ITLA CAPITAL CORPORATION FORM 10-Q FOR THE PERIOD ENDED 03/31/2007
 
 

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

FORM 10-Q


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

For the Quarterly Period Ended March 31, 2007

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 1-33199

 
ITLA CAPITAL CORPORATION
  
 
(Exact Name of Registrant as Specified in its Charter)
  

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

(858) 551-0511
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer £ Accelerated Filer R Non-Accelerated Filer £
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes £ No R.
Number of shares of common stock of the registrant: 5,495,876 outstanding as of May 3, 2007.
 
 
 


ITLA CAPITAL CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2007

TABLE OF CONTENTS

 
Item 1.
3
 
3
 
4
 
5
 
6
Item 2.
12
Item 3.
20
Item 4.
21
     
 
Item 1.
22
Item 1A.
22
Item 2.
22
Item 3.
22
Item 4.
22
Item 5.
22
Item 6.
22
 
23
 
Certifications
25

Exhibit 31.1
Exhibit 31.2
Exhibit 32

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, the quality or composition of our loan or investment portfolios, increased costs from pursuing the national expansion of our real estate lending platform and operational challenges inherent in implementing this expansion strategy, fluctuations in interest rates and changes in the relative differences between short and long-term interest rates, levels of non-performing assets and other loans of concern, and operating results, the economic impact of any terrorist actions on our loan originations and loan repayments 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 2007 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”, “us”, or the “Company” refer to ITLA Capital Corporation and its consolidated subsidiaries.

- 2 -


PART I - FINANCIAL INFORMATION
 

ITLA CAPITAL CORPORATION AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
           
   
March 31,
      
   
2007
  
December 31,
  
   
(unaudited)
  
2006
  
   
(in thousands, except share data)
  
Assets
          
Cash and cash equivalents
  
$
28,304
  
$
30,448
  
Investment securities available-for-sale, at fair value
    
120,000
    
99,527
  
Investment securities held-to-maturity, at amortized cost
    
184,882
    
193,512
  
Stock in Federal Home Loan Bank
    
49,701
    
48,984
  
Loans, net (net of allowance for loan losses of $47,179 and $46,049
as of March 31, 2007 and December 31, 2006, respectively)
    
3,006,829
    
2,973,368
  
Interest receivable
    
20,982
    
20,753
  
Other real estate owned, net
    
6,640
    
6,729
  
Premises and equipment, net
    
8,446
    
7,851
  
Deferred income taxes
    
11,272
    
11,513
  
Goodwill
    
3,118
    
3,118
  
Other assets
    
21,327
    
19,707
  
Total assets
  
$
3,461,501
  
$
3,415,510
  
               
Liabilities and Shareholders’ Equity
              
Liabilities:
              
Deposit accounts
  
$
2,109,060
  
$
2,059,405
  
Federal Home Loan Bank advances and other borrowings
    
1,001,503
    
1,010,000
  
Accounts payable and other liabilities
    
37,488
    
38,168
  
Junior subordinated debentures
    
86,600
    
86,600
  
Total liabilities
    
3,234,651
    
3,194,173
  
               
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, 9,069,172 and 9,065,672 issued as of March 31, 2007 and December 31, 2006, respectively
    
82,300
    
82,073
  
Retained earnings
    
249,672
    
243,823
  
Accumulated other comprehensive income, net
    
401
    
35
  
     
332,373
    
325,931
  
Less treasury stock, at cost 3,820,644 and 3,803,969 shares as of
March 31, 2007 and December 31, 2006, respectively
    
(105,523
)
  
(104,594
)
               
Total shareholders' equity
    
226,850
    
221,337
  
               
Total liabilities and shareholders' equity
  
$
3,461,501
  
$
3,415,510
  
 
See accompanying notes to the unaudited consolidated financial statements.
 
 
- 3 -
 

ITLA CAPITAL CORPORATION AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF INCOME
  
(Unaudited)
  
       
   
For the Three Months Ended
March 31,
  
           
   
2007
  
2006
  
   
(in thousands, except per share data)
  
Interest income:
          
Loans, including fees
  
$
58,763
  
$
47,137
  
Cash and investment securities
    
4,569
    
4,291
  
               
Total interest income
    
63,332
    
51,428
  
               
Interest expense:
              
Deposit accounts
    
26,588
    
17,198
  
Federal Home Loan Bank advances and other borrowings
    
10,677
    
9,362
  
Junior subordinated debentures
    
2,078
    
1,958
  
               
Total interest expense
    
39,343
    
28,518
  
               
Net interest income before provision for loan losses
    
23,989
    
22,910
  
               
Provision for loan losses
    
750
    
750
  
               
Net interest income after provision for loan losses
    
23,239
    
22,160
  
               
Non-interest income:
              
Late and collection fees
    
303
    
223
  
Other
    
413
    
494
  
               
Total non-interest income
    
716
    
717
  
               
Non-interest expense:
              
Compensation and benefits
    
6,182
    
6,020
  
Occupancy and equipment
    
1,943
    
1,806
  
Other
    
4,296
    
4,211
  
               
Total general and administrative
    
12,421
    
12,037
  
               
Real estate owned expense, net
    
163
    
106
  
               
Total non-interest expense
    
12,584
    
12,143
  
               
Income before provision for income taxes
    
11,371
    
10,734
  
Provision for income taxes
    
4,634
    
4,402
  
               
NET INCOME
  
$
6,737
  
$
6,332
  
               
Basic earnings per share
  
$
1.22
  
$
1.13
  
               
Diluted earnings per share
  
$
1.19
  
$
1.10
  
               
Dividends declared per share of common stock
  
$
0.16
  
$
0.15
  
 
 
See accompanying notes to the unaudited consolidated financial statements.
 
 
- 4 -

 
ITLA CAPITAL CORPORATION AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(Unaudited)
  
   
   
For the Three Months Ended
March 31,
  
   
2007
  
2006
  
   
(in thousands)
 
Cash Flows From Operating Activities:
          
Net Income
  
$
6,737
  
$
6,332
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Depreciation and amortization of premises and equipment
    
742
    
657
  
Amortization of premium on purchased loans
    
1,311
    
975
  
Accretion of deferred loan origination fees, net of costs
    
(1,214
)
  
(851
)
Provision for loan losses
    
750
    
750
  
Other, net
    
(801
)
  
(448
)
Increase in interest receivable
    
(229
)
  
(723
)
Increase in other assets
    
(1,620
)
  
(500
)
Decrease in accounts payable and other liabilities
    
(1,529
)
  
(2,909
)
               
Net cash provided by operating activities
    
4,147
    
3,283
  
               
Cash Flows From Investing Activities:
              
Purchases of investment securities available-for-sale
    
(32,371
)
  
(11,095
)
Proceeds from maturity and calls of investment securities available-for-sale
    
12,702
    
9,783
  
Proceeds from the maturity and redemption of investment securities held-to-maturity
    
8,625
    
10,870
  
Purchase of stock in Federal Home Loan Bank
    
—
    
(991
)
Purchase of loans
    
(17,664
)
  
(103,558
)
Other (increases) decreases in loans, net
    
(16,644
)
  
8,549
  
Cash paid for capital expenditures
    
(1,337
)
  
(1,193
)
               
Net cash used in investing activities
    
(46,689
)
  
(87,635
)
               
Cash Flows From Financing Activities:
              
Proceeds and excess tax benefits from exercise of employee stock options
    
169
    
150
  
Cash paid to acquire treasury stock
    
(929
)
  
(6,208
)
Increase in deposit accounts
    
49,655
    
74,099
  
Net repayments of short-term borrowings
    
(70,498
)
  
(37,226
)
Proceeds from long-term borrowings
    
100,000
    
89,869
  
Repayments of long-term borrowings
    
(37,999
)
  
(20,650
)
               
Net cash provided by financing activities
    
40,398
    
100,034
  
               
Net (decrease) increase in cash and cash equivalents
    
(2,144
)
  
15,682
  
Cash and cash equivalents at beginning of period
    
30,448
    
93,747
  
               
Cash and cash equivalents at end of period
  
$
28,304
  
$
109,429
  
               
Supplemental Cash Flow Information:
              
Cash paid during the period for interest
  
$
39,878
  
$
32,041
  
Cash paid during the period for income taxes
  
$
837
  
$
2,156
  
Non-Cash Investing and Financing Transactions:
              
Loans transferred to other real estate owned
 
$
—
  
$
2,280
  
Cash dividends declared but not yet paid
  
$
849
  
$
832
  
               

See accompanying notes to the unaudited consolidated financial statements.

 
- 5 -
 
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 and subsidiaries (the “Company”) included herein reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the results of operations and financial position of the Company, as of the dates and for the interim periods indicated. The unaudited consolidated financial statements include the accounts of ITLA Capital Corporation and its wholly-owned subsidiaries, Imperial Capital Bank (the “Bank”) and Imperial Capital Real Estate Investment Trust (“Imperial Capital REIT”).

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. Certain amounts in prior periods have been reclassified to conform to the presentation in the current periods. The results of operations for the three months ended March 31, 2007 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, 2006.

 
NOTE 2 - ACCOUNTING FOR STOCK-BASED COMPENSATION
 
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment”, which requires the recognition of the expense related to the fair value of stock-based compensation awards within the consolidated statement of income. The Company elected the modified prospective transition method as permitted by SFAS No. 123(R), and accordingly, results from prior periods were not restated. Under this transition method, stock-based compensation expense for the three months ended March 31, 2007 and 2006 includes compensation expense for all unvested stock-based compensation awards. Compensation expense for unvested stock-based compensation awards granted prior to January 1, 2006 are based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. Compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006 are based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).
 
- 6 -
 
Total stock-based compensation expense included in our consolidated statements of income for the three months ended March 31, 2007 and 2006 was approximately $19,000 ($12,000, net of tax or $0.00 per diluted share) and $68,000 ($41,000, net of tax or $0.01 per diluted share), respectively. Unrecognized stock-based compensation expense related to unvested stock options was approximately $402,000 and $182,000, respectively, at March 31, 2007 and 2006. The weighted-average period over which the unrecognized expense was expected to be recognized was 2.8 years and 0.7 years at March 31, 2007 and 2006, respectively.

Prior to the adoption of SFAS No. 123(R), we reported all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash flows. Upon adoption of SFAS No. 123(R), the presentation of our statement of cash flows has changed from prior periods to report the excess tax benefits from the exercise of stock options as financing cash flows. For the three months ended March 31, 2007 and 2006, $24,000 and $29,000, respectively, of excess tax benefits were reported as financing cash flows.

The fair value of each option grant was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for option grants:

   
Weighted-Average Assumptions
for Option Grants
  
 
  
2007
  
2006 (1)
  
           
Dividend Yield
    
1.18%
 
  
—
  
Expected Volatility
    
23.83%
 
  
—
  
Risk-Free Interest Rates
    
4.72%
 
  
—
  
Expected Lives
    
Five Years
    
—
  
Weighted-Average Fair Value
  
 
$14.49
    
—
  
 
(1) The Company did not grant any stock options during the three months ended March 31, 2006.
 
 
NOTE 3 - EARNINGS PER SHARE
 
Basic Earnings Per Share (“Basic EPS”) is computed by dividing net income 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:
 
       
   
 
 
Net Income
  
Weighted-
Average Shares
Outstanding
  
Per
Share
Amount
  
   
(in thousands, except per share data)
  
For the Three Months Ended March 31,
              
2007
              
Basic EPS
  
$
6,737
    
5,528
  
$
1.22
  
Effect of dilutive stock options
    
—
    
154
    
(0.03
)
Diluted EPS
  
$
6,737
    
5,682
  
$
1.19
  
                     
2006
                    
Basic EPS
  
$
6,332
    
5,625
  
$
1.13
  
Effect of dilutive stock options
    
—
    
139
    
(0.03
)
Diluted EPS
  
$
6,332
    
5,764
  
$
1.10
  

 
- 7 -

NOTE 4 - COMPREHENSIVE INCOME
 
Comprehensive income, which encompasses net income and the net change in unrealized gains (losses) on investment securities available-for-sale, is presented below:

   
Three Months Ended
  
   
March 31,
  
   
2007
  
2006
  
 
  
(in thousands)
  
Net Income
  
$
6,737
  
$
6,332
  
Other comprehensive income:
              
Change in net unrealized gain on investment securities available-for-sale, net of tax expense of $242 and $4 for the three months ended March 31, 2007 and 2006, respectively.
    
366
    
6
  
               
Comprehensive Income
  
$
7,103
  
$
6,338
  

 
NOTE 5 - IMPAIRED LOANS RECEIVABLE
 
As of March 31, 2007 and December 31, 2006, the recorded investment in impaired loans was $35.5 million and $35.5 million, respectively. The average recorded investment in impaired loans was $37.9 million and $32.4 million, respectively, for the three months ended March 31, 2007 and 2006. Interest income recognized on impaired loans totaled $193,000 and $111,000 respectively, for the three months ended March 31, 2007 and 2006.

 
NOTE 6 - RESIDUAL INTEREST IN SECURITIZATION
 
The Company has recorded a residual asset in connection with a 2002 securitization of residential real estate loans, which represents the present value of future cash flows (spread and fees) that were estimated to be received over the life of the loans. The residual interest is recorded on the consolidated balance sheet in “Investment securities available-for-sale, at fair value”. The value of the residual interest is subject to substantial credit, prepayment, and interest rate risk on the sold residential loans. Fair value is estimated based on a discounted cash flow analysis. These cash flows are estimated over the lives of the receivables using prepayment, default, and interest rate assumptions that management believes market participants would use for similar financial instruments.


- 8 -

At March 31, 2007 and December 31, 2006, key economic assumptions and the sensitivity of the current fair value of the residual interest based on projected cash flows to immediate adverse changes in those assumptions are as follows:

   
March 31,
2007
  
December 31, 2006
  
   
(dollars in thousands)
  
       
Fair value of retained interest
  
$
1,718
  
$
2,039
  
Weighted average remaining life (in years) - securities
    
0.55
    
0.55
  
Weighted average remaining life (in years) - residual interest
    
2.76
    
2.74
  
Weighted average annual prepayment speed
    
40.0
%
  
40.0
%
Impact of 10% adverse change
  
$
(3
)
$
(6
)
Impact of 25% adverse change
  
$
(5
)
$
(10
)
Weighted average annual discount rate
    
13.0
%
  
13.0
%
Impact of 10% adverse change
  
$
(52
)
$
(65
)
Impact of 25% adverse change
  
$
(130
)
$
(156
)
Weighted average lifetime credit losses
    
20.2
%
  
20.2
%
Impact of 10% adverse change
  
$
(77
)
$
(86
)
Impact of 25% adverse change
  
$
(195
)
$
(224
)

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

 
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
 
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”— an amendment of SFAS Nos. 133 and 140. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The Company adopted this statement on January 1, 2007. Adoption of SFAS No. 155 did not have a material impact on the Company’s financial condition or results of operations.

- 9 -
 
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”. This statement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires companies to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. The statement permits a company to choose either the amortized cost method or fair value measurement method for each class of separately recognized servicing assets. The Company adopted this statement on January 1, 2007. Adoption of SFAS No. 156 did not have a material impact on the Company’s financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company on January 1, 2008. Management does not expect the adoption of SFAS No. 157 to have a material impact on the Company’s financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for us on January 1, 2008. Management does not expect the adoption of SFAS No. 159 to have a material impact on the Company’s financial condition or results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 establishes a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition requirements. The Company adopted FIN 48 on January 1, 2007. Adoption of FIN 48 did not have a material impact on the Company’s financial condition or results of operations.
 
- 10 -
 
NOTE 8 - BUSINESS SEGMENT INFORMATION
 
SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS No. 131”), requires disclosure of segment information in a manner consistent with the “management approach”. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance.

The main factors used to identify operating segments are the specific product and business lines of the various operating segments of the Company. Operating segments are organized separately by product and service offered. We have identified one operating segment that meets the criteria of being a reportable segment in accordance with the provisions of SFAS No. 131. This reportable segment is the origination and purchase of loans, which by its legal form, is identified as operations of the Bank and Imperial Capital REIT. This segment derives the majority of its revenue by originating and purchasing loans. Other operating segments of the Company that did not meet the criteria of being a reportable segment in accordance with SFAS No. 131 have been aggregated and reported as “All Other”. Substantially all of the transactions from the Company’s operating segments occur in the United States.

Transactions between the reportable segment of the Company and its other operating segments are made at terms which approximate arm’s-length transactions and in accordance with accounting principles generally accepted in the United States. There is no significant difference between the measurement of the reportable segments profits and losses disclosed below and the measurement of profits and losses in the Company’s consolidated statements of income. Accounting allocations are made in the same manner for all operating segments.
 

   
Lending
  
 
      
   
Operations
 
All Other
 
Consolidated
 
   
(in thousands)
  
For the three months ended March 31,
              
2007
             
Revenues from external customers
  
$
63,698
  
$
350
  
$
64,048
  
Total interest income
   
63,067
    
265
    
63,332
  
Total interest expense
   
37,265
    
2,078
    
39,343
  
Net income
   
8,567
    
(1,830
)
  
6,737
  
                     
2006
                   
Revenues from external customers
  
$
51,928
  
$
217
  
$
52,145
  
Total interest income
   
51,262
    
166
    
51,428
  
Total interest expense
   
26,560
    
1,958
    
28,518
  
Net income
   
7,798
    
(1,466
)
  
6,332
  
                     
                     

- 11 -

 
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 affected our financial condition and results of operations as of and for the three months ended March 31, 2007.

Application of Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies followed by us conform, in all material respects, to accounting principles generally accepted in the United States (“GAAP”) and to general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base our estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. Accounting polices related to the allowance for loan losses are considered to be critical, as these policies involve considerable subjective judgment and estimation by management. We also consider our accounting polices related to other real estate owned to be critical due to the potential significance of these activities and the estimates involved.

For additional information regarding critical accounting policies, refer to Note 1 - “Organization and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements and the sections captioned “Application of Critical Accounting Policies and Accounting Estimates” and “Allowance for Loan Losses and Nonperforming Assets” in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2006. There have been no significant changes in the Company's application of accounting policies since December 31, 2006.

- 12 -

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 

Executive Summary
 
Consolidated net income and diluted EPS were $6.7 million and $1.19, respectively, for the three months ended March 31, 2007, compared to $6.3 million and $1.10, respectively, for the same period last year.

Net interest income before provision for loan losses increased to $24.0 million for the quarter ended March 31, 2007 compared to $22.9 million for the same period last year. The increase was primarily caused by additional interest income earned due to the growth in the average balance of our loan portfolio and variable rate loans repricing to higher current market interest rates, partially offset by additional interest expense incurred due to the growth in the average balance of interest bearing liabilities, deposits and other interest bearing liabilities repricing to higher current market interest rates, and the addition of new borrowings at higher current market interest rates.

The return on average assets was 0.80% for the three months ended March 31, 2007, compared to 0.86% for the same period last year. The return on average shareholders’ equity was 12.20% for the three months ended March 31, 2007, compared to 12.52% for the same period last year.

Loan originations were $339.4 million for the quarter ended March 31, 2007, compared to $197.2 million for the same period last year. During the current quarter, the Bank originated $237.2 million of commercial real estate loans, $74.0 million of small balance multi-family real estate loans, and $28.2 million of entertainment finance loans. Loan originations for the same period last year consisted of $120.6 million of commercial real estate loans, $66.0 million of small balance multi-family real estate loans, and $10.6 million of entertainment finance loans. In addition, the Bank’s wholesale loan operations acquired $17.7 million and $103.6 million of commercial and multi-family real estate loans during the quarters ended March 31, 2007 and 2006, respectively.

Net Interest Income and Margin

The following table presents for the three months ended March 31, 2007 and 2006, 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.

- 13 -


   
For the Three Months Ended March 31,
  
   
2007
  
2006
  
   
Average Balance
  
Income/
Expense
  
Yield/
Rate
  
Average Balance
  
Income/
Expense
  
Yield/
Rate
  
   
(dollars in thousands)
  
Assets
                          
Cash and investment securities
  
$
373,205
  
$
4,569
    
4.97
%
$
407,871
  
$
4,291
    
4.27
%
Loans receivable:
                                      
Total loans
   
3,004,189
    
58,763
    
7.93
%
  
2,546,029
    
47,137
    
7.51
%
                                       
Total interest earning assets
    
3,377,394
  
$
63,332
    
7.60
%
  
2,953,900
  
$
51,428
    
7.06
%
Non-interest earning assets
    
74,905
                
65,495
              
Allowance for loan losses
    
(46,579
)
              
(44,684
)
            
Total assets
  
$
3,405,720
              
$
2,974,711
              
                                       
Liabilities and Shareholders’ Equity
                                      
Interest bearing deposit accounts:
                                      
Interest bearing demand
  
$
24,400
  
$
188
    
3.12
%
$
36,146
  
$
247
    
2.77
%
Money market and passbook
    
222,793
    
2,718
    
4.95
%
  
200,345
    
1,912
    
3.87
%
Time certificates
    
1,821,519
    
23,682
    
5.27
%
  
1,465,748
    
15,039
    
4.16
%
Total interest bearing deposit accounts
    
2,068,712
    
26,588
    
5.21
%
  
1,702,239
    
17,198
    
4.10
%
FHLB advances and other borrowings
    
977,608
    
10,677
    
4.43
%
  
934,677
    
9,362
    
4.06
%
Junior subordinated debentures
    
86,600
    
2,078
    
9.73
%
  
86,600
    
1,958
    
9.17
%
Total interest bearing liabilities
    
3,132,920
  
$
39,343
    
5.09
%
  
2,723,516
  
$
28,518
    
4.25
%
Non-interest bearing demand accounts
    
11,641
                
14,508
              
Other non-interest bearing liabilities
    
37,212
                
31,607
              
Shareholders’ equity
    
223,947
                
205,080
              
Total liabilities and shareholders’ equity
  
$
3,405,720
              
$
2,974,711
              
Net interest spread (1)
                
2.51
%
              
2.81
%
                                       
Net interest income before provision
for loan losses
        
$
23,989
              
$
22,910
        
Net interest margin (2)
                
2.88
%
              
3.15
%
                                       
____________
(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.

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.

- 14 -


   
For the Three Months Ended
March 31, 2007 and 2006
  
   
Increase (Decrease) Due to:
  
   
Rate
  
Volume
  
Total
  
   
(in thousands)
  
Interest and fees earned from:
              
Cash and investment securities
  
$
664
  
$
(386
)
$
278
  
Loans
    
2,757
    
8,869
    
11,626
  
                     
Total increase in interest income
    
3,421
    
8,483
    
11,904
  
                     
Interest paid on:
                    
Deposit accounts
    
5,231
    
4,159
    
9,390
  
FHLB advances and other borrowings
    
874
    
441
    
1,315
  
Junior subordinated debentures
    
120
    
—
    
120
  
 
                    
Total increase in interest expense
    
6,225
    
4,600
    
10,825
  
                     
(Decrease) increase in net interest income
  
$
(2,804
)
$
3,883
  
$
1,079
  

Total interest income increased $11.9 million to $63.3 million for the current quarter as compared to $51.4 million for the same period last year. The increase in interest income was primarily attributable to a $458.2 million increase in the average balance of total loans receivable and a 42 basis point increase in the average yield earned on total loans receivable.

The average balance of cash and investment securities decreased to $373.2 million in the first quarter of 2007 compared to $407.9 million during the same period last year. The decrease in average cash and investment securities was primarily due to a decline in cash and cash equivalents, as well as a decrease in the average balance of investment securities held-to-maturity, partially offset by an increase in investment securities available-for-sale. The average yield earned on cash and investments increased to 4.97% during the current quarter as compared to 4.27% for the same period last year. The increase primarily related to an increase in market interest rates earned on current investments.

The average aggregate balance of our loan portfolio was $3.0 billion and $2.5 billion for the three months ended March 31, 2007 and 2006, respectively. Commercial real estate and construction loans had an average aggregate balance of $917.9 million during the quarter ended March 31, 2007 compared to $803.6 million during the same period last year. Multi-family real estate loans had an average aggregate balance of $2.0 billion during the quarter ended March 31, 2007 compared to $1.6 billion during the same period last year. Single-family residential loans had an average aggregate balance of $37.6 million during the quarter ended March 31, 2007 compared to $97.2 million during the same period last year. The average aggregate balance of entertainment finance loans was $73.6 million and $59.6 million during the quarters ended March 31, 2007 and 2006, respectively.
 
- 15 -

 
The average yield earned on total loans increased to 7.93% during the quarter ended March 31, 2007 as compared to 7.51% during the same period last year. The increase in yield was primarily due to adjustable rate loans repricing to higher current interest rates. A significant portion of our loan portfolio is comprised of adjustable rate loans indexed to either six month LIBOR or the Prime Rate, most with interest rate floors and caps below and above which the loan’s contractual interest rate may not adjust. Approximately 47.5% of our loan portfolio was adjustable at March 31, 2007, and approximately 49.3% of the loan portfolio was comprised of hybrid loans, which after an initial fixed rate period of three or five years, will convert to an adjustable interest rate for the remaining term of the loan. As of March 31, 2007, our hybrid loans had a weighted average of 2.9 years remaining until conversion to an adjustable rate loan. Our adjustable rate loans generally reprice on a quarterly or semi-annual basis with increases generally limited to maximum adjustments of 2% per year up to 5% for the life of the loan. At March 31, 2007, approximately $2.7 billion, or 88.4%, of our adjustable and hybrid loan portfolio contained interest rate floors, below which the loans’ contractual interest rate may not adjust. The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, and also assists us in our efforts to limit the risks to earnings resulting from changes in interest rates, subject to the risk that borrowers may refinance these loans during periods of declining interest rates. At March 31, 2007, the weighted average floor interest rate of these loans was 6.92%. At that date, approximately $99.7 million, or 3.3%, of these loans were at their floors at the end of the quarter. At March 31, 2007, 51.8% of the adjustable rate loans outstanding had a lifetime interest rate cap. The weighted-average lifetime interest rate cap on our adjustable rate loan portfolio was 11.48% at that date.

Total interest expense increased by $10.8 million to $39.3 million during the current quarter, compared to $28.5 million for the same period last year. The increase in interest expense was primarily attributable to an increase of $409.4 million in the average balance of interest bearing liabilities, which was caused by the increase in deposits and FHLB advances and other borrowings, and an 84 basis point increase in the rate paid on interest bearing liabilities, which was primarily caused by deposits and other interest bearing liabilities repricing to higher current market interest rates, as well as the addition of new borrowings and deposits at higher current market interest rates.

Our average cost of funds increased to 5.09% during the three months ended March 31, 2007, compared to 4.25% for the same period last year. As discussed above, the increase in the average funding costs was primarily due to deposits and other interest bearing liabilities repricing to higher current market interest rates, and the addition of new borrowings and deposits at higher current market interest rates. The average rate paid on deposit accounts was 5.21% during the three months ended March 31, 2007 as compared to 4.10% for the same period last year. The average balance of deposit accounts increased $366.5 million to $2.1 billion for the three months ended March 31, 2007 as compared to $1.7 billion for the same period last year. The average rate paid on FHLB advances and other borrowings was 4.43% during the three months ended March 31, 2007 compared to 4.06% for the same period last year. FHLB advances and other borrowings averaged $977.6 million during the current quarter, compared to $934.7 million for the same period last year.

Net interest margin decreased to 2.88% for the three months ended March 31, 2007 as compared to 3.15% for the same period last year. This decrease was caused by a 30 basis point decline in our net interest spread and a $423.5 million increase in our average interest earning assets.


- 16 -

Provision for Loan Losses

Management periodically assesses the adequacy of the allowance for loan losses by reference to certain quantitative and qualitative factors that may be weighted differently at various times depending on prevailing conditions. These factors include, among other elements:

·  
the risk characteristics of various classifications of loans;
·  
general portfolio trends relative to asset and portfolio size;
·  
asset categories;
·  
potential credit and geographic concentrations;
·  
delinquency trends and nonaccrual loan levels;
·  
historical loss experience and risks associated with changes in economic, social and business conditions; and
·  
the underwriting standards in effect when the loan was made.

Accordingly, the evaluation of the adequacy of the allowance for loan losses is not based solely on the level of nonperforming assets. The quantitative factors, included above, are utilized by our management to identify two different risk groups (1) individual loans (loans with specifically identifiable risks); and (2) homogeneous loans (groups of loans with similar characteristics). We base the allocation for individual loans primarily on risk rating grades assigned to each of these loans as a result of our loan management and review processes. We then assign each risk-rating grade a loss ratio, which is determined based on the experience of management and our independent loan review process. We estimate losses on impaired loans based on estimated cash flows discounted at the loan’s original effective interest rate or based on the underlying collateral value. Based on management’s experience, we also assign loss ratios to groups of loans. These loss ratios are assigned to the various homogenous categories of the portfolio.

The qualitative factors, included above, are generally utilized to identify other risks inherent in the portfolio and to determine whether the estimated credit losses associated with the current portfolio might differ from historical loss trends. We estimate a range of exposure for each qualitative factor and evaluate the current condition and trend of each factor. Based on this evaluation, we assign a positive, negative or neutral grade to each factor to determine whether the portion of the qualitative reserve is in the high, middle or low end of the range for each factor. Because of the subjective nature of these factors and the judgments required to determine the estimated ranges, the actual losses incurred can vary significantly from the estimated amounts.

Management believes that our allowance for loan losses as of March 31, 2007 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 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.
 
- 17 -

 
The consolidated provision for loan losses was $750,000 for each of the quarters ended March 31, 2007 and 2006, respectively. The provision for loan losses was recorded based on an analysis of the factors referred to above. The allowance for loan losses as a percentage of our total loans was 1.54% and 1.53% at March 31, 2007 and December 31, 2006, respectively. During the quarters ended March 31, 2007 and 2006, we had net loan recoveries of $380,000 and $885,000, respectively. See also - “Financial Condition - Credit Risk”.

Non-Interest Income

Non-interest income remained relatively stable at $716,000 during the quarter ended March 31, 2007 as compared to $717,000 for the same period last year. Non-interest income primarily consists of late fees and other miscellaneous fees earned on customer accounts.

Non-Interest Expense

Non-interest expense totaled $12.4 million for the current quarter, compared to $12.0 million for the same period last year. Our efficiency ratio (defined as general and administrative expenses as a percentage of net revenue) improved to 50.3% for the quarter ended March 31, 2007, as compared to 50.9% for the same period last year.


FINANCIAL CONDITION
 

Total assets increased to $3.5 billion at March 31, 2007 as compared to $3.4 billion at December 31, 2006. The increase in total assets was primarily due to a $34.6 million increase in our loan portfolio and a $20.5 million increase in investment securities available-for-sale, partially offset by an $8.6 million decline in investment securities held-to-maturity and a $2.1 million decrease in cash and cash equivalents. At March 31, 2007, gross loans totaled $3.1 billion, including approximately $2.9 billion of real estate loans, $65.6 million of entertainment finance loans, and $14.2 million of other loans. Total deposit accounts remained stable at $2.1 billion at March 31, 2007 and December 31, 2006, respectively. Management believes that a significant portion of time deposits will remain with us upon maturity based on our historical experience regarding retention of deposits. FHLB advances and other borrowings were $1.0 billion at March 31, 2007 and December 31, 2006, respectively.

 
- 18 -
 
CREDIT RISK

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

The following table sets forth our nonperforming assets by category and troubled debt restructurings as of the dates indicated.


   
March 31,
2007
  
December 31, 2006
  
   
(dollars in thousands)
  
Nonaccrual loans:
          
Real estate
 
$
18,718
  
$
14,091
  
Franchise
    
—
    
4,549
  
Entertainment finance
    
7,609
    
7,614
  
Total nonaccrual loans
    
26,327
    
26,254
  
Other real estate owned, net
    
6,640
    
6,729
  
Total nonperforming assets
    
32,967
    
32,983
  
Performing troubled debt restructurings
    
7,959
    
7,994
  
Total nonperforming assets and performing troubled debt restructurings
  
$
40,926
  
$
40,977
  
               
Nonaccrual loans to total loans
    
0.87
%
  
0.88
%
Allowance for loan losses to nonaccrual loans
    
179.20
%
  
175.40
%
Nonperforming assets to total assets
    
0.95
%
  
0.97
%

As of March 31, 2007and December 31, 2006, other loans of concern totaled $74.4 million and $67.0 million, respectively. Other loans of concern, which includes performing troubled debt restructurings, consist of loans with respect to which known information concerning possible credit problems with the borrowers or the cash flows of the collateral securing the respective loans has caused management to be concerned about the ability of the borrowers to comply with present loan repayment terms, which may result in the future inclusion of such loans in the nonaccrual category. The increase in other loans of concern for the three months ended March 31, 2007 was primarily due to $21.3 million of new other loans of concern, partially offset by $7.9 million of loan repayments and $6.0 million of loans being transferred to nonperforming assets.

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 Ended
March 31,
2007
  
For the Year
Ended
December 31,
2006
  
For the Three Months Ended
March 31,
2006
  
   
(dollars in thousands)
  
               
Balance at beginning of period
  
$
46,049
  
$
43,817
  
$
43,817
  
Provision for loan losses
    
750
    
5,000
    
750
  
Charge-offs
    
(39
)
  
(4,134
)
  
—
  
Recoveries
    
419
    
1,366
    
885
  
Net recoveries (charge-offs)
    
380
    
(2,768
)
  
885
  
                     
Balance at end of period
  
$
47,179
  
$
46,049
  
$
45,452
  
                     
Allowance for loan losses as a percentage
   of loans, net
    
1.54
%
  
1.53
%
  
1.71
%
 
- 19 -

 
Liquidity

Liquidity refers to our ability to maintain cash flows 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 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, 2007, we held $28.3 million of cash and cash equivalents (consisting primarily of short-term investments with original maturities of 90 days or less) and $120.0 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, overnight repurchase agreement investments, government money market funds and short-term government agency securities, while investment securities available-for-sale consisted primarily of fixed income instruments, which were rated “AAA”, or equivalent by nationally recognized rating agencies. In addition, our liquidity position is supported by a credit facility with the Federal Home Loan Bank of San Francisco. As of March 31, 2007, we had remaining available borrowing capacity under this credit facility of $417.5 million, net of the $14.3 million of additional Federal Home Loan Bank stock that we would be required to purchase to support those additional borrowings. We also had available $89.0 million of uncommitted, unsecured lines of credit with four unaffiliated financial institutions, and a $25.0 million revolving credit facility with an unaffiliated financial institution.

Capital Resources

The Company, the Bank’s holding company, had Tier 1 leverage, Tier 1 risk based and total risk-based capital ratios at March 31, 2007 of 8.8%, 10.1% and 11.7%, respectively, which represents $127.7 million, $121.5 million and $50.5 million, respectively, of capital in excess of the amount required to be “well capitalized.” These ratios were 9.0%, 10.2% and 11.9% as of December 31, 2006, respectively.

The Bank had Tier 1 leverage, Tier 1 risk based and total risk-based capital ratios at March 31, 2007 of 8.6%, 10.0% and 11.3%, respectively, which represents $123.4 million, $117.3 million and $37.1 million, respectively, of capital in excess of the amount required to be “well capitalized” for regulatory purposes. These ratios were 9.1%, 10.3% and 11.5% as of December 31, 2006, respectively.

At March 31, 2007, shareholders' equity totaled $226.9 million, or 6.6% of total assets. Our book value per share of common stock was $43.22 as of March 31, 2007, as compared to $42.07 as of December 31, 2006, and $38.68 as of March 31, 2006.

 
Item 3. Quantitative and Qualitative Disclosures About 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, 2006.

 
- 20 -
 
Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) was carried out as of March 31, 2007 under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2007, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control over Financial Reporting: During the quarter ended March 31, 2007, no change occurred in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.


- 21 -

 
PART II - OTHER INFORMATION
 
 
Item 1. Legal Proceedings
 
We are party to certain legal proceedings incidental to our business. Management believes that the outcome of such currently pending proceedings, in the aggregate, will not have a material effect on our financial condition or results of operations.
 
Item 1A. Risk Factors
 
There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table sets forth the repurchases of our common stock for the fiscal quarter ended March 31, 2007.
 
 
 
 
 
Period
  
 
 
 
Total Number of Shares Purchased
  
 
 
 
Average Price Paid per Share
  
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
  
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
  
 
January 1, 2007 to
January 31, 2007
    
11,500
  
$
55.84
    
11,500
    
286,461
  
February 1, 2007 to
February 28, 2007
    
—
    
—
    
—
    
286,461
  
March 1, 2007 to
March 31, 2007
    
4,475
    
54.92
    
4,475
    
281,986
  
 
Total
    
15,975
  
$
55.58
    
15,975
    
281,986
  

(1) The repurchases during the three months ended March 31, 2007 were made under the eleventh extension of our stock repurchase program, which was announced on October 18, 2005. On March 14, 2006, the twelfth extension to the stock repurchase program was announced. The extensions authorized the repurchase of an additional 5% of the outstanding shares as of their respective authorization dates. At March 31, 2007, 281,986 shares remained available for repurchase under the eleventh and twelfth extensions.

 
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
 
See exhibit index.
 
 

- 22 -

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 10, 2007
/s/ George W. Haligowski     
  
 
George W. Haligowski
  
 
Chairman of the Board, President and
  
 
Chief Executive Officer
  

Date: May 10, 2007
/s/ Timothy M. Doyle      
  
 
Timothy M. Doyle
  
 
Executive Managing Director and
  
 
Chief Financial Officer
  


- 23 -
 

EXHIBIT INDEX
Regulation S-K Exhibit Number
  
Document
  
Reference to Prior Filling or Exhibit Number Attached Hereto
         
3.1
  
Certificate of Incorporation
  
**
3.2
  
Bylaws, as amended
  
***
4
  
Instruments Defining the Rights of Security Holders, Including Indentures
  
**********
10.1
  
2005 Re-Designated, Amended and Restated Stock Option Plan For Nonemployee Directors (“NEDP”)
  
*****
10.2
  
2005 Re-Designated, Amended and Restated Employee Stock Incentive Plan (“ESIP”)
  
********
10.3a
  
Nonqualified (Non-Employer Securities) Deferred Compensation Plan
  
********
10.3b
  
Nonqualified (Employer Securities Only) Deferred Compensation Plan
  
********
10.4
  
Supplemental Salary Savings Plan
  
*
10.5a
  
Amended and Restated Employment Agreement with George W. Haligowski
  
********
10.5b
  
Non-Competition and Non-Solicitation Agreement with George W. Haligowski
  
********
10.6
  
Change in Control Severance Agreement with Norval L. Bruce
  
********
10.7
  
Change in Control Severance Agreement with Timothy M. Doyle
  
********
10.8
  
Change in Control Severance Agreement with Lyle C. Lodwick
  
********
10.9
  
Change in Control Severance Agreement with Phillip E. Lombardi
  
***********
10.10
  
Recognition and Retention Plan
  
**
10.11
  
Voluntary Retainer Stock and Deferred Compensation Plan for Outside Directors
  
****
10.12
  
Amended and Restated Supplemental Executive Retirement Plan
  
********
10.13
  
Amended and Restated ITLA Capital Corporation Rabbi Trust Agreement
  
*********
10.14
  
Amended and Restated Salary Continuation Plan
  
********
10.15
  
Form of Incentive Stock Option Agreement under ESIP
 
******
10.16
  
Form of Non-Qualified Stock Option Agreement under the ESIP
  
******
10.17
  
Form of Non-Qualified Stock Option Agreement under the NEDP
  
*******
10.18
  
Description of Named Executive Officer Salary, Bonus and Perquisite Arrangements for 2007
  
***********
10.19
  
Description of Director Fee Arrangements
  
***********
11
  
Statement Regarding Computation of Per Share Earnings
  
Not Required
13
  
Annual Report to Security Holders
  
None
18
  
Letter Regarding Change in Accounting Principles
  
None
21
  
Subsidiaries of the Registrant
  
Not Required
22
  
Published Report Regarding Matters Submitted to Vote of Security Holders
  
None
23.1
 
Consent of Ernst & Young LLP
  
Not Required
24
  
Power of Attorney
  
None
31.1
  
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
  
31.1
31.2
  
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
  
31.2
32
  
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
  
32
 

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