ITLA Capital Corp. in San Diego, boasting record earnings in the real estate lending business, says it hopes to repeat this success in franchise lending.

The $1.3 billion-asset holding company for Imperial Capital Bank has agreed to buy franchise loans originated by Atherton Capital Inc., a San Francisco commercial finance company. In the fourth quarter, the bank said, it will begin buying loans made to owners of franchised fast-food restaurants such as Wendy's and Burger King, as well as mini-market gas stations.

"Franchise loans have a natural synergy with our commercial real estate business," said Timothy Doyle, ITLA's chief financial officer. "For example, we make loans to owners of strip malls, so it's a natural extension to make loans to a franchise owner of a Burger King or a Wendy's because they are often tenants in our borrowers' properties. We thought it was important to diversify our business because we had such a product concentration in real estate."

Imperial Capital is not certain how many franchise loans it will buy periodically from Atherton, Mr. Doyle said, but the bank plans to slowly build the business and retain the loans on its books.

The bank hopes the new line of business will be as successful as the lending operations that have helped it log record earnings for 16 straight quarters. Net income was $4.6 million in the three months ended June 30, up 14.2% from $4 million the year earlier.

Such earnings consistency is in stark contrast to the company's performance in the early 1990s, when the bank was on the verge of failing. In 1992, net income was $2.4 million, and regulators were poised to close the bank because about one-quarter of its $400 million of assets was at risk of default. The institution then was known as Imperial Thrift and Loan and was owned by Japanese investors.

"But then the current chairman, George Haligowski, was retained to clean up the problems, and he has really turned the bank around into a stellar financial operation," Mr. Doyle said.

As chief executive officer, Mr. Haligowski immediately closed six branches and turned the thrift's focus from $1,000 credit card loans and $15,000 car loans to real estate investor loans that average $2 million. In 1995 the company went public, with the Japanese owners selling their interest for $40.1 million. Mr. Haligowski emerged as chairman and as a significant stakeholder in the newly capitalized thrift. The seven-branch company has since moved its headquarters from Glendale, Calif., to San Diego.

Mark Davis, an analyst at Banc Stock Group in Columbus, Ohio, said that ITLA Capital is one of his favorite stocks.

"This is an extremely well-capitalized institution, with a common equity to asset ratio of 9.9%," Mr. Davis said. "They should continue to do well with the franchise line of business because it's very high-yielding, even though it is very risky."

In fact, $6.4 billion-asset Bay View Capital Corp. of San Mateo, Calif., reported a drastic drop in net income, from $7.1 million to $500,000, for its first quarter this year because it was unable to sell its high-risk franchise loans in the secondary market. However, Imperial Capital - with its chairman's history of prudence - is not expected to have such problems. "Mr. Haligowski is famous for his due diligence," Mr. Davis said. "I would expect these loans to be of really high quality and very accretive to earnings."


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