It has been a rough few months for ITLA Capital Corp. of La Jolla, Calif.
Even before the $3 billion-asset parent of Imperial Capital Bank reported weaker-than-expected fourth-quarter earnings, its stock had been in a tailspin because of concerns that its strong growth of recent years was slowing.
Meanwhile, its board is dealing with allegations of discrimination against female employees, a charge that has already resulted in one arbitration ruling against ITLA.
Analysts say that with competition for commercial real estate loans intensifying and the flat yield curve squeezing margins, they expect this year to be a challenging one for ITLA. Other observers say its recent public relations woes have probably contributed to the stock's sharp decline - 14% since Dec. 1 - and they advise the company to strengthen its corporate governance.
Preston Martin, the head of its audit committee and a former Federal Reserve Board vice chairman, said the board believes the recent allegations of misconduct are "nonmaterial."
Nevertheless, he said the board is planning to hire outside counsel to look into the allegations to determine if ITLA needs to review or change some of its policies.
"We feel it's important to retain outside counsel to have a general review of all of these allegations," said Mr. Martin, who is also the former chairman of the Federal Home Loan Bank Board, the predecessor to the Office of Thrift Supervision.
The discrimination allegations were made by a former ITLA vice president, Bobbi Koehler, who claimed in court filings that she was not promoted because she is a woman. In December an arbitrator ruled in her favor and awarded her $900,000.
In his decision, retired Judge Richard Neal, an arbitrator from the Irvine, Calif., firm Jams, said Ms. Koehler's case was not isolated.
"The respondents have promoted only a few women to their highest levels and have a paucity of women at those levels, despite the preponderance of women in their work force," he wrote in his ruling.
George W. Haligowksi, ITLA's chairman and chief executive, said in an interview last week that he strongly disagrees with the arbitrator's ruling, but that the company is not fighting it.
"I'm happy the procedure went speedily, and we've complied with it," he said.
Mr. Haligowski also said that he does not believe ITLA discriminates against women when making promotional decisions, and that this was the first such lawsuit the company has faced since it was founded in 1996. (The company's predecessor was Imperial Thrift and Loan, owned by Japanese investors. In 1995 the former owners sold their interest when the thrift went public. ITLA has since converted to a commercial banking company.)
He disputed any notion of a "glass ceiling" and said his company has hired several women to serve in senior positions since its inception.
Still, when pressed to give numbers, Mr. Haligowski would not say how many women and men have been promoted to positions higher than first vice president.
The law firm that represented Ms. Koehler said in a press release that other issues of misconduct came up in the arbitration hearing, including alleged incidents of sexual harassment in 2004 by several ITLA executives against a female employee. After an internal investigation, two of the executives were fired, and one was put on probation for 90 days - but he was promoted to deputy managing director while still on probation.
In his interview, Mr. Haligowksi said that he had miscalculated the end of the probationary period by five days, and that he had promoted the executive because there was a "big hole" that needed to be filled. Two months later, after additional complaints of sexual harassment, Mr. Haligowski fired him.
Ms. Koehler's attorneys also claimed that Mr. Haligowski had misrepresented his educational credentials on the company's Web site, and that his biography leads readers to believe that he earned degrees at University of Pennsylvania's Wharton School and at Harvard Business School.
Mr. Haligowski does not have undergraduate or graduate degrees, but he completed executive programs at the schools, and he said his biography does not inflate his credentials.
"Since I don't have degrees, I wanted to better myself, and these are very reputable programs," he said.
The Web site says that Mr. Haligowski became an "alumnus" of Harvard when he completed a management program there.
Walter G. Moeling 4th, a lawyer with Powell Goldstein LLP in Atlanta, said that the executive programs Mr. Haligowski completed are highly regarded, but that calling him an alumnus of Harvard overstates his credentials and does not reflect well on the company.
Mr. Moeling also said the allegations of misconduct may have shaken investors' confidence in ITLA. Though he praised the board for seeking an independent review, he said that it should have done this when the various complaints first arose.
"A good board would hire outside counsel immediately to protect the bank, to make sure something's not wrong with the system," he said.
Lackluster earnings have also kept the stock price from recovering. In February, ITLA reported that its 2005 earnings fell nearly 22% from a year earlier, to about $24 million.
James Abbott, an analyst at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va., said the company is particularly sensitive to rising interest rates. Its core business is making variable-rate loans to owners of older strip malls and other commercial real estate, but as interest rates have risen, many borrowers have sought fixed-rate loans, and originations dropped steeply in the fourth quarter. As a result, he said, the company has had to buy more loans from other banks, and the premiums cut into profits.
ITLA's fourth-quarter net interest margin dropped 80 basis points from a year earlier, to 3.29%, according to Federal Deposit Insurance Corp. statistics, and its return on equity and assets also fell substantially.
The outlook for this year is not much brighter, Mr. Abbott said. He expects loan originations to rise once interest rates stabilize, but he predicts that a recovery could be a few quarters away.
"They have this really great niche business," he said. "What they really need is a little bit of shape in the yield curve."
