1
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 March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________________ to __________________
Commission File Number 0-26960
ITLA CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4596322
(State or Other Jurisdiction of Incorporation (IRS Employer Identification No.)
or Organization)
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: 6,514,413
outstanding as of May 10, 2001.
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ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE
----
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 2001 and December 31, 2000.......... 3
Consolidated Statements of Income - Three Months
Ended March 31, 2001 and 2000............................................ 4
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2001 and 2000............................... 5
Notes to Unaudited Consolidated Financial Statements......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................ 8
ITEM 3. MARKET RISK..................................................................... 16
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................ 17
ITEM 2. Changes in Securities........................................................ 17
ITEM 3. Defaults Upon Senior Securities.............................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders.......................... 17
ITEM 5. Other Information............................................................ 17
ITEM 6. Exhibits and Reports on Form 8-K............................................. 17
Signatures................................................................... 18
FORWARD LOOKING STATEMENTS
"Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995: This Form 10-Q contains forward-looking statements that are subject
to risks and uncertainties, including, but not limited to, changes in economic
conditions in our market areas, changes in policies by regulatory agencies, the
impact of competitive loan products, loan demand risks, fluctuations in interest
rates and operating results and other risks detailed from time to time in our
filings with the Securities and Exchange Commission. We caution readers not to
place undue reliance on forward-looking statements. We do not undertake and
specifically disclaim any obligation to revise any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or circumstances
after the date of such statements. These risks could cause our actual results
for 2001 and beyond to differ materially from those expressed in any
forward-looking statements by, or on behalf of, us.
As used throughout this report, the terms "we", "our" or "Company" refer
to ITLA Capital Corporation and its consolidated subsidiaries.
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
2001 DECEMBER 31,
(UNAUDITED) 2000
----------- ------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
Cash and cash equivalents $ 85,707 $ 70,950
Investment securities available for sale, at fair value 19,684 46,325
Stock in Federal Home Loan Bank 6,084 3,963
Real estate loans, net (net of allowance for loan losses
of $23,061 and $22,608 in 2001 and 2000, respectively) 1,100,219 1,045,927
Real estate loans held in trust (net of allowance for
loan losses of $4,578 in 2001 and 2000) 196,950 211,722
Interest receivable 11,225 11,821
Other real estate owned, net 3,586 2,250
Premises and equipment, net 2,152 2,690
Deferred income taxes 11,053 11,302
Other assets 6,918 8,193
----------- -----------
Total assets $ 1,443,578 $ 1,415,143
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 999,027 $ 1,015,699
Collateralized mortgage obligations 147,516 161,852
Federal Home Loan Bank advances 121,675 79,250
Accounts payable and other liabilities 10,821 11,269
----------- -----------
Total liabilities 1,279,039 1,268,070
----------- -----------
Commitments and contingencies
Guaranteed preferred beneficial interests in Company's junior
subordinated deferrable interest debentures 28,084 13,519
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued -- --
Contributed capital - common stock, $.01 par value; 20,000,000
shares authorized, 8,208,749 and 8,206,749 issued and
outstanding in 2001 and 2000, respectively 57,125 57,120
Retained earnings 102,330 97,617
Accumulated other comprehensive income 51 91
----------- -----------
159,506 154,828
Less treasury stock, at cost - 1,636,336 and 1,546,336 shares in
2001 and 2000, respectively (23,051) (21,274)
----------- -----------
Total shareholders' equity 136,455 133,554
----------- -----------
Total liabilities and shareholders' equity $ 1,443,578 $ 1,415,143
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Interest income:
Real estate loans, including fees $26,783 $ 24,601
Real estate loans held in trust 4,322 246
Cash and investment securities 1,161 1,672
------- --------
Total interest income 32,266 26,519
------- --------
Interest expense:
Deposit accounts 15,814 13,001
Collateralized mortgage obligations 2,293 151
Federal Home Loan Bank advances 531 450
------- --------
Total interest expense 18,638 13,602
------- --------
Net interest income before provision for loan losses 13,628 12,917
Provision for loan losses 450 600
------- --------
Net interest income after provision for loan losses 13,178 12,317
------- --------
Noninterest income:
Gain on sale of investment securities available for sale -- 1,412
Other 314 162
------- --------
Total noninterest income 314 1,574
------- --------
Noninterest expense:
Compensation and benefits 2,756 2,440
Occupancy and equipment 693 699
FDIC assessment 45 48
Other 1,637 2,078
------- --------
Total recurring general and administrative 5,131 5,265
Nonrecurring expense -- 1,400
------- --------
Total general and administrative 5,131 6,665
------- --------
Real estate owned expense (income), net 15 (54)
Provision for losses on other real estate owned 122 144
Loss on sale of other real estate owned, net 32 69
------- --------
Total real estate owned expense, net 169 159
------- --------
Total noninterest expense 5,300 6,824
------- --------
Income before provision for income taxes and
minority interest in income of subsidiary 8,192 7,067
Minority interest in income of subsidiary 574 --
------- --------
Income before provision for income taxes 7,618 7,067
Provision for income taxes 2,905 2,823
------- --------
NET INCOME $ 4,713 $ 4,244
======= ========
BASIC EARNINGS PER SHARE $ 0.70 $ 0.59
======= ========
DILUTED EARNINGS PER SHARE $ 0.67 $ 0.58
======= ========
See accompanying notes to the unaudited consolidated financial statements.
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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2001 2000
--------- --------
(IN THOUSANDS)
Cash Flows From Operating Activities:
Net income $ 4,713 $ 4,244
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 199 231
Amortization of premium on purchased loans 805 267
Accretion of deferred loan origination fees, net of costs (413) (401)
Amortization of original issue discount and deferred debt issuance costs on
collateralized mortgage obligations 88 --
Provision for loan losses 450 600
Provision for losses on other real estate owned 122 144
Gain on sale of investment securities available for sale -- (1,412)
Loss on the sale of other real estate owned 32 69
Decrease in interest receivable 596 120
Decrease in other assets 1,832 895
(Decrease) increase in accounts payable and other liabilities (432) 2,269
--------- --------
Net cash provided by operating activities 7,992 7,026
--------- --------
Cash Flows From Investing Activities:
Purchases of investment securities available for sale (6,619) (10,000)
Proceeds from the maturity of investment securities available for sale 33,260 10,000
Proceeds from the sale of investment securities available for sale -- 16,176
Increase in stock in Federal Home Loan Bank (2,121) (110)
Cash paid to acquire ICCMAC Multifamily and Commercial Trust 1999-1 -- (51,069)
Purchases of real estate loans (75,414) (15,522)
Decrease in real estate loans, net 18,874 29,599
Repayment of loans held in trust 14,349 --
Proceeds from sale of real estate loans 210 --
Proceeds from the sale of other real estate owned 156 434
Other, net (36) (385)
--------- --------
Net cash used in investing activities (17,341) (20,877)
--------- --------
Cash Flows From Financing Activities:
Proceeds from exercise of employee stock options 5 20
Cash paid to acquire treasury stock (1,777) (656)
Proceeds from issuance of trust preferred securities 14,549 --
Net decrease in deposit accounts (16,672) (4,366)
Principal repayments on collateralized mortgage obligations (14,424) --
Amounts borrowed from the Federal Home Loan Bank 152,925 6,000
Repayment of amounts borrowed from the Federal Home Loan Bank (110,500) (46,000)
--------- --------
Net cash provided by (used in) financing activities 24,106 (45,002)
--------- --------
Net increase (decrease) in cash and cash equivalents 14,757 (58,853)
Cash and cash equivalents at beginning of the period 70,950 72,242
--------- --------
Cash and cash equivalents at end of period $ 85,707 $ 13,389
========= ========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 18,843 $ 14,408
Cash paid during the period for income taxes $ -- $ 4,400
Noncash Investing Transactions:
Loans transferred to other real estate owned $ 1,619 $ 141
See accompanying notes to the unaudited consolidated financial statements.
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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 included herein reflect all normal recurring adjustments which are,
in the opinion of management, necessary to present a fair statement of the
results for the interim period indicated. The unaudited consolidated financial
statements include the accounts of ITLA Capital and its subsidiaries, Imperial
Capital Bank (the "Bank") and Imperial Capital Real Estate Investment Trust
("Imperial Capital REIT"), ITLA Capital Statutory Trust I ("Trust I") and ITLA
Capital Statutory Trust II ("Trust II"). All intercompany transactions and
balances have been eliminated. Certain information and disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. The results of operations for the three months ended March
31, 2001 are not necessarily indicative of the results of operations for the
remainder of the year.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended December 31, 2000.
NOTE 2 - EARNINGS PER SHARE
Basic Earnings Per Share ("Basic EPS") is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted Earnings Per Share ("Diluted EPS") reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock which shared in the Company's earnings.
The following is a reconciliation of the calculation of Basic EPS and
Diluted EPS.
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
WEIGHTED-
AVERAGE PER
NET SHARES SHARE
INCOME OUTSTANDING AMOUNT
------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001
----
Basic EPS $4,713 6,720 $ 0.70
Effect of Dilutive Stock Options -- 273 (0.03)
------ ----- --------
Diluted EPS $4,713 6,993 $ 0.67
====== ===== ========
2000
----
Basic EPS $4,244 7,222 $ 0.59
Effect of Dilutive Stock Options -- 76 (0.01)
------ ----- --------
Diluted EPS $4,244 7,298 $ 0.58
====== ===== ========
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NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income, which encompasses net income and the net change in
unrealized gains on investment securities available for sale, is presented
below:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
------- -------
(DOLLARS IN THOUSANDS)
Net income $ 4,713 $ 4,244
Other comprehensive income-
Unrealized loss on investment securities
available for sale, net of tax expense of $27 and
$47 for the three months ended March 31, 2001
and 2000, respectively (40) (70)
Less reclassification adjustment for gains included in
net income, net of tax benefit of $578 in 2000 -- (834)
------- -------
Comprehensive income $ 4,673 $ 3,340
======= =======
NOTE 4 - IMPAIRED LOANS RECEIVABLE
As of March 31, 2001 and December 31, 2000, the recorded investment in
real estate loans and real estate loans held in trust that were considered
impaired as defined by Statement of Financial Accounting Standards No. 114 were
$28.6 million and $18.9 million, respectively. The average recorded investment
in impaired loans was $24.0 million for the three months ended March 31, 2001
and $18.8 million for the three months ended March 31, 2001. Interest income
recognized on impaired loans totaled $127,000 and $338,000 for the three months
ended March 31, 2001 and 2000, respectively.
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 the Trust Preferred
securities and their 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
balance outstanding on the Trust Preferred securities was $28.1 million at March
31, 2001. The costs associated with the Trust Preferred securities issuance have
been capitalized and are being amortized using the straight-line method over a
period of ten years. The distributions payable on the Trust Preferred securities
are reflected as "Minority interest expense 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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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to identify the major
factors that influenced the financial condition and results of operations for
the three months ended March 31, 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
GENERAL
Consolidated net income totaled $4.7 million for the three months ended
March 31, 2001 compared to $4.2 million for the corresponding period in 2000, an
increase of 11.9%. The increase in net income was primarily due to an increase
in net interest income and decreases in noninterest expense and in the provision
for loan losses. These items were partially offset by increases in minority
interest in income of subsidiary and the provision for income taxes. Diluted EPS
was $0.67 for the three months ended March 31, 2001 compared to $0.58 for the
corresponding period in 2000, an increase of 15.5%.
The return on average assets was 1.40% for the three months ended March
31, 2001 compared to 1.57% for the same period last year. The return on average
shareholders equity was 14.05% for the three months ended March 31, 2001,
compared to 13.75% for the same period last year.
Total loan production, including the unfunded portion of construction
loans was $129.3 million for the three months ended March 31, 2001, consisting
of the origination and/or purchase of $100.7 million of commercial real estate
loans, $15.4 million of residential real estate loans and $13.2 million of
franchise loans compared to total loan production of $29.8 million, consisting
of $14.6 million of commercial real estate loans and $15.2 million of
residential real estate loans for the same period last year. Additionally,
during the same period last year, we acquired $250.5 million of commercial loans
when we purchased the ICCMAC Multifamily and Commercial Trust 1999-1 ("ICCMAC
Trust").
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NET INTEREST INCOME AND MARGIN
The following table presents, for the three months ended March 31, 2001
and 2000, our condensed average balance sheet information, together with
interest income and yields earned on average interest-earning assets and
interest expense and rates paid on average interest-bearing liabilities. Average
balances are computed using daily average balances. Nonaccrual loans are
included in loans receivable.
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
------------------------------------ --------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ------- ------ ----------- ------- ------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and investments $ 78,649 1,161 5.99% $ 115,955 1,672 5.80%
Loans Receivable:
Real estate loans 1,073,465 26,783 10.12% 956,991 24,601 10.34%
Real estate loans held in trust 209,456 4,322 8.37% 11,139 246 8.88%
----------- ------- ----- ----------- ------- -----
Total loans receivable 1,282,921 31,105 9.83% 968,130 24,847 10.32%
----------- ------- ----- ----------- ------- -----
Total interest-earning assets 1,361,570 $32,266 9.61% 1,084,085 $26,519 9.84%
======= ===== ======= =====
Noninterest-earning assets 33,500 21,403
Allowance for loan losses (27,502) (20,498)
----------- -----------
Total $ 1,367,568 $ 1,084,990
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit accounts:
Money market and passbook accounts $ 105,014 1,349 5.21% $ 125,729 1,659 5.31%
Time certificates 904,829 14,465 6.48% 781,035 11,342 5.84%
----------- ------- ----- ----------- ------- -----
Total deposit accounts 1,009,843 15,814 6.35% 906,764 13,001 5.77%
Collateralized mortgage obligations 154,943 2,293 6.00% 9,593 151 6.33%
FHLB advances 35,137 531 6.13% 33,338 450 5.43%
----------- ------- ----- ----------- ------- -----
Total interest-bearing liabilities 1,199,923 $18,638 6.30% 949,695 $13,602 5.76%
======= ===== ======= =====
Noninterest-bearing liabilities 11,918 11,190
Trust preferred securities 19,664 --
Shareholders' equity 136,063 124,105
----------- -----------
Total $ 1,367,568 $ 1,084,990
=========== ===========
Net interest spread 3.31% 4.08%
===== =====
Net interest income before provision
for loan losses $13,628 $12,917
======= =======
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The following table sets forth a summary of the changes in interest
income and interest expense resulting from changes in average interest-earning
asset and interest-bearing liability balances and changes in average interest
rates. The change in interest due to both volume and rate has been allocated to
change due to volume and rate in proportion to the relationship of absolute
dollar amounts of each.
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------
INCREASE (DECREASE) DUE TO:
-----------------------------
VOLUME RATE TOTAL
--------- ------- -------
(IN THOUSANDS)
Interest and fees earned from:
Real estate loans $ 2,732 $ (550) $ 2,182
Real estate loans held in trust 4,090 (14) 4,076
Cash and investment securities (564) 53 (511)
------- ------- -------
Total increase (decrease) in interest income 6,258 (511) 5,747
------- ------- -------
Interest paid on:
Deposit accounts 1,560 1,253 2,813
Collateralized mortgage obligations 2,150 (8) 2,142
FHLB advances 26 55 81
------- ------- -------
Total increase in interest expense 3,736 1,300 5,036
------- ------- -------
Increase (decrease) in net interest income $ 2,522 $(1,811) $ 711
======= ======= =======
Total interest income increased $5.8 million to $32.3 million in the
first quarter of 2001 compared to $26.5 million for the corresponding period in
2000 due to increases in the average balance of real estate loans held in trust
and in the Bank's real estate loans, and to an increase in the yield on cash and
investment securities. These increases in interest income were partially offset
by decreases resulting from a lower average balance of cash and investment
securities and from a lower yield on real estate loans and real estate loans
held in trust.
The average balance of real estate loans held in trust was $209.5
million for the three months ended March 31, 2001 as compared to $11.1 million
for the same period last year. This increase was primarily due to the timing of
the acquisition of the ICCMAC Trust which occurred during the last week of the
prior years' first quarter. The average balance of real estate loans increased
to $1.1 billion in the first quarter of 2001 as compared to $957.0 million in
the corresponding period of the prior year. This increase was primarily due to
increases in real estate loans secured by income producing properties,
construction loans and purchased single family residential mortgages. Loans
secured by income producing properties and construction loans had an
average balance of $939.5 million during the quarter ended March 31, 2001
compared to $870.3 million during the same period last year. The average
balance of purchased single family residential mortgages was $134.0 million
during the quarter ended March 31, 2001, compared to $86.7 million in the same
period in the prior year. Purchased single family residential mortgages are not
presently expected to materially increase as a percentage of our current total
assets.
The average yield earned on real estate loans decreased 22 basis points
to 10.12% in the quarter ended March 31, 2001 as compared to 10.34% in the same
period in the prior year. The decrease in the yield on real estate loans was
primarily due to the repricing of variable rate loans at lower interest rates
resulting from the general decline in market interest rates. Our commercial real
estate loan portfolio is primarily comprised of adjustable rate mortgages
indexed to the six month LIBOR.
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Approximately 90.3% of our real estate loan portfolio (including real
estate loans held in trust) are adjustable rate mortgages at March 31, 2001.
These adjustable rate mortgages generally reprice on a quarterly basis and
approximately 96.9% contain interest rate floors, below which the loans'
contractual interest rate may not adjust. At March 31, 2001, the weighted
average floor rate of the loans that have interest rate floors was 9.3%. At that
date, 45.3% of those loans were at the floor interest rate, 13.4% were within 50
basis points of their floor interest rate, and 15.6% were greater than 50 but
less than 100 basis points from their floor interest rate. As market interest
rates decline and the loans reprice, more of our portfolfio shall reach the
floor interest rate and no longer reprice downward. Accordingly, we expect that
the decline in the yield on our adjustable rate loans due to falling interest
rates may be less significant during the remainder of 2001, as compared to the
decline in loan yield that we experienced due to falling market rates during the
current quarter ended March 31, 2001.
Total interest expense increased by $5.0 million to $18.6 million in the
first quarter of 2001, compared to $13.6 million in the corresponding period in
2000. This increase was primarily attributable to the Collateralized Mortgage
Obligations ("CMO's") of the ICCMAC Trust, as well as an increase in the net
balance of deposit accounts and an increase in the cost of funds. In addition,
the average balance of Federal Home Loan Bank ("FHLB") advances increased during
the quarter ended March 31, 2001 as compared to the same period last year.
The average balance of the CMO's was $154.9 million during the first
quarter of 2001, compared to $9.6 million in the corresponding period in 2000.
The average rate paid on the CMO's was 6.00% during the three months ended March
31, 2001 compared to 6.33% for the same period last year. The average balance of
deposit accounts increased $103.1 million to $1.01 billion for the three months
ended March 31, 2001 compared to $906.8 million in the corresponding period of
the prior year. Our cost of funds increased to 6.30% during the three month
period ended March 31, 2001, compared to 5.76% during the corresponding period
in 2000. This increase in funding costs was due primarily to higher yields being
paid on deposit accounts as compared to the same period last year. We expect the
cost of funds of our deposit accounts to decline during the remainder of 2001,
as the certificates issued at higher market interest rates mature and are
replaced with certificates that bear interest at current market rates.
Approximately 71.3% of our deposit accounts are certificates that will mature
within the next nine months. FHLB advances averaged $35.1 million in the current
quarter, compared to $33.3 million in the corresponding period of the prior
year.
Net interest margin decreased to 4.06% for the three months ended March
31, 2001 as compared to 4.79% for the corresponding period of the prior year
primarily due to the 54 basis point increase in the cost of funds and the 23
basis point decrease in the yield on total interest earnings assets.
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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 March 31, 2001 was adequate to
absorb the known and inherent risks of loss in the loan portfolio at that date.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be required
will not adversely impact our financial condition and results of operations. In
addition, the determination of the amount of the Bank's allowance for loan
losses is subject to review by the bank 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 provision for loan losses totaled $450,000 in the first quarter of
2001, compared to $600,000 for the same period in the prior year. The provision
for loan losses was recorded to provide for reserves due to loan portfolio
growth. The allowance for loan losses was 2.09% of total real estate
loans and real estate loans held in trust at March 31, 2001 as compared to 2.12%
at December 31, 2000. See also "Financial Condition - Credit Risk."
NONINTEREST INCOME
Noninterest income totaled $314,000 for the three months ended March 31,
2001, compared to $1.6 million for the same period last year. The previous
year's noninterest income included a $1.4 million gain on sale of investment
securities available for sale.
NONINTEREST EXPENSE
Noninterest expense totaled $5.3 million for the three months ended
March 31, 2001, compared to $6.8 million for the corresponding period in the
prior year. The previous year's noninterest expense included a $1.4 million
nonrecurring charge relating to the consolidation of the Bank's headquarters
with ITLA Capital's headquarters in La Jolla, California. Compensation and
benefits expense totaled $2.8 million during the three months ended March 31,
2001, compared to $2.4 million in the same period of the prior year. The
increase in compensation and benefits expense was primarily due to additional
staffing, as average full time equivalent associates totaled 126 in the current
period, compared to 117 in the corresponding period of the prior year.
For the three months ended March 31, 2001, our ratio of consolidated
general and administrative expense to average assets, on an annualized basis,
decreased to 1.50%
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compared from 1.94% for the same period last year. Our efficiency ratio
(excluding real estate operations) which is defined as general and
administrative expenses as a percentage of net interest income and noninterest
income was 36.8% for the quarter ended March 31, 2001 compared to 36.3% during
the corresponding period in the prior year.
MINORITY INTEREST IN INCOME OF SUBSIDIARY
Minority interest in income of subsidiary was $574,000 during the three
month period ended March 31, 2001 consisting of distributions on our Trust
Preferred securities. During the current quarter we issued additional Trust
Preferred securities totaling $15.0 million with a 10.20% cumulative dividend.
See Note 5 to the unaudited consolidated financial statements for further
information.
FINANCIAL CONDITION
Total assets increased $28.4 million, or 2.0% to $1.44 billion at March
31, 2001. The increase in total assets during the current quarter was due
primarily to a $54.3 million increase in the Bank's loan portfolio and a $14.8
million increase in cash and cash equivalents, partially offset by a $26.6
million decrease in investment securities available for sale and a $14.8 million
decrease in real estate loans held in trust. Total deposit accounts, which are
concentrated in time certificates, remained relatively unchanged totaling $1.0
billion at March 31, 2001 and December 31, 2000. We retained a significant
amount of the funds which matured through rollover of maturing deposit accounts
during the three months ended March 31, 2001. Although we compete for deposits
primarily on the basis of rates, management believes that a significant portion
of deposits will remain with us upon maturity based on our historical experience
regarding retention of deposits. CMO's decreased to $147.5 million at March 31,
2001 compared to $161.9 million at December 31, 2000. Federal Home Loan Bank
advances increased to $121.7 million at March 31, 2001 compared to $79.3 million
at December 31, 2000.
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CREDIT RISK
NONPERFORMING ASSETS, OTHER LOANS OF CONCERN AND ALLOWANCE FOR LOAN LOSSES
The following table sets forth our nonperforming assets by category,
accruing loans past due 90 days or more and troubled debt restructurings as of
the dates indicated.
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans:
Real estate(1) $14,134 $ 9,430
Construction 13,725 8,712
------- -------
Total nonaccrual loans 27,859 18,142
Other real estate owned, net 3,586 2,250
------- -------
Total nonperforming assets $31,445 $20,392
Accruing loans past due 90 days or more with
respect to principal or interest 4,758 9,765
Performing troubled debt restructurings 2,991 3,002
------- -------
39,194 33,159
======= =======
Nonaccrual loans to total real estate loans
and real estate loans held in trust 2.10% 1.42%
Allowance for loan losses to
nonaccrual loans 99.20% 149.85%
Nonperforming assets to total assets 2.18% 1.44%
----------
(1) Includes one loan with a net book balance of $1.4 million that is a
nonperforming troubled debt restructuring as of March 31, 2001 and
December 31, 2000, respectively.
At March 31, 2001 and December 31, 2000, Other Real Estate Owned
consisted of six and five properties, respectively.
As of March 31, 2001 and December 31, 2000, other loans of concern
totaled $55.9 million and $70.9 million, respectively. Other loans of concern
consist of loans with respect to which known information concerning possible
credit problems with the borrowers or the cash flows of the properties securing
the respective loans has caused management to be concerned about the ability of
the borrowers to comply with present loan repayment terms, which may result in
the future inclusion of such loans in the nonaccrual category. The decrease in
other loans of concern for the quarter ended March 31, 2001 was primarily due to
$5.5 million of loans being paid-off, $1.3 million of loans upgraded due to
improving conditions and $10.5 million of loans migrating to nonaccrual status,
partially offset by $2.3 million of new other loans of concern.
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Our loan delinquencies (delinquent loans greater than 30 days) were
relatively unchanged totaling $45.5 million or 3.45% of gross loan portfolio at
March 31, 2001 as compared to $44.1 million or 3.46% of gross loan portfolio at
December 31, 2000.
The following table provides certain information with respect to our
allowance for loan losses, including charge-offs, recoveries and selected
ratios, for the periods indicated.
FOR THE
THREE MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 27,186 $ 19,895
Provision for loan losses 450 4,775
Addition due to purchase of the ICCMAC Trust -- 4,614
Charge offs:
Real estate loans (18) (1,489)
Construction loans -- (1,000)
-------- --------
(18) (2,489)
-------- --------
Recoveries:
Real estate loans 21 391
-------- --------
Total recoveries 21 391
-------- --------
Net recoveries (charge-offs) on real estate loans 3 (2,098)
-------- --------
Balance at end of period $ 27,639 $ 27,186
======== ========
Allowance for loan losses as a percentage of real estate
loans and loans held in trust, net 2.09% 2.12%
LIQUIDITY
Liquidity refers to our ability to maintain cash flow adequate to fund
operations and meet obligations and other commitments on a timely basis,
including the payment of maturing deposits and the origination or purchase of
new real estate loans. We maintain a cash and investment securities portfolio
designed to satisfy operating liquidity requirements while preserving capital
and maximizing yield. As of March 31, 2001, we held approximately $85.7 million
of cash and cash equivalents (consisting primarily of short-term investments
with original maturities of 90 days or less) and $19.7 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, short-term government
agency securities and United States Treasury 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 March 31, 2001 and December 31, 2000, the Bank's liquidity ratios were
10.4% and 11.7%, respectively. In addition, our liquidity position is supported
by a credit facility with the Federal Home Loan Bank of San Francisco. As of
March 31, 2001, we had remaining available borrowing capacity under this credit
facility of $114.5 million, net of the $6.0 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 March 31, 2001, the Bank's Leverage (Core), Tier I and Total
Risk-Based capital ratios were 10.8%, 11.4% and 12.6%, respectively. These
ratios were 9.1%, 10.4% and 11.6%, respectively, as of December 31, 2000. The
increase in capital ratios from December 31, 2000 to March 31, 2001 was due
primarily to the $14.5 million capital contribution to the Bank from ITLA
Capital and the Bank's net income of $4.2 million, which was partially offset by
the payment of a $3.0 dividend to ITLA Capital from the Bank. 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 March 31, 2001, the Bank's capital
position was designated as "well capitalized" for regulatory purposes.
At March 31, 2001 our shareholders' equity increased $2.9 million to
$136.5 million from $133.6 million at December 31, 2000. The increase was
primarily due to the accumulation of $4.7 million in net income, partially
offset by purchases of treasury stock of $1.8 million. There were no dividends
declared or paid by us during the first three months of 2000.
ITEM 3: MARKET RISK
Our estimated sensitivity to interest rate risk, as measured by the
estimated interest earnings sensitivity profile and the interest sensitivity gap
analysis, has not materially changed from the information disclosed in our
annual report on Form 10-K for the year ended December 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are party to certain legal proceedings incidental to its
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
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ITLA CAPITAL CORPORATION
Date: May 15, 2001 /s/ George W. Haligowski
-----------------------------------------
George W. Haligowski
Chairman of the Board, President and
Chief Executive Officer
Date: May 15, 2001 /s/ Timothy M. Doyle
-----------------------------------------
Timothy M. Doyle
Managing Director and Chief
Financial Officer
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