ITLA Itla Capital

ITLA Capital Corporation Reports Quarterly Earnings for the Second Quarter Ended June 30, 2004 LA JOLLA, Calif., July 28 /PRNewswire-FirstCall/ -- ITLA Capital Corporation (NASDAQ:ITLA) today reported net income for the second quarter of 2004, primarily resulting from the operations of its wholly-owned subsidiaries, Imperial Capital Bank (the Bank) and Imperial Capital Real Estate Investment Trust (the REIT) of $5.6 million or $0.86 per diluted share compared to $5.5 million or $0.85 per diluted share for the second quarter of 2003. President and Chief Executive Officer George W. Haligowski stated that "We are pleased with the Company's performance during the second quarter. Our management team has not compromised loan pricing and credit quality standards to meet aggressive market competitive pressures. We continue to focus on the national expansion of our Imperial Capital Express small balance multi-family lending platform and our bank charter conversion strategy which should drive shareholder value" Net interest income before provision for loan losses decreased 3.3 percent to $19.4 million in the second quarter of 2004, compared to $20.0 million for the same period in 2003. The decrease was primarily caused by a decline in net interest income earned at the REIT and the effect of interest expense from the Company's trust preferred securities as a result of the adoption of FASB Interpretation Number 46 (FIN 46), Consolidation of Variable Interest Entities, at December 31, 2003, partially offset by an increase in the Bank's net interest income. The decline in the REIT's net interest income was primarily attributable to the reduction in the average balance of its loan portfolio partially offset by a corresponding decline in the average balance of its collateralized mortgage obligations. The adoption of FIN 46 required that, beginning on January 1, 2004, the Company record the interest expense incurred on its junior subordinated debentures related to its trust preferred securities in the consolidated statements of income. Prior period financial information has not been restated for the adoption of FIN 46, and as a result, amounts recorded relating to interest payments to the trusts are recorded as minority interest income of subsidiary during the same period last year. The increase in the net interest income of the Bank was primarily a result of the increase in the average balance of loans outstanding, reflecting an increase in loan production, and a decline in average cost of funds. The decline in average cost of funds was caused by deposits repricing to lower current market interest rates, as well as higher interest bearing Federal Home Loan Bank (FHLB) advances maturing and being replaced with new advances at lower current market interest rates. The increase in the Bank's net interest income was partially offset by a decline in the yield of its loan portfolio as higher yielding loans were repaid and replaced by new loan production at lower current market interest rates. The Bank's loan production was $258.1 million for the quarter ended June 30, 2004 compared to $144.0 million for the same period last year. During the current quarter, the Bank originated $156.0 million of commercial real estate loans, $55.8 million of Imperial Capital Express (ICE) small balance multi-family loans, $21.6 million of film finance loans and $24.7 million of franchise loans. The Bank's loan production for the same period last year consisted of the origination of $93.0 million of commercial real estate loans, $31.4 million of ICE small balance multi-family loans, $9.1 million of film finance loans and $10.5 million of franchise loans. Haligowski commented that: "We are encouraged by the levels of loan production resulting from our diversification efforts. With approximately 40.0 percent of the current quarter production coming from small balance multi-family, film and franchise lending platforms, we are beginning to realize returns from our investment in these lending platforms. In addition, our commercial real estate lending business continues to experience significant growth over the previous year." During the current quarter, fee income earned in connection with the Bank's refund anticipation loan program (RAL) with Household International, Inc. (Household), a wholly-owned subsidiary of HSBC Holdings plc (HSBC), consisted of $260,000 of net premiums on the sale of RAL loans, and $430,000 of processing and administrative fees, compared to $265,000 and $440,000, respectively, for the same period last year. Substantially all of the Bank's RAL loans originated during the quarter were sold to Household. At June 30, 2004 and 2003, the Bank held approximately $1.7 million and $1.1 million, respectively, in RAL participation interests. Because the RAL program relates to the filing of income tax returns, transaction activity is concentrated during the tax season. This results in the Company earning substantially all of its RAL program income in the first quarter of the year. The Company expects that the financial results for the remaining quarters of 2004 will not be significantly impacted by the RAL program due to the seasonal nature of the business. On June 24, 2004, the Company announced that it received final confirmation that Household and its affiliates would, effective this year, terminate their RAL and private label credit card programs with the Bank. Pursuant to the agreement, this termination comes without penalty to Household. The provision for loan losses was $950,000 during the current quarter as compared to $1.9 million for the same period last year. The current period provision was recorded to provide for reserves adequate to support the known and inherent risks of loss in the loan portfolio. The provision for loan losses for the same period last year was recorded to provide reserves adequate to support the known and inherent risks of loss in the loan portfolio and the valuation of certain non-performing loans and other loans of concern as of June 30, 2003. General and administrative expenses increased to $10.5 million in the current quarter, compared to $8.9 million for the same period in the previous year. The increase was primarily attributable to the Bank's continued expansion of the ICE small balance multi-family real estate lending platform. During the year, the Company has opened nine ICE offices primarily located throughout the East Coast. The Company's efficiency ratio (defined as recurring general and administrative expenses as a percentage of net revenue) was 51.4 percent in the second quarter of 2004 as compared to 41.9 percent for the same period last year. Net income for the six months ended June 30, 2004 increased to $19.4 million or $2.93 per diluted share, compared to $18.5 million or $2.86 per diluted share for the same period last year. Net interest income before provision for loan losses decreased 6.3 percent to $42.3 million for the six months ended June 30, 2004, compared to $45.1 million for the same period last year. The decrease was caused by a decline in net interest income earned at the REIT and the effect of interest expense from the Company's trust preferred securities as a result of the adoption of FIN 46 at December 31, 2003, partially offset by an increase in the Bank's net interest income. The decline in the REIT's net interest income was primarily attributable to the reduction in the average balance of its loan portfolio offset partially by the decline in the average balance of its collateralized mortgage obligations. As previously discussed, the adoption of FIN 46 required that, beginning on January 1, 2004, the Company record the interest expense incurred on its junior subordinated debentures related to its trust preferred securities in the consolidated statements of income. The increase in the net interest income of the Bank was primarily a result of the increase in the average balance of loans outstanding, reflecting an increase in loan production, and a decline in average cost of funds. The decline in average cost of funds resulted from deposits repricing to lower current market interest rates, as well as higher interest bearing FHLB advances being replaced with new advances at lower current market interest rates. The increase in the Bank's net interest income was partially offset by a decline in the yield of its loan portfolio as higher yielding loans were repaid and replaced by new loan production at lower current market interest rates. Non-interest income was $14.4 million for the six months ended June 30, 2004, compared to $13.8 million for the same period last year. The increase was primarily attributable to the increase in fee income earned in connection with the RAL program consisting of $9.3 million of net premiums on the sale of RAL loans and $4.6 million of processing and administrative fees. RAL income earned during the same period last year was $8.9 million of net premiums on the sale of RAL loans and $4.0 million of processing and administrative fees, respectively. The provision for loan losses was $2.4 million for the six months ended June 30, 2004, compared to $6.4 million for the same period last year. The current period provision for loan losses was recorded to provide for reserves adequate to support the known and inherent risks of loss in the portfolio. The prior period provision for loan losses was recorded to provide reserves adequate to support known and inherent losses in the portfolio and for specific charge-offs experienced through the six months ended June 30, 2003. General and administrative expenses increased to $21.8 million for the six months ended June 30, 2004, compared to $19.0 million for the same period last year. The increase was attributable to the development and continued expansion of the ICE small balance multi-family real estate lending platform. The Company\'s efficiency ratio (defined as recurring general and administrative expenses as percentage of net revenue) was 38.5 percent for the six months ended June 30, 2004, compared to 32.3 percent for the same period last year. Loan production was $413.2 million for the six months ended June 30, 2004, compared to $245.7 million for the same period last year. During the current six month period, the Bank originated $236.0 million of commercial real estate loans, $94.0 million of ICE small balance multi-family real estate loans, $42.0 million of film finance loans and $41.2 million of franchise loans. Loan production for the same period last year consisted of $150.7 million of commercial real estate loans, $58.3 million of ICE small balance multi-family real estate loans, $24.4 million of film finance loans and $12.3 million of franchise loans. Total assets increased to $1.9 billion at June 30, 2004 from $1.8 billion at December 31, 2003. The increase in total assets was due primarily to a $73.6 million increase in the Bank's loan portfolio, a $17.0 million increase in cash and cash equivalents, and a $2.8 million increase in investments, partially offset by a $19.0 million decrease in the REIT's portfolio of loans held in trust, a $6.1 million decrease in other real estate owned, and a $3.5 million decrease in other assets. The increase in the loan portfolio was primarily due to the increased loan production and a slight decline in prepayment speeds experienced during the current period. At June 30, 2004, nonperforming assets totaled $15.4 million or 0.82 percent of total assets as compared to $15.6 million or 0.86 percent as of December 31, 2003. The allowance for loan loss coverage ratio (defined as the allowance for loan losses divided by non-accrual loans) at June 30, 2004, was 249.4 percent as compared to 392.3 percent at December 31, 2003. The allowance for loan losses as a percentage of the Company's total loans remained relatively stable at 2.2 percent as of June 30, 2004 and December 31, 2003. During the quarter ended June 30, 2004, the Company had net loan recoveries of $41,000 compared to net charge-offs of $800,000 for the same period last year. During the six month period ended June 30, 2004, the Company had net recoveries of $125,000, compared to net charge-offs of $5.8 million during the same period last year. Other real estate owned consisted of two properties totaling $985,000, a decline of $6.1 million or 86.0 percent from the year ended December 31, 2003. At June 30, 2004, shareholders' equity totaled $202.0 million or 10.7 percent of total assets. The Company's book value per share of common stock was $34.11 as of June 30, 2004, an increase of 9.0 percent and 12.6 percent from $31.30 per share as of December 31, 2003 and $30.28 per share as of June 30, 2003, respectively. The Bank had Tier 1, Tier 1 risk based and total risk-based capital ratios at June 30, 2004 of 13.95 percent, 14.41 percent and 15.68 percent, respectively, which represents $149.6 million, $136.2 million and $91.8 million, respectively, of capital in excess of the amount required to be "well capitalized" for regulatory purposes. In addition, the Company, the Bank's holding company, had Tier 1, Tier 1 risk based and total risk-based capital ratios at June 30, 2004 of 15.31 percent, 15.92 percent, and 18.24 percent, respectively, which represents $178.6 million, $165.3 million and $137.3 million, respectively, of capital in excess of the amount required to be "well capitalized" for bank holding company regulatory purposes. Haligowski concluded: "Through the six months ended June 30, 2004, we are encouraged by our ability to navigate and adapt to changes in an extremely competitive market environment. We have successfully responded to these challenges and our second quarter results reflect these accomplishments. During the current quarter, we have continued our commitment to the national expansion of our ICE small balance multi-family lending platform. As these new ICE offices achieve consistent loan production, this commitment should contribute to the Bank's loan growth, as well as our profitability." "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, changes in economic conditions in the Company's 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, fluctuations in interest rates, and changes in the relative differences between short and long term interest rates, levels of nonperforming assets, and operating results, the economic impact of terrorist actions and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company cautions readers not to place undue reliance on any forward-looking statements. The Company does not undertake and specifically disclaims 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 the Company's actual results for 2004 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, the Company. ITLA Capital Corporation is the largest financial services company headquartered in San Diego, California, and conducts its operations through Imperial Capital Bank and Imperial Capital Real Estate Investment Trust. Imperial Capital Bank has seven retail branch locations and twenty-seven lending offices located in California, Washington, Nevada, Arizona, Texas, the Southeast, the Mid Atlantic states, the Metro New York area, and New England. For additional information, contact Timothy M. Doyle, Senior Managing Director and Chief Financial Officer at (858) 551-0511. ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2004 December 31, (unaudited) 2003 (in thousands except share amounts) Assets Cash and cash equivalents $195,307 $178,318 Investment securities available for sale, at fair value 55,926 53,093 Stock in Federal Home Loan Bank 17,979 17,966 Loans, net (net of allowance for loan losses of $34,048 and $31,573 as of June 30, 2004 and December 31, 2003, respectively) 1,510,410 1,436,849 Real estate loans held in trust (net of allowance for loan losses of $1,828 as of June 30, 2004 and December 31, 2003, respectively) 49,562 68,575 Interest receivable 8,311 8,958 Other real estate owned, net 985 7,048 Premises and equipment, net 6,264 5,766 Deferred income taxes 12,202 11,609 Goodwill 3,118 3,118 Other assets 23,432 26,915 Total assets $1,883,496 $1,818,215 Liabilities and Shareholders' Equity Liabilities: Deposit accounts $1,175,095 $1,147,017 Federal Home Loan Bank advances 382,535 362,135 Collateralized mortgage obligations -- 15,868 Accounts payable and other liabilities 37,237 19,696 Junior subordinated debentures 86,600 86,600 Total liabilities 1,681,467 1,631,316 Commitments and contingencies Shareholders' equity: Preferred stock, 5,000,000 shares authorized, none issued -- -- Contributed capital - common stock, $.01 par value; 20,000,000 shares authorized, 8,525,779 and 8,447,294 issued as of June 30, 2004 and December 31, 2003, respectively 63,252 61,704 Retained earnings 184,821 165,407 Accumulated other comprehensive (loss) income, net (87) 155 247,986 227,266 Less treasury stock, at cost - 2,602,734 and 2,475,689 shares as of June 30, 2004 and December 31, 2003, respectively (45,957) (40,367) Total shareholders' equity 202,029 186,899 Total liabilities and shareholders' equity $1,883,496 $1,818,215 ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three For the Six Months Ended Months Ended June 30, June 30, (in thousands except per share amounts) 2004 2003 2004 2003 Interest income: Loans, including fees $26,424 $25,461 $55,338 $54,075 Real estate loans held in trust 796 1,456 1,522 3,629 Cash and investment securities 968 994 3,411 3,731 Total interest income 28,188 27,911 60,271 61,435 Interest expense: Deposit accounts 6,485 6,289 12,999 13,137 Federal Home Loan Bank advances 824 1,293 1,905 2,488 Collateralized mortgage obligations 9 291 71 681 Junior subordinated debentures 1,501 -- 2,990 -- Total interest expense 8,819 7,873 17,965 16,306 Net interest income before provision for loan losses 19,369 20,038 42,306 45,129 Provision for loan losses 950 1,850 2,350 6,350 Net interest income after provision for loan losses 18,419 18,188 39,956 38,779 Non-interest income: Premium on sale of loans, net 260 265 9,284 8,983 Late and collection fees 84 64 185 131 Other 701 912 4,970 4,664 Total non-interest income 1,045 1,241 14,439 13,778 Non-interest expense: Compensation and benefits 5,446 4,773 11,602 10,125 Occupancy and equipment 1,522 1,055 2,850 2,131 Other 3,520 3,089 7,388 6,781 Total general and administrative 10,488 8,917 21,840 19,037 Real estate owned expense, net (15) 11 81 153 Provision for losses on other real estate owned -- 40 1,000 370 Gain on sale of other real estate owned, net (315) -- (354) (329) Total real estate owned expense, net (330) 51 727 194 Total non-interest expense 10,158 8,968 22,567 19,231 Income before provision for income taxes and minority interest in income of subsidiary 9,306 10,461 31,828 33,326 Minority interest in income of subsidiary -- 1,446 -- 2,966 Income before provision for income taxes 9,306 9,015 31,828 30,360 Provision for income taxes 3,676 3,525 12,414 11,849 NET INCOME $5,630 $5,490 $19,414 $18,511 BASIC EARNINGS PER SHARE $0.91 $0.91 $3.12 $3.08 DILUTED EARNINGS PER SHARE $0.86 $0.85 $2.93 $2.86 DATASOURCE: ITLA Capital Corporation CONTACT: Timothy M. Doyle, Senior Managing Director and Chief Financial Officer of ITLA Capital Corporation, +1-858-551-0511 Web site: http://www.itlacapital.com/

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