    
    
    
    
    
    
    19,473Other non-interest bearing liabilities
    
    
    25,459
    
    
    
    
    
    
    
    
    
    
    
    100,551Shareholders equity
    
    
    195,402
    
    
    
    
    
    
    
    
    
    
    
    201,574Total liabilities and
shareholders equity
    
    $
    2,564,297
    
    
    
    
    
    
    
    
    
    
    $
    1,735,921Net interest spread (1)
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    4.12
    %Net interest income before provision
for loan losses
    
    
    
    
    
    $
    22,129
    
    
    
    
    
    
    
    
    
    
    $
    19,369Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    3.48
    %
    
    
    
    
    
    
    
    
    
    
    4.55
    %
 
 (1)
    
    Average yield on interest earning assets minus average rate paid on interest bearing
liabilities.(2)
    
    Net interest income divided by total average interest earning assets. 15




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##### Table of Contents



For the Three Months EndedJune 30, 2005 and 2004Increase (Decrease) Due to:Rate
    
    Volume
    
    Total(In thousands)Interest and fees earned from:Cash and investment securities
    
    $
    795
    
    
    $
    2,707
    
    
    $
    3,502Loans
    
    
    306
    
    
    
    9,684
    
    
    
    9,990Total increase in interest income
    
    
    1,101
    
    
    
    12,391
    
    
    
    13,492Interest paid on:Deposit accounts
    
    
    3,156
    
    
    
    2,256
    
    
    
    5,412FHLB advances and other borrowings
    
    
    359
    
    
    
    4,708
    
    
    
    5,067Junior subordinated debentures
    
    
    253
    
    
    
    
    
    
    
    253Total increase in interest expense
    
    
    3,768
    
    
    
    6,964
    
    
    
    10,732Increase (decrease) in net interest income
    
    $
    (2,667
    )
    
    $
    5,427
    
    
    $
    2,760
    16




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##### Table of Contents



17




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##### Table of Contents



Provision for Loan Losses
  
    
    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; and
    
    the underwriting standards in effect when the loan was made.
    18




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##### Table of Contents



Non-Interest Income
  Non-Interest Expense
  Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Executive Summary
   19




---



##### Table of Contents



Net Interest Income and Margin
  20




---



##### Table of Contents



For the Six Months Ended June 30,2005
    
    2004Average
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance
    
    Expense
    
    Rate
    
    Balance
    
    Expense
    
    Rate(dollars in thousands)AssetsCash and investments
    
    $
    429,743
    
    
    $
    9,311
    
    
    
    4.37
    %
    
    $
    530,326
    
    
    $
    3,411
    
    
    
    1.29
    %Loans receivable:Loans
    
    
    1,936,444
    
    
    
    68,208
    
    
    
    7.10
    %
    
    
    1,492,503
    
    
    
    55,338
    
    
    
    7.46
    %Real estate loans held in trust
    
    
    30,810
    
    
    
    913
    
    
    
    5.98
    %
    
    
    57,630
    
    
    
    1,522
    
    
    
    5.31
    %Total loans receivable
    
    
    1,967,254
    
    
    
    69,121
    
    
    
    7.09
    %
    
    
    1,550,133
    
    
    
    56,860
    
    
    
    7.38
    %Total interest earning assets
    
    
    2,396,997
    
    
    $
    78,432
    
    
    
    6.60
    %
    
    
    2,080,459
    
    
    $
    60,271
    
    
    
    5.83
    %Non-interest earning assets
    
    
    48,386
    
    
    
    
    
    
    
    
    
    
    
    138,519Allowance for loan losses
    
    
    (36,322
    )
    
    
    
    
    
    
    
    
    
    
    (34,728
    )Total assets
    
    $
    2,409,061
    
    
    
    
    
    
    
    
    
    
    $
    2,184,250Liabilities and
Shareholders EquityInterest bearing deposit accounts:Interest bearing demand
    
    $
    61,197
    
    
    $
    681
    
    
    
    2.24
    %
    
    $
    66,822
    
    
    $
    615
    
    
    
    1.85
    %Money market and passbook
    
    
    168,782
    
    
    
    2,209
    
    
    
    2.64
    %
    
    
    139,150
    
    
    
    1,135
    
    
    
    1.64
    %Time certificates
    
    
    1,261,224
    
    
    
    18,505
    
    
    
    2.96
    %
    
    
    983,745
    
    
    
    11,249
    
    
    
    2.30
    %Total interest bearing deposit
accounts
    
    
    1,491,203
    
    
    
    21,395
    
    
    
    2.89
    %
    
    
    1,189,717
    
    
    
    12,999
    
    
    
    2.20
    %FHLB advances and other borrowings
    
    
    594,958
    
    
    
    9,732
    
    
    
    3.30
    %
    
    
    143,871
    
    
    
    1,976
    
    
    
    2.76
    %Junior subordinated debentures
    
    
    86,600
    
    
    
    3,434
    
    
    
    8.00
    %
    
    
    86,600
    
    
    
    2,990
    
    
    
    6.94
    %Total interest bearing liabilities
    
    
    2,172,761
    
    
    $
    34,561
    
    
    
    3.21
    %
    
    
    1,420,188
    
    
    $
    17,965
    
    
    
    2.54
    %Non-interest bearing demand accounts
    
    
    14,517
    
    
    
    
    
    
    
    
    
    
    
    14,896Other non-interest bearing liabilities
    
    
    26,397
    
    
    
    
    
    
    
    
    
    
    
    550,030Shareholders equity
    
    
    195,386
    
    
    
    
    
    
    
    
    
    
    
    199,136Total liabilities
and shareholders equity
    
    $
    2,409,061
    
    
    
    
    
    
    
    
    
    
    $
    2,184,250Net interest spread (1)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %Net interest income before provision
for loan losses
    
    
    
    
    
    $
    43,871
    
    
    
    
    
    
    
    
    
    
    $
    42,306Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    4.09
    %
 
 (1)
    
    Average yield on interest earning assets minus average rate paid on interest bearing
liabilities.(2)
    
    Net interest income divided by total average interest earning assets. 21




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##### Table of Contents



For the Six Months EndedJune 30, 2005 and 2004Increase (Decrease) Due to:Rate
    
    Volume
    
    Total(In thousands)Interest and fees earned from:Cash and investment securities
    
    $
    6,658
    
    
    $
    (758
    )
    
    $
    5,900Loans
    
    
    (1,258
    )
    
    
    13,519
    
    
    
    12,261Total increase in interest income
    
    
    5,400
    
    
    
    12,761
    
    
    
    18,161Interest paid on:Deposit accounts
    
    
    4,644
    
    
    
    3,752
    
    
    
    8,396FHLB advances and other borrowings
    
    
    429
    
    
    
    7,327
    
    
    
    7,756Junior subordinated debentures
    
    
    444
    
    
    
    
    
    
    
    444Total increase in interest expense
    
    
    5,517
    
    
    
    11,079
    
    
    
    16,596Increase (decrease) in net interest income
    
    $
    (117
    )
    
    $
    1,682
    
    
    $
    1,565
    22




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##### Table of Contents



Provision for Loan Losses
  23




---



##### Table of Contents



Non-Interest Income
  Non-Interest Expense
  FINANCIAL CONDITION
  24




---



##### Table of Contents



CREDIT RISK
 Nonperforming Assets, Other Loans of Concern and Allowance for Loan Losses
  June 30,
    
    December 31,2005
    
    2004(dollars in thousands)Nonaccrual loans:Real estate
    
    $
    7,093
    
    
    $
    7,057Franchise
    
    
    3,576
    
    
    
    3,874Entertainment finance
    
    
    3,009
    
    
    
    3,721Total nonaccrual loans
    
    
    13,678
    
    
    
    14,652Other real estate owned, net
    
    
    
    
    
    
    Total nonperforming assets
    
    
    13,678
    
    
    
    14,652Performing troubled debt restructurings
    
    
    9,321
    
    
    
    8,811$
    22,999
    
    
    $
    23,463Nonaccrual loans to total loans
    
    
    0.58
    %
    
    
    0.80
    %Allowance for loan losses to nonaccrual loans
    
    
    273.45
    %
    
    
    242.17
    %Nonperforming assets to total assets
    
    
    0.48
    %
    
    
    0.63
    %
   For the Six
    
    For the Year
    
    For the Six MonthsMonths Ended
    
    Ended
    
    EndedJune 30,
    
    December 31,
    
    June 30,2005
    
    2004
    
    2004(dollars in thousands)Balance at beginning of period
    
    $
    35,483
    
    
    $
    33,401
    
    
    $
    33,401Provision for loan losses
    
    
    2,250
    
    
    
    4,725
    
    
    
    2,350Charge-offs
    
    
    (709
    )
    
    
    (3,490
    )
    
    
    Recoveries
    
    
    378
    
    
    
    847
    
    
    
    125Net (charge-offs) recoveries
    
    
    (331
    )
    
    
    (2,643
    )
    
    
    125Balance at end of period
    
    $
    37,402
    
    
    $
    35,483
    
    
    $
    35,876Allowance for loan losses as a percentage
of loans, net
    
    
    1.56
    %
    
    
    1.94
    %
    
    
    2.25
    %
 25




---



##### Table of Contents



Liquidity
   Capital Resources
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  26




---



##### Table of Contents



Item 4. Controls and Procedures
    27




---



##### Table of Contents



PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetPart of Publicly
    
    Be Purchased UnderTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased
    
    per Share
    
    Programs
    
    Programs(1)April 1, 2005 to
April 30, 2005
    
    
    23,600
    
    
    $
    45.71
    
    
    
    23,600
    
    
    
    193,472May 1, 2005 to
May 31, 2005
    
    
    34,300
    
    
    
    50.81
    
    
    
    34,300
    
    
    
    159,172June 1, 2005 to
June 30, 2005
    
    
    32,000
    
    
    
    50.07
    
    
    
    32,000
    
    
    
    127,172Total
    
    
    89,900
    
    
    $
    49.21
    
    
    
    89,900
    
    
    
    127,172
 
 (1)
    
    The repurchases during April, May and June 2005 were made under the tenth extension of
our stock repurchase program, which was announced on March 9, 2005. The extension authorized the
repurchase of an additional 5% of the outstanding shares as of the authorization date. At June
30, 2005, 127,172 shares remained available for repurchase under the tenth extension . 
 Item 3 . Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6 . Exhibits
  28




---



##### Table of Contents



SIGNATURES
  ITLA CAPITAL CORPORATIONDate: August 8, 2005
    
    /s/ George W. HaligowskiGeorge W. HaligowskiChairman of the Board, President andChief Executive OfficerDate: August 8, 2005
    
    /s/ Timothy M. DoyleTimothy M. DoyleSenior Managing Director andChief Financial Officer
 29




---



##### Table of Contents



EXHIBIT INDEX
 Reference toPrior Fillingor ExhibitNumberRegulation S-K
    
    
    
    AttachedExhibit Number
    
    Document
    
    Hereto3.1
    
    Certificate of Incorporation
    
    
    **3.2
    
    Bylaws, as amended
    
    
    ****4
    
    Instruments Defining the Rights of Security Holders, Including
Indentures
    
    
    ********10.1
    
    2005 Re-Designated, Amended and Restated Stock Option Plan For
Nonemployee Directors
    
    
    ******10.2
    
    2005 Re-Designated, Amended and Restated Employee Stock Incentive
Plan
    
    
    ******10.3a
    
    Nonqualified (Non-Employer Securities) Deferred Compensation Plan
    
    
    *******10.3b
    
    Nonqualified (Employer Securities Only) Deferred Compensation Plan
    
    
    *******10.4
    
    Supplemental Salary Savings Plan
    
    
    *10.5
    
    Data Processing Agreement
    
    
    *10.6
    
    Employment Agreement with George W. Haligowski
    
    
    ****10.7
    
    Form of Change of Control
Agreements with Norval L. Bruce, Timothy M. Doyle, Don Nickbarg, and Scott Wallace
    
    
    ***10.8
    
    Recognition and Retention Plan
    
    
    **10.9
    
    Voluntary Retainer Stock and
Deferred Compensation Plan for Outside Directors
    
    
    *****10.10
    
    Supplemental Executive Retirement Plan
    
    
    *******10.11
    
    ITLA Capital Corporation Rabbi Trust Agreement
    
    
    ***10.12
    
    Salary Continuation Plan
    
    
    ****10.13
    
    Form of Incentive Stock Option
Agreement under Employee Stock Incentive Plan
    
    
    *********10.14
    
    Form of Non-Qualified Stock Option
Agreement under Stock Option Plan for Nonemployee Directors
    
    
    *********10.15
    
    Description of Named Executive
Officer Salary, Bonus and Perquisite Arrangements for 2005
    
    
    *********10.16
    
    Description of Director Fee Arrangements
    
    
    *********11
    
    Statement Regarding Computation of Per Share Earnings
    
    Not Required15
    
    Letter Regarding Unaudited Interim Financial Information
    
    None18
    
    Letter Regarding Change in Accounting Principles
    
    None19
    
    Report furnished to Security Holders
    
    None22
    
    Published Report Regarding Matters
Submitted to Vote of Security Holders
    
    None23.1
    
    Consent of Experts
    
    None24
    
    Power of Attorney
    
    None31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
    
    
    31.131.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
    
    
    31.232
    
    Section 1350 Certifications of
Chief Executive Officer and Chief Financial Officer
    
    
    32
 
 *
    
    Filed as an exhibit to Imperials Registration Statement on Form S-1 (File No.
33-96518) filed with the Commission on September 1, 1995, pursuant to Section 5 of the
Securities Act of 1933.**
    
    Filed as an exhibit to the Companys Registration Statement on Form S-4 (File
No. 333-03551) filed with the Commission on May 10, 1996, pursuant to Section 5 of the
Securities Act of 1933.***
    
    Filed as an exhibit to the Companys Form 10-K for the year ended December 31,
1999 (File No. 0-26960).****
    
    Filed as an exhibit to the Companys Form 10-Q for the quarter ended June 30,
2000 (File No. 0-26960).*****
    
    Filed as an exhibit to Amendment No. Two to the Companys Registration
Statement on Form S-4 (File No. 333-03551) filed with the Commission on June 19, 1996.******
    
    Filed as an appendix to the Companys definitive proxy materials filed on
June 27, 2005.*******
    
    Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003 (File No. 0-26960).********
    
    The Company hereby agrees to furnish the SEC, upon request, copies of the
instruments defining the rights of the holders of each issue of the Companys long-term debt.*********
    
    Filed as an exhibit to the Companys Form 10-K for the year ended December
31, 2004. 30