ITLA Itla Capital

ITLA Capital Corporation Reports Ninth Consecutive Year of Record Earnings for the Year Ended December 31, 2004 LA JOLLA, Calif., Feb. 8 /PRNewswire-FirstCall/ -- ITLA Capital Corporation (NASDAQ:ITLA) today reported net income for the year ended December 31, 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 $30.6 million or $4.75 per diluted share compared to $29.6 million or $4.55 per diluted share for the prior year. President and Chief Executive Officer George W. Haligowski stated that "We are proud to announce our ninth consecutive year of record earnings. Our balance sheet has grown to $2.3 billion, and is primarily a reflection of our increasing loan production, including improving loan production resulting from our national expansion strategy. I expect the contribution and progress achieved from our expansion to continue to improve next year." Net interest income before provision for loan losses decreased 1.9 percent to $83.5 million for the year ended December 31, 2004, compared to $85.1 million for the same period last year. The decrease was primarily caused by the effect of interest expense from our 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. The adoption of FIN 46 required that, beginning on January 1, 2004, we record the expense incurred on our junior subordinated debentures related to the trust preferred securities as interest expense 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 were recorded as minority interest in income of subsidiary during the same period last year. Excluding the effect of the adoption of FIN 46, net interest income before provision for loan losses increased by $4.6 million or 5.4 percent as compared to the same period last year. The increase in net interest income earned, excluding the effect of the trust preferred securities, was primarily a result of an increase in the average balance of loans outstanding, reflecting an increase in loan production and a decline in loan prepayment speeds experienced during the period, an increase in the average balance of investments held-to-maturity, partially offset by a general decline in our net interest spread and an increase in the average balance of interest bearing liabilities. The decline in net interest spread resulted from deposits repricing to higher current market interest rates, the addition of new borrowings at higher current market interest rates, and a decline in the yield of our loan portfolio as higher yielding loans were repaid and replaced by new loan production at lower current market interest rates. Non-interest income was $14.5 million for the year ended December 31, 2004, compared to $15.2 million for the same period last year. Non-interest income primarily consists of 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). During 2004, the Bank earned $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 $9.0 million of net premiums on the sale of RAL loans and $4.6 million of processing and administrative fees, respectively. During 2004, Household and its affiliates terminated their RAL and private label credit card programs with the Bank. The provision for loan losses was $4.7 million for the year ended December 31, 2004, compared to $7.8 million for the same period last year. These provisions for loan losses were recorded to provide reserves adequate to support known and inherent losses in our loan portfolio and for specific reserves as of December 31, 2004 and 2003, respectively. General and administrative expenses increased to $42.0 million for the current year, compared to $36.7 million for the same period last year. The increase was attributable to the development and continued national expansion of the small balance multi-family real estate lending platform. During the current year, we opened twenty loan production offices, and to date, there are thirty-one loan production offices open on the west coast, the eastern seaboard and the southwestern regions of the United States. Our efficiency ratio (defined as recurring general and administrative expenses as percentage of net revenue) was 42.9 percent for the year ended December 31, 2004, compared to 36.6 percent for the prior year. Loan production was $1.02 billion for the year ended December 31, 2004, compared to $794.8 million for the year ended December 31, 2003. During the current year, the Bank originated and/or purchased $634.8 million of commercial real estate loans, $238.0 million of small balance multi-family real estate loans, $92.2 million of film finance loans and $52.1 million of franchise loans. Loan originations for the previous year consisted of originations and/or purchases of $496.1 million of commercial real estate loans, $150.6 million of small balance multi-family real estate loans, $90.5 million of film finance loans and $57.6 million of franchise loans. Haligowski commented that: "This year's loan production represents the highest volume of production in the Company's 30 year history and marks the first time that our production has exceeded $1 billion. Small balance multi-family loan production has increased approximately 60% from last year as we continue to expand our footprint across the nation." Net income for the quarter ended December 31, 2004 was $5.7 million or $0.93 per diluted share, compared to $5.7 million or $0.87 per diluted share for the same period last year. Net interest income before provision for loan losses was $21.1 million in the quarter ended December 31, 2004, compared to $20.0 million for the same period in 2003. The increase in net interest income earned was due to an increase in average balance of loans and investments held-to-maturity maintained as compared to the same period last year, partially offset by a decline in the net interest spread earned during the current period, an increase in the average balance of interest bearing liabilities, and the effect of interest expense from our trust preferred securities as a result of the adoption of FIN 46 at December 31, 2003. The increase in the average balance of loans outstanding reflects an increase in loan production and a decline in loan prepayment speeds experienced during the period. The decline in net interest spread was caused by a general increase in the average cost of funds, as deposits repriced and other borrowing were entered into at higher current market interest rates, and a decline in the yield of the loan portfolio as higher yielding loans were repaid and replaced by new loan production at lower current market interest rates. As previously discussed, the adoption of FIN 46 required that, beginning on January 1, 2004, we record the expense incurred on our junior subordinated debentures related to the trust preferred securities as interest expense in the consolidated statements of income. Loan production for the three months ended December 31, 2004 was $372.4 million, compared to $269.5 million for the same period in the prior year. The current period loan production consisted of originations and/or purchases of $259.1 million of commercial real estate loans, $84.3 million of small balance multi-family loans, $22.9 million of film finance loans and $6.1 million of franchise loans. Loan production for the same period last year was $269.5 million, which consisted of $154.9 million of commercial real estate loans, $52.3 million of small balance multi-family loans, $38.6 million of film finance loans and $23.7 million of franchise loans. The provision for loan losses was $1.3 million during the current quarter as compared to $660,000 for the same period last year. The provisions for loan losses were recorded to provide for reserves adequate to support the known and inherent risks of loss in our loan portfolio and for specific reserves as of December 31, 2004 and 2003, respectively. General and administrative expenses increased to $10.3 million in the current quarter, compared to $8.7 million for the same period last year. The increase was primarily attributable to the continued national expansion of our small balance multi-family real estate lending platform. Our efficiency ratio (defined as recurring general and administrative expenses as a percentage of net revenue) was 48.4 percent in the fourth quarter of 2004 as compared to 42.1 percent for the same period last year. Total assets increased $500.0 million to $2.3 billion at December 31, 2004, compared to $1.8 billion at December 31, 2003. The increase in total assets was due primarily to a $288.4 million increase in our loan portfolio, and a $296.0 million increase in investments held-to-maturity, partially offset by a $90.7 million decrease in cash and cash equivalents. The increase in the loan portfolio was primarily due to the increased loan production and a decline in prepayment speeds experienced during the current period. Haligowski commented that: "Our growth in total assets achieved during the year of $500 million is equal to the total assets of the Company when we went public in October 1995. We have virtually created that $500 million bank during the year through our organic asset origination capability." At December 31, 2004, nonperforming assets totaled $14.7 million or 0.63 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 December 31, 2004, was 242.2 percent as compared to 392.3 percent at December 31, 2003. The allowance for loan losses as a percentage of our total loans was 1.9 percent at December 31, 2004, as compared to 2.2 percent at December 31, 2003. During the year ended December 31, 2004, we had net charge-offs of $2.6 million, compared to $7.4 million during the same period last year. At December 31, 2004, shareholders' equity totaled $194.7 million or 8.4 percent of total assets. During 2004, we continued our stock repurchase program with the recent announcements of the eighth and ninth extensions of the stock repurchase program on August 12, 2004 and September 30, 2004, respectively. For the year ended December 31, 2004, we repurchased 678,601 shares at an average price of $44.72 per share. Since beginning share repurchases in April 1997, a total of 2,869,502 shares were repurchased returning approximately $67.2 million of capital to our shareholders at an average price of $23.43 per share. Through our stock repurchase program, approximately 97.0 percent of our contributed capital has been returned to shareholders. The Company's book value per share of common stock was $35.09 as of December 31, 2004, an increase of 12.1 percent from $31.30 per share as of December 31, 2003. The Bank had Tier 1 leverage, Tier 1 risk based and total risk-based capital ratios at December 31, 2004 of 11.02 percent, 12.21 percent and 13.47 percent, respectively, which represents $141.5 million, $149.4 million and $99.5 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 leverage, Tier 1 risk based and total risk-based capital ratios at December 31, 2004 of 12.30 percent, 13.07 percent, and 16.00 percent, respectively, which represents $172.3 million, $180.6 million and $149.5 million, respectively, of capital in excess of the amount required to be "well capitalized." Haligowski concluded: "I am proud of our 2004 financial performance. Our stock ended the year reaching a 52-week high, closing at $58.79, an increase of over 17% from the closing price of $50.10 at December 31, 2003. We've achieved record earnings and loan production during the year and our balance sheet has grown by over 25%, while returning approximately $30 million of capital to shareholders' during the year through our common stock repurchase program." "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, increased costs from pursuing the national expansion of our small balance multi-family 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 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 2005 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 thirty-one lending offices located in California, Nevada, Arizona, Texas, the Southeast, the Mid Atlantic states, the Metro New York area, and New England. For further information, please contact Timothy M. Doyle, Senior Managing Director and Chief Financial Officer of ITLA Capital Corporation, +1-858-551-0511. ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2004 December 31, (unaudited) 2003 (in thousands except share amounts) Assets Cash and cash equivalents $87,580 $178,318 Investment securities available for sale, at fair value 66,845 53,093 Investment securities held to maturity, at amortized cost 296,028 -- Stock in Federal Home Loan Bank 23,200 17,966 Loans, net (net of allowance for loan losses of $35,483 and $33,401 in 2004 and 2003, respectively) 1,793,815 1,505,424 Interest receivable 10,695 8,958 Other real estate owned, net -- 7,048 Premises and equipment, net 6,645 5,766 Deferred income taxes 10,468 11,609 Goodwill 3,118 3,118 Other assets 19,677 26,915 Total assets $2,318,071 $1,818,215 Liabilities and Shareholders' Equity Liabilities: Deposit accounts $1,432,032 $1,147,017 Federal Home Loan Bank advances and other borrowings 584,224 362,135 Collateralized mortgage obligations -- 15,868 Accounts payable and other liabilities 20,491 19,696 Junior subordinated debentures 86,600 86,600 Total liabilities 2,123,347 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, 8,703,894 and 8,447,294 issued in 2004 and 2003, respectively 69,327 61,704 Retained earnings 196,032 165,407 Accumulated other comprehensive income, net 78 155 265,437 227,266 Less treasury stock, at cost - 3,154,290 and 2,475,689 shares in 2004 and 2003, respectively (70,713) (40,367) Total shareholders' equity 194,724 186,899 Total liabilities and shareholders' equity $2,318,071 $1,818,215 ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended For the Year Ended December 31, December 31, (in thousands except per share amounts) 2004 2003 2004 2003 Interest income: Loans, including fees $30,277 $26,665 $115,663 $110,578 Cash and investment securities 3,728 802 9,291 5,399 Total interest income 34,005 27,467 124,954 115,977 Interest expense: Deposit accounts 8,285 5,935 27,916 24,616 Federal Home Loan Bank advances and other borrowings 3,024 1,320 7,272 5,175 Collateralized mortgage obligations -- 191 71 1,076 Junior subordinated debentures 1,600 -- 6,159 -- Total interest expense 12,909 7,446 41,418 30,867 Net interest income before provision for loan losses 21,096 20,021 83,536 85,110 Provision for loan losses 1,275 660 4,725 7,760 Net interest income after provision for loan losses 19,821 19,361 78,811 77,350 Non-interest income: Premium on sale of loans, net -- -- 9,284 8,983 Late and collection fees 79 60 338 252 Other 155 626 4,886 6,005 Total non-interest income 234 686 14,508 15,240 Non-interest expense: Compensation and benefits 4,904 4,135 21,444 18,870 Occupancy and equipment 1,603 1,337 5,924 4,839 Other 3,806 3,251 14,666 13,006 Total general and administrative 10,313 8,723 42,034 36,715 Real estate owned expense, net 14 9 127 382 Provision for losses on other real estate owned -- 500 1,000 870 (Gain) loss on sale of other real estate owned, net -- (100) (415) (40) Total real estate owned expense, net 14 409 712 1,212 Total non-interest expense 10,327 9,132 42,746 37,927 Income before provision for income taxes and minority interest in income of subsidiary 9,728 10,915 50,573 54,663 Minority interest in income of subsidiary -- 1,577 -- 6,083 Income before provision for income taxes 9,728 9,338 50,573 48,580 Provision for income taxes 4,015 3,622 19,948 18,946 NET INCOME $5,713 $5,716 $30,625 $29,634 BASIC EARNINGS PER SHARE $0.98 $0.94 $5.04 $4.91 DILUTED EARNINGS PER SHARE $0.93 $0.87 $4.75 $4.55 DATASOURCE: ITLA Capital Corporation CONTACT: Timothy M. Doyle, Senior Managing Director and Chief Financial Officer of ITLA Capital Corporation, +1-858-551-0511

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