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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 September 30, 2002

OR

[   ]

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

For the Transition Period from __________________ to __________________

Commission File Number 0-26960

ITLA CAPITAL CORPORATION

(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]  X No [   ]

     Number of shares of common stock of the registrant: 5,778,758 outstanding as of November 8, 2002.

Table of Contents

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

PART I — FINANCIAL INFORMATION

							Page
Item 1.	Financial Statements
		Consolidated Balance Sheets — September 30, 2002 and December 31, 2001						3
		Consolidated Statements of Income — Three and Nine Months Ended September 30, 2002 and 2001						4
		Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2002 and 2001						5
		Notes to Unaudited Consolidated Financial Statements						6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations							9
Item 3.	Market Risk							20
Item 4.	Controls and Procedures							20
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings						21
Item 2.		Changes in Securities						21
Item 3.		Defaults Upon Senior Securities						21
Item 4.		Submission of Matters to a Vote of Security Holders						21
Item 5.		Other Information						21
Item 6.		Exhibits and Reports on Form 8-K						21
		Signatures						22
		Certifications						23

Forward Looking Statements

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

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ITLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

					September 30,
					2002				December 31,
					(unaudited)				2001
					(in thousands except share amounts)
Assets
Cash and cash equivalents					$	92,834			$	134,241
Investment securities available for sale, at fair value						53,616				29,411
Stock in Federal Home Loan Bank						16,454				13,464
Real estate loans, net (net of allowance for loan losses of $29,309 and $24,722 in 2002 and 2001, respectively)						1,142,897				1,122,370
Real estate loans held in trust (net of allowance for loan losses of $1,928 in 2002 and 2001, respectively)						132,389				162,158
Interest receivable						9,017				11,144
Other real estate owned, net						14,092				13,741
Premises and equipment, net						3,787				2,177
Deferred income taxes						11,626				11,869
Other assets						11,633				7,733
			Total assets		$	1,488,345			$	1,508,308
Liabilities and Shareholders’ Equity
Liabilities:
	Deposit accounts				$	893,485			$	953,654
	Federal Home Loan Bank advances					329,085				269,285
	Collateralized mortgage obligations					79,400				109,648
	Accounts payable and other liabilities					7,144				9,674
			Total liabilities			1,309,114				1,342,261
Commitments and contingencies
	Guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures, net					28,190				28,118
Shareholders’ equity:
	Preferred stock, 5,000,000 shares authorized, none issued					—				—
	Contributed capital-common stock, $.01 par value; 20,000,000 shares authorized, 8,226,414 and 8,212,749 issued and outstanding in 2002 and 2001, respectively					58,514				58,183
	Retained earnings					130,447				115,768
	Accumulated other comprehensive income (loss)					438				(7	)
						189,399				173,944
	Less treasury stock, at cost — 2,447,656 and 2,354,056 shares in 2002 and 2001, respectively					(38,358	)			(36,015	)
		Total shareholders’ equity				151,041				137,929
			Total liabilities and shareholders’ equity		$	1,488,345			$	1,508,308

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								For the Nine Months Ended
					September 30,								September 30,
					2002				2001				2002				2001
					(in thousands except per share amounts)
Interest income:
	Real estate loans, including fees				$	24,020			$	25,445			$	70,598			$	78,863
	Real estate loans held in trust					2,458				3,532				7,960				11,860
	Cash and investment securities					902				656				2,427				2,604
		Total interest income				27,380				29,633				80,985				93,327
Interest expense:
	Deposit accounts					6,815				12,250				22,203				42,161
	Federal Home Loan Bank advances					1,422				1,561				4,310				3,219
	Collateralized mortgage obligations					563				1,412				1,852				5,394
		Total interest expense				8,800				15,223				28,365				50,774
			Net interest income before provision for loan losses			18,580				14,410				52,620				42,553
Provision for loan losses						2,700				1,500				6,125				2,450
			Net interest income after provision for loan losses			15,880				12,910				46,495				40,103
Non-interest income:
	Fee income from mortgage banking activities					—				15				—				75
	Gain on sale of loans, net					—				—				32				—
	Other					(54	)			236				141				729
		Total non-interest income				(54	)			251				173				804
Non-interest expense:
	Compensation and benefits					3,303				3,018				9,781				8,871
	Occupancy and equipment					777				753				2,232				2,196
	FDIC assessment					36				46				120				139
	Other					2,343				1,855				6,956				5,378
		Total general and administrative				6,459				5,672				19,089				16,584
	Real estate owned expense, net					71				47				325				97
	Provision for losses on other real estate owned					—				34				796				237
	Gain on sale of other real estate owned, net					—				(13	)			(75	)			(50	)
		Total real estate owned expense, net				71				68				1,046				284
			Total non-interest expense			6,530				5,740				20,135				16,868
Income before provision for income taxes and minority interest in income of subsidiary						9,296				7,421				26,533				24,039
Minority interest in income of subsidiary						815				799				2,411				2,169
Income before provision for income taxes						8,481				6,622				24,122				21,870
Provision for income taxes						3,326				2,583				9,443				8,399
	NET INCOME				$	5,155			$	4,039			$	14,679			$	13,471
	BASIC EARNINGS PER SHARE				$	0.86			$	0.64			$	2.45			$	2.06
	DILUTED EARNINGS PER SHARE				$	0.80			$	0.62			$	2.29			$	1.99

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 Nine Months Ended
						September 30,
						2002				2001
						(in thousands)
Cash Flows From Operating Activities:
	Net Income					$	14,679			$	13,471
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of premises and equipment					674				616
		Amortization of premium on purchased loans					1,532				2,373
		Amortization of original issue discount and deferred debt issuance costs on CMOs					136				234
		Accretion of deferred loan origination fees, net of costs					(868	)			(1,219	)
		Provision for loan losses					6,125				2,450
		Provision for losses on other real estate owned					796				237
		Gain on sale of real estate loans, net					(32	)			—
		Gain on the sale of other real estate owned					(75	)			(50	)
		Decrease in interest receivable					2,127				820
		(Increase) decrease in other assets					(912	)			977
		Decrease in accounts payable and other liabilities					(2,899	)			(1,143	)
			Net cash provided by operating activities				21,283				18,766
Cash Flows From Investing Activities:
		Proceeds from securitization and sale of real estate loans					98,155				448
		(Increase) decrease in real estate loans, net					(63,527	)			94,338
		Net cash paid to acquire Asahi Bank of California					(14,872	)			—
		Repayment of real estate loans held in trust					28,774				34,829
		Purchases of real estate loans					(30,084	)			(170,576	)
		Purchases of investment securities available for sale					(77,670	)			(16,000	)
		Proceeds from maturity of investment securities available for sale					55,000				59,260
		Increase in stock in Federal Home Loan Bank					(2,990	)			(6,066	)
		Proceeds from the sale of other real estate owned					2,720				1,889
		Other, net					(1,822	)			(472	)
			Net cash used in investing activities				(6,316	)			(2,350	)
Cash Flows From Financing Activities:
		Decrease in deposit accounts					(68,938	)			(83,540	)
		Net proceeds from borrowings from the Federal Home Loan Bank					59,800				125,635
		Repayment of Asahi repurchase agreement, net					(14,693	)			—
		Principal repayments on collateralized mortgage obligations					(30,384	)			(38,670	)
		Cash paid to acquire treasury stock					(2,343	)			(13,124	)
		Proceeds from exercise of employee stock options					184				74
		Proceeds from issuance of trust preferred securities					—				14,549
			Net cash (used in) provided by financing activities				(56,374	)			4,924
				Net (decrease) increase in cash and cash equivalents			(41,407	)			21,340
				Cash and cash equivalents at beginning of the period			134,241				70,950
				Cash and cash equivalents at end of period		$	92,834			$	92,290
Supplemental Cash Flow Information:
			Cash paid during the period for interest			$	28,473			$	51,155
			Cash paid during the period for income taxes			$	10,225			$	6,500
Noncash Investing Transactions:
			Loans transferred to other real estate owned			$	4,258			$	6,660

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

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

NOTE 2 — EARNINGS PER SHARE

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

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

		For the Three Months Ended September 30,												For the Nine Months Ended September 30,
						Weighted-				Per								Weighted-Average				Per
						Average Shares				Share								Shares				Share
		Net Income				Outstanding				Amount				Net Income				Outstanding				Amount
		(in thousands, except per share data)
2002
Basic EPS		$	5,155				5,966			$	0.86			$	14,679				5,984			$	2.45
Effect of dilutive stock options			—				469				(0.06	)			—				429				(0.16	)
Diluted EPS		$	5,155				6,435			$	0.80			$	14,679				6,413			$	2.29
2001
Basic EPS		$	4,039				6,277			$	0.64			$	13,471				6,542			$	2.06
Effect of dilutive stock options			—				231				(0.02	)			—				235				(0.07	)
Diluted EPS		$	4,039				6,508			$	0.62			$	13,471				6,777			$	1.99

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NOTE 3 — COMPREHENSIVE INCOME

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

NOTE 4 — IMPAIRED LOANS RECEIVABLE

     As of September 30, 2002 and December 31, 2001, the recorded investment in impaired real estate loans and impaired real estate loans held in trust was $9.3 million and $16.7 million, respectively. The average recorded investment in impaired loans was $7.8 million for the three months ended September 30, 2002 and $28.3 million for the same period last year. The average recorded investment in impaired loans was $10.8 million for the nine months ended September 30, 2002 and $26.3 million for the same period last year. Interest income recognized on impaired loans totaled $89,000 and $169,000 for the three and nine months ended September 30, 2002 as compared to $33,000 and $45,000 for the same periods last year.

NOTE 5 — GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY’S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

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

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

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NOTE 6 — RESIDUAL INTEREST IN SECURITIZATION

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

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

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

NOTE 7 — ACQUISITION OF ASAHI BANK OF CALIFORNIA

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

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NOTE 8 — SUBSEQUENT EVENTS

     On October 25, 2002, we announced the acquisition of operating assets and loan portfolio of The Lewis Horwitz Organization (“LHO”) from Imperial Credit Industries, Inc. and its wholly-owned subsidiary, Southern Pacific Bank, in an all cash transaction valued at approximately $100 million. LHO is an internationally recognized lender to the independent film and television production industry. The transaction was approved by the California Department of Financial Institutions. LHO will operate as a division of the Bank.

     On October 30, 2002, the Company formed a wholly-owned trust subsidiary, “Imperial Capital Statutory Trust III”, which issued $20.0 million of variable rate cumulative trust preferred securities, (referred to collectively as the “New Trust Preferred Securities”.) ITLA Capital has fully and unconditionally guaranteed the New Trust Preferred Securities along with all obligations of the trust under the trust agreement. The trust was formed for the exclusive purpose of issuing the New Trust Preferred securities and common securities and using the proceeds to acquire ITLA Capital’s junior subordinated deferrable interest debentures. The Imperial Capital Statutory Trust III acquired an aggregate principal amount of $20.6 million of ITLA Capital’s variable rate junior subordinated deferrable interest debentures due October 30, 2032. The initial rate for both the New Trust Preferred Securities and the debentures is 5.0%. The sole assets of the trust is the debenture it holds. The debentures are redeemable, in whole or in part, at ITLA Capital’s option on or after five years after issuance, at declining premiums to maturity. The Company used the proceeds from the debentures for general corporate purposes, including an aggregate of $19.4 million in capital contributions to the Bank to support future growth.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

RESULTS OF OPERATIONS

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

General

     Consolidated net income totaled $5.2 million for the three months ended September 30, 2002 compared to $4.0 million for the same period last year, an increase of 27.6%. The increase in net income was primarily due to an increase in net interest income, partially offset by an increase in the provision for loan losses and an increase in non-interest expense. Diluted EPS was $0.80 for the three months ended September 30, 2002 compared to $0.62 for the same period last year, an increase of 29.0%.

     The return on average assets was 1.49% for the three months ended September 30, 2002 compared to 1.18% for the same period last year. The return on average shareholders’ equity was 13.64% for the three months ended September 30, 2002, compared to 11.86% for the same period last year.

     Total loan production for the three months ended September 30, 2002, consisted of the origination and/or purchase of $144.7 million of commercial real estate loans. Loan production during the same period last year totaled $138.2 million, consisting of the origination and/or purchase of $101.7 million of commercial real estate loans, the purchase of $12.7 million of residential real estate loans and $23.8 million of franchise loans.

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Net Interest Income and Margin

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

					For the Three Months Ended September 30,
					2002												2001
					Average				Income/				Yield/				Average				Income/				Yield/
					Balance				Expense				Rate				Balance				Expense				Rate
					(dollars in thousands)
Assets
Cash and investments					$	69,738			$	902				5.13	%		$	63,667			$	656				4.09	%
Loans receivable:
	Real estate loans					1,147,784				24,020				8.30	%			1,108,442				25,445				9.11	%
	Real estate loans held in trust					138,906				2,458				7.02	%			182,988				3,532				7.66	%
Total loans receivable						1,286,690				26,478				8.16	%			1,291,430				28,977				8.90	%
Total interest-earning assets						1,356,428			$	27,380				8.01	%			1,355,097			$	29,633				8.68	%
Non-interest-earning assets						45,321												34,143
Allowance for loan losses						(30,156	)											(27,101	)
		Total assets			$	1,371,593											$	1,362,139
Liabilities and Shareholders’ Equity
Deposit accounts:
		Money market and passbook accounts			$	136,569			$	642				1.87	%		$	120,757			$	1,164				3.82	%
		Time certificates				754,340				6,173				3.25	%			797,794				11,086				5.51	%
			Total deposit accounts			890,909				6,815				3.03	%			918,551				12,250				5.29	%
Collateralized mortgage obligations						83,530				563				2.67	%			128,528				1,412				4.36	%
FHLB advances						211,101				1,422				2.66	%			135,881				1,561				4.56	%
Total interest-bearing liabilities						1,185,540			$	8,800				2.94	%			1,182,960			$	15,223				5.11	%
Non-interest-bearing liabilities						7,884												15,958
Trust preferred securities						28,174												28,081
Shareholders’ equity						149,995												135,140
		Total liabilities and shareholders’ equity			$	1,371,593											$	1,362,139
Net interest spread														5.07	%											3.57	%
Net interest income before provision for loan losses									$	18,580											$	14,410
Net interest margin														5.43	%											4.22	%