-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M5NjXQXdc1lcKvtZDwpYgm+FBb6VLyUis7mEJVkXumSCFliexesGlPWu1kJq5MwV DlI3SBTcRz6zpP+oUeuiSQ== /in/edgar/work/20000814/0000950148-00-001765/0000950148-00-001765.txt : 20000921 0000950148-00-001765.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950148-00-001765 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITLA CAPITAL CORP CENTRAL INDEX KEY: 0001000234 STANDARD INDUSTRIAL CLASSIFICATION: [6036 ] IRS NUMBER: 954596322 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26960 FILM NUMBER: 698004 BUSINESS ADDRESS: STREET 1: 888 PROSPECT STREET STREET 2: SUITE 110 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 8585510511 MAIL ADDRESS: STREET 1: 700 N CENTRAL AVE STREET 2: STE 600 CITY: GLENDALE STATE: CA ZIP: 91203 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL THRIFT & LOAN ASSOCIATION DATE OF NAME CHANGE: 19950907 10-Q 1 e10-q.txt FORM 10-Q 1 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 June 30, 2000 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 (Exact Name of Registrant as Specified in its Charter) Delaware 95-4596322 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 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 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 No ___ Number of shares of common stock of the registrant: 6,903,580 outstanding as of August 7, 2000. 1 2 ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 DECEMBER 31, (UNAUDITED) 1999 ----------- ------------ (IN THOUSANDS EXCEPT SHARE AMOUNTS) ASSETS Cash and cash equivalents $ 43,814 $ 72,242 Investment securities available for sale, at approximate fair value 48,062 59,247 Stock in Federal Home Loan Bank 3,233 8,894 Real estate loans, net (net of allowance for credit losses of $20,901 and $19,895 in 2000 and 1999, respectively) 929,293 951,480 Real estate loans held in trust for collateralized mortgage obligations (net of allowance for credit losses of $4,614 in 2000) 244,489 -- Interest receivable 9,462 7,383 Other real estate owned, net 1,160 1,041 Premises and equipment, net 2,788 3,253 Deferred income taxes 9,105 9,401 Other assets 10,924 2,882 ----------- ----------- Total assets $ 1,302,330 $ 1,115,823 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposit accounts $ 924,586 $ 913,613 Collateralized mortgage obligations 195,051 -- Federal Home Loan Bank advances 39,250 67,250 Accounts payable and other liabilities 14,496 11,265 ----------- ----------- Total liabilities 1,173,383 992,128 ----------- ----------- 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, 8,205,916 and 8,202,916 issued and outstanding in 2000 and 1999, respectively 57,114 57,184 Retained earnings 88,315 79,478 Accumulated other comprehensive (loss) income (129) 706 ----------- ----------- 145,300 137,368 Less treasury stock, at cost - 1,215,836 and 1,021,432 shares in 2000 and 1999, respectively (16,353) (13,673) ----------- ----------- Total shareholders' equity 128,947 123,695 ----------- ----------- Total liabilities and shareholders' equity $ 1,302,330 $ 1,115,823 =========== ===========
See accompanying notes to the unaudited consolidated financial statements. 2 3 ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Interest income: Real estate loans, including fees $ 24,778 $ 23,364 $ 49,379 $ 46,162 Real estate loans held in trust for collateralized mortgage obligations 5,672 -- 5,918 -- Cash and investment securities 1,093 1,495 2,765 2,832 -------- -------- -------- -------- Total interest income 31,543 24,859 58,062 48,994 -------- -------- -------- -------- Interest expense: Deposit accounts 13,389 10,998 26,390 21,950 Collateralized mortgage obligations 3,830 -- 3,981 -- Federal Home Loan Bank advances 444 590 894 1,103 -------- -------- -------- -------- Total interest expense 17,663 11,588 31,265 23,053 -------- -------- -------- -------- Net interest income before provision for estimated credit losses 13,880 13,271 26,797 25,941 Provision for estimated credit losses 1,200 1,200 1,800 2,400 -------- -------- -------- -------- Net interest income after provision for estimated credit losses 12,680 12,071 24,997 23,541 -------- -------- -------- -------- Noninterest income: Gain on sale of investment securities available for sale -- -- 1,412 -- Fee income from mortgage banking activities 33 46 33 78 Other 111 264 273 510 -------- -------- -------- -------- Total noninterest income 144 310 1,718 588 -------- -------- -------- -------- Noninterest expense: Compensation and benefits 2,439 2,663 4,879 5,369 Occupancy and equipment 696 703 1,395 1,428 FDIC assessment 47 29 95 73 Other 1,919 2,030 3,997 3,657 -------- -------- -------- -------- Total recurring general and administrative 5,101 5,425 10,366 10,527 Nonrecurring expense -- -- 1,400 -- -------- -------- -------- -------- Total general and administrative 5,101 5,425 11,766 10,527 -------- -------- -------- -------- Real estate operations, net 6 7 (48) 9 Provision for estimated losses on other real estate owned -- 140 144 155 (Gain) loss on sale of other real estate owned, net (60) -- 9 (9) -------- -------- -------- -------- Total real estate operations, net (54) 147 105 155 -------- -------- -------- -------- Total noninterest expense 5,047 5,572 11,871 10,682 -------- -------- -------- -------- Income before provision for income taxes 7,777 6,809 14,844 13,447 Provision for income taxes 3,184 2,788 6,007 5,512 -------- -------- -------- -------- NET INCOME $ 4,593 $ 4,021 $ 8,837 $ 7,935 ======== ======== ======== ======== BASIC EARNINGS PER SHARE $ 0.64 $ 0.56 $ 1.23 $ 1.11 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE $ 0.63 $ 0.54 $ 1.21 $ 1.08 ======== ======== ======== ========
See accompanying notes to the unaudited consolidated financial statements 3 4 ITLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------- 2000 1999 --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,837 $ 7,935 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 415 564 Amortization of premium on purchased loans 949 -- Accretion of net deferred loan origination fees (780) (1,730) Amortization of original issue discount and deferred debt issuance costs on CMO's 392 -- Provision for estimated credit losses 1,800 2,400 Provision for estimated losses on other real estate owned 144 155 Gain on the sale of investment securities available for sale (1,412) -- Loss (gain) on the sale of other real estate owned 9 (9) Increase in interest receivable (107) (188) Increase in other assets (7,522) (2,342) Increase (decrease) in accounts payable and other liabilities 4,049 (2,157) --------- --------- Net cash provided by operating activities 6,774 4,628 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities available for sale (15,000) (45,157) Proceeds from the maturity of investment securities available for sale 10,000 194 Proceeds from the sale of investment securities available for sale 16,176 -- Decrease in stock in Federal Home Loan Bank 5,661 6,951 Cash paid to acquire ICCMAC Multifamily and Commercial Trust 1999-1 (51,069) -- Purchases of real estate loans (53,539) (39,026) Decrease (increase) in real estate loans, net 60,075 (29,722) Decrease in loans held in trust for Collateralized Mortgage Obligations 9,559 -- Proceeds from sale of real estate loans held for sale 12,720 283 Proceeds from the sale of other real estate owned 1,018 -- Other, net (498) (176) --------- --------- Net cash used in investing activities (4,897) (106,653) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issued through exercise of employee stock options 30 120 Cash paid to acquire treasury stock (2,780) (29) Net increase in deposit accounts 10,973 33,718 Principal repayments on Collateralized Mortgage Obligations (10,528) -- Amounts borrowed from the Federal Home Loan Bank 63,000 20,500 Repayment of amounts borrowed from the Federal Home Loan Bank (91,000) (23,750) --------- --------- Net cash used in financing activities (30,305) 30,559 --------- --------- Net decrease in cash and cash equivalents (28,428) (71,466) Cash and cash equivalents at beginning of the period 72,242 125,602 --------- --------- Cash and cash equivalents at end of period $ 43,814 $ 54,136 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for interest $ 31,746 $ 21,728 Cash paid during the period for income taxes $ 7,850 $ 7,650 NONCASH INVESTING TRANSACTIONS: Loans transferred to other real estate owned $ 1,290 $ 4,732
See accompanying notes to the unaudited consolidated financial statements. 4 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 ("ITLA Capital") included herein reflect all normal recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim period indicated. The unaudited consolidated financial statements include the accounts of ITLA Capital and its wholly-owned subsidiaries, Imperial Capital Bank (the "Bank"), ITLA Commercial Securitization Corporation ("ITLA CSC"), ICCMAC Multifamily and Commercial Trust 1999-1 (the "Trust"), ITLA Commercial Investment Corporation, and ITLA Funding Corporation. 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 six months ended June 30, 2000 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 ITLA Capital's annual report on Form 10-K for the year ended December 31, 1999. 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 earnings of ITLA Capital. The following is a reconciliation of the calculation of Basic and Diluted EPS.
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------- ------------------------------------------- WEIGHTED- WEIGHTED- AVERAGE PER AVERAGE PER NET SHARES SHARE NET SHARES SHARE INCOME OUTSTANDING AMOUNT INCOME OUTSTANDING AMOUNT --------- ----------- --------- --------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 Basic EPS $ 4,593 7,190 $ 0.64 $ 8,837 7,206 $ 1.23 Effect of Dilutive Stock Options -- 114 (0.01) -- 112 (0.02) --------- --------- --------- --------- --------- --------- Diluted EPS $ 4,593 7,304 $ 0.63 $ 8,837 7,318 $ 1.21 ========= ========= ========= ========= ========= ========= 1999 Basic EPS $ 4,021 7,167 $ 0.56 $ 7,935 7,167 $ 1.11 Effect of Dilutive Stock Options -- 213 (0.02) -- 212 (0.03) --------- --------- --------- --------- --------- --------- Diluted EPS $ 4,021 7,380 $ 0.54 $ 7,935 7,379 $ 1.08 ========= ========= ========= ========= ========= =========
5 6 ITLA CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2000 1999 2000 1999 ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Net income $ 4,593 $ 4,021 $ 8,837 $ 7,935 Other comprehensive income- Unrealized gain (loss) on investment securities available for sale, net of tax expense of $28,000 and $277,000 for the three months ended June 30, 2000 and 1999, and net of tax (benefit) expense of ($1,000) and $237,000 for the six months ended June 30, 2000, respectively 70 399 (1) 341 Less reclassification adjustment for gains included in net income, net of tax benefit of $578 in 2000 -- -- (834) -- ------- ------- ------- ------- Comprehensive income $ 4,663 $ 4,420 $ 8,002 $ 8,276 ======= ======= ======= =======
NOTE 4 - IMPAIRED LOANS RECEIVABLE As of June 30, 2000 and December 31, 1999, the recorded investment in loans receivable that were considered impaired as defined by Statement of Financial Accounting Standards No. 114 was $10.5 million and $20.3 million, respectively. The average recorded investment in impaired loans was $13.3 million and $16.0 million, respectively, for the three and six month periods ended June 30, 2000 and $8.7 million for the year ended December 31, 1999. Interest income recognized on impaired loans totaled $0.3 million for the six month period ended June 30, 2000. There was no interest income recognized on impaired loans during the three months ended June 30, 2000 or the corresponding periods in the prior year. During the quarter ended June 30, 2000, ITLA Capital sold one impaired loan, with an outstanding principal balance of $13.2 million and a net book value of $12.7 million at no gain or loss. 6 7 ITLA CAPITAL CORPORATION AND SUBSIDIARIES 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 of ITLA Capital as of and for the three and six month periods ended June 30, 2000. "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 ITLA Capital's market areas, changes in policies by regulatory agencies, the impact of competitive loan products, loan demand risks, fluctuations in interest rates and operating results and other risks detailed from time to time in ITLA Capital's filings with the Securities and Exchange Commission. ITLA Capital cautions readers not to place undue reliance on forward-looking statements. ITLA Capital 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 ITLA Capital's actual results for 2000 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, ITLA Capital. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 NET INCOME Net income totaled $4.6 million for the three months ended June 30, 2000 compared to $4.0 million for the corresponding period in 1999, an increase of 14.2 percent. The increase in net income was primarily due to an increase in net interest income and a decrease in noninterest expense. Diluted EPS was $0.63 for the three months ended June 30, 2000 compared to $0.54 for the corresponding period in 1999, an increase of 16.7 percent. NET INTEREST INCOME 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 (volume) and changes in average interest rates (rate). The change in interest due to both volume and rate have been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of each. 7 8
FOR THE THREE MONTHS ENDED JUNE 30, 2000 VS. 1999 ----------------------------------------- INCREASE (DECREASE) DUE TO: --------------------------- ------- VOLUME RATE TOTAL ----------- ---------- ------- (IN THOUSANDS) Interest and fees earned from: Real estate loans $ 896 $ 518 $ 1,414 Real estate loans held in trust for collateralized mortgage obligations 5,672 -- 5,672 Cash and investment securities (547) 145 (402) ------- ------- ------- Total increase in interest income 6,021 663 6,684 ------- ------- ------- Interest paid for: Deposit accounts 792 1,599 2,391 Collateralized mortgage obligations 3,830 -- 3,830 FHLB advances (165) 19 (146) ------- ------- ------- Total increase in interest expense 4,457 1,618 6,075 ------- ------- ------- Increase (decrease) in net interest income $ 1,564 $ (955) $ 609 ======= ======= =======
Total interest income increased by $6.7 million in the second quarter of 2000 compared to the corresponding period in 1999 due primarily to the addition of real estate loans as a result of the Trust acquisition in the first quarter of 2000, and to a lesser extent, due to increases in the yields earned on real estate loans and cash and investment securities. These increases were partially offset by a decline in the average balance of cash and investment securities. The average balance of loans held in the Trust was $255.3 million during the three months ended June 30, 2000. The average balance of real estate loans increased to $947.2 million in the second quarter of 2000 from $911.2 million in the corresponding period of the prior year, an increase of $36.0 million, or 3.9 percent. This increase was due to purchases of single family residential mortgages, partially offset by a decrease in loans secured by income producing properties. Purchased single family residential loans had an average balance of $107.8 million during the quarter ended June 30, 2000, compared to $13.4 million in the same period in the prior year, while loans secured by income producing real estate properties had an average balance of $839.4 million during the current year compared to $897.9 million in the same period in the prior year. The average yield earned on real estate loans increased to 10.52 percent in the current quarterly period from 10.28 percent in the same period in the prior year, due to repricing of variable rate loans at higher interest rates due to the general market increases in the LIBOR and Prime rates that the loans are indexed to. The increase in loan yields due to repricing was partially offset by the increased balance of single family residential mortgages, which generally have lower effective yields than the Company's commercial real estate loans. The yield on cash and investment securities increased to 6.59 percent for the quarter ended June 30, 2000 compared to 6.00 percent in the corresponding period of the prior year. The increase in yield on cash and investment securities was due to the general increase in market interest rates. The average balance of cash and investment securities decreased to $66.7 million in the 2000 second quarter from $99.9 million in the corresponding period in the prior year, as the Company reduced its excess liquidity due to lower loan production. Total interest expense increased by $6.1 million in the first quarter of 2000 compared to the corresponding period in 1999 due primarily to the collateralized mortgage obligations 8 9 ("CMO"s) issued by the Trust and an increase in the average balance of deposit accounts, and to a lesser extent, an increase in the cost of funds, partially offset by a decline in the average balance of FHLB advances. The CMOs had an average balance of $201.8 million during the second quarter of 2000. The average balance of deposit accounts increased $53.6 million to $897.1 million for the three months ended June 30, 2000 compared to $843.5 million in the corresponding period of the prior year. The increase in deposits was used to fund the growth in the loan portfolio and the acquisition of certain CMO's of the Trust. The cost of funds increased to 6.28 percent for the 2000 second quarter from 5.24 percent during the corresponding period in 1999. This increase in funding costs was due primarily to the general increase in market interest rates, and to a lesser extent, due to the addition of the CMOs, which have a weighted average interest rate higher than the weighted average interest rate on the Bank's deposits. FHLB advances averaged $31.9 million in the current period, compared to $43.7 million in the prior year, a decline of $11.8 million, or 27.0 percent. FHLB advances are used primarily for short-term borrowings, and the decline in FHLB advances was consistent with the decline in liquidity. PROVISION FOR ESTIMATED CREDIT LOSSES Management periodically assesses the adequacy of the allowance for credit losses by reference to many factors which may be weighted differently at various times depending on prevailing conditions. These factors include, among other elements, general portfolio trends relative to asset and portfolio size, asset categories, credit and geographic concentrations, nonaccrual loan levels, historical loss experience and risks associated with changes in economic, social and business conditions. Accordingly, the calculation of the adequacy of the allowance for credit losses is not based solely on the level of nonperforming assets. Management believes that the allowance for credit losses as of June 30, 2000 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 ITLA Capital's financial condition and results of operations. In addition, the determination of the amount of the allowance for credit losses is subject to review by the Bank's 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. The provision for estimated credit losses totaled $1.2 million in the second quarter of 2000, the same as in the prior year. The provision for estimated credit losses was recorded to provide for reserves due to increases in purchased residential loans and commercial real estate loan originations. The allowance for estimated credit losses was 2.20 percent of total real estate loans at June 30, 2000 as compared to 2.05 percent at December 31, 1999. Nonperforming assets as a percentage of total assets increased slightly to 0.84 percent as of June 30, 2000, compared to 0.81 percent at December 31, 1999. The aggregate amount of nonperforming assets totaled $10.9 million as of June 30, 2000 ($9.3 million of loans held by the Bank and $1.6 million of loans held by the Trust) as compared to $9.0 million at December 31, 1999. See also "Financial Condition - Nonperforming Assets and Allowance for Credit Losses." 9 10 NONINTEREST INCOME Noninterest income totaled $0.1 million for the three months ended June 30, 2000 compared to $0.3 million for the corresponding period in the prior year. The decline in noninterest income was due primarily to a decline in loan processing fees. NONINTEREST EXPENSE Noninterest expense totaled $5.0 million for the three months ended June 30, 2000, compared to $5.6 million for the corresponding period in the prior year. The decline in noninterest expense was due primarily to decreases in compensation and benefits, which totaled $2.4 million in the quarter ending June 30, 2000 compared to $2.7 million in the corresponding period of the prior year and in real estate operations, net, which resulted in $54,000 of income in the current quarter, compared to $147,000 of expense in the second quarter of the prior year. Compensation and benefits expense decreased due to a reduction in staffing, as average full time equivalent associates decreased to 112 during the quarter ended June 30, 2000 compared to 132 during the corresponding period in the prior year. The decrease in headcount was due to the reduction of approximately 15 percent of the workforce during the third quarter of 1999 as a result of a decrease in loan production and general cost savings initiatives. Real estate operations, net decreased primarily due to the gain realized on sale of a foreclosed property during the second quarter of this year. For the three months ended June 30, 2000, ITLA Capital's ratio of consolidated general and administrative expense to average assets, on an annualized basis, decreased to 1.60 percent compared from 2.15 percent in the 1999 second quarter. ITLA Capital's efficiency ratio (excluding real estate operations) was 36.4 percent for the quarter ended June 30, 2000 compared to 40.0 percent during the corresponding period in the prior year. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 NET INCOME Net income totaled $8.8 million for the six months ended June 30, 2000 compared to $7.9 million for the corresponding period in 1999, an increase of 11.4 percent. The increase in net income was due primarily to an increase in net interest income and a decrease in the provision for estimated credit losses, partially offset by a decrease in the provision for income taxes. Diluted EPS was $1.21 for the six months ended June 30, 2000 compared to $1.08 for the corresponding period in 1999, an increase of 12.0 percent. 10 11 NET INTEREST INCOME 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 (volume) and changes in average interest rates (rate). The change in interest due to both volume and rate have been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of each.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 VS. 1999 ----------------------------------------- INCREASE (DECREASE) DUE TO: --------------------------- ------- VOLUME RATE TOTAL ----------- ---------- ------- (IN THOUSANDS) Interest and fees earned from: Real estate loans $ 2,892 $ 325 $ 3,217 Real estate loans held in trust for collateralized mortgage obligations 5,918 -- 5,918 Cash and investment securities (425) 358 (67) ------- ------- ------- Total increase in interest income 8,385 683 9,068 ------- ------- ------- Interest paid for: Deposit accounts 2,008 2,432 4,440 Collateralized mortgage obligations 3,981 -- 3,981 FHLB advances (205) (4) (209) ------- ------- ------- Total increase in interest expense 5,784 2,428 8,212 ------- ------- ------- Increase (decrease) in net interest income $ 2,601 $(1,745) $ 856 ======= ======= =======
Total interest income increased by $9.1 million in the first half of 2000 compared to the corresponding period in 1999. This increase was due primarily to the addition of real estate loans as a result of the Trust acquisition in the first quarter of 2000, the increase in the average balance of real estate loans, and to a lesser extent, to the increases in the average yields on cash and investment securities and real estate loans. These increases were partially offset by a decrease in the average balance of cash and investment securities. The average balance of real estate loans held in the Trust was $133.4 million for the six month period ending June 30, 2000. The average balance of real estate loans increased to $949.0 million in the current year-to-date period compared to $895.7 million in the corresponding period in the prior year, due primarily to purchases of single family residential mortgages. The weighted-average yield of real estate loans increased to 10.46 percent in the current year-to-date period, compared to 10.39 percent in the prior year. The increase in yield of real estate loans was due to the repricing of variable rate loans at higher interest rates due to the general market increase in the LIBOR and Prime rates that the loans are indexed to, partially offset by the increased balance of single family residential mortgages, which generally have lower effective yields. The weighted-average yield on cash and investment securities increased to 5.92 percent in the current year-to-date period, compared to 5.26 percent in the corresponding period in the prior year, reflecting the general increase in market interest rates Total interest expense increased by $8.2 million in the first half of 2000 compared to the corresponding period in 1999 due primarily to the interest expense from the CMOs, and to a 11 12 lesser extent, to increases in the average balance of deposit accounts and in the average rates paid on deposits. The average balance of CMOs was $108.6 million for the six months ended June 30, 2000. The average balance of deposit accounts was $901.9 million in the six month period ended June 30, 2000, compared to $839.3 million in the prior year-to-date period. The increase in deposits was used to fund the increase in real estate loans and to finance the acquisition of the Trust. The average rate paid on deposit accounts increased to 5.88 percent in the current year-to-date period compared to 5.28 percent in the corresponding period in the prior year. The increase in the average interest rate on deposit accounts was consistent with the general increase in market interest rates. PROVISIONS FOR ESTIMATED CREDIT LOSSES The provision for estimated credit losses decreased to $1.8 million in the first six months of 2000 from $2.4 million in the corresponding period in 1999. The provision for estimated credit losses was recorded to provide for reserves primarily due to the increase in the purchased residential loan portfolio. NONINTEREST INCOME Noninterest income totaled $1.7 million for the six months ended June 30, 2000 compared to $0.6 million for the corresponding period in 1999. The increase in noninterest income was due primarily to the $1.4 million gain realized on the sale of investment securities available for sale. NONINTEREST EXPENSE Noninterest expense totaled $11.9 million and $10.7 million for the six-months ended June 30, 2000 and 1999, respectively. The increase in noninterest expense in the current six month period was due primarily to $1.4 million of nonrecurring general and administrative expenses recorded in the first quarter of 2000 related to the consolidation of the Bank and ITLA Capital's headquarters in La Jolla, California. For the six months ended June 30, 2000, ITLA Capital's ratio of consolidated recurring general and administrative expense to average assets, on an annualized basis, was 1.76 percent compared to 2.10 percent in the corresponding period in the prior year. ITLA Capital's efficiency ratio excluding nonrecurring expenses and real estate operations was 38.2 percent for the six months ended June 30, 2000 compared to 39.7 percent during the corresponding period in the prior year. 12 13 FINANCIAL CONDITION NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES The following table sets forth ITLA Capital's nonperforming assets by category and troubled debt restructurings as of the dates indicated.
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ (DOLLARS IN THOUSANDS) Non-performing real estate loans $ 8,147 $ 7,977 Non-performing real estate loans held in trust for collateralized mortgage obligations 1,620 -- Other real estate owned, net 1,160 1,041 ------- ------- Total nonperforming assets 10,927 9,018 Troubled debt restructurings 918 13,996 ------- ------- $11,845 $23,014 ======= ======= Non-performing real estate loans to total gross real estate loans 0.80% 0.82% Nonperforming assets to total assets 0.84% 0.81%
At June 30, 2000 and December 31, 1999, other real estate owned consisted of five and six properties, respectively. 13 14 The following table provides certain information regarding ITLA Capital's allowance for credit losses on its portfolios of real estate loans and real estate loans held in the Trust.
FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2000 1999 ---------- ------------ (DOLLARS IN THOUSANDS) REAL ESTATE LOANS: Balance at beginning of period $ 19,895 $ 16,811 Provision for estimated credit losses 1,800 4,950 Net charge-offs on real estate loans (794) (1,866) -------- -------- Balance at end of period $ 20,901 $ 19,895 ======== ======== Allowance for credit losses as a percentage of real estate loans, net 2.20% 2.05% REAL ESTATE LOANS HELD IN TRUST FOR COLLATERALIZED MORTGAGE OBLIGATIONS: Balance at beginning of period $ -- $ -- Additions due to purchase 4,614 -- -------- -------- Balance at end of period $ 4,614 $ -- ======== ======== Allowance for credit losses as a percentage of real estate loans held in trust for the collateralized mortgage obligations, net 1.85% --
LIQUIDITY AND DEPOSIT ACCOUNTS Liquidity refers to ITLA Capital's ability to maintain cash flow 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 receivable. ITLA Capital maintains a cash and investment securities portfolio designed to satisfy operating and regulatory liquidity requirements while preserving capital and maximizing yield. As of June 30, 2000, ITLA Capital held approximately $43.8 million of cash and cash equivalents (consisting primarily of short-term investments with original maturities of 90 days or less) and $48.1 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, 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. As of June 30, 2000 and December 31, 1999, the Bank's liquidity ratios were 9.5 percent and 11.8 percent, respectively, exceeding the regulatory requirement of 1.5 percent. In addition, the Bank's liquidity position is supported by a credit facility with the FHLB with an available 14 15 borrowing capacity of $136.8 million based on collateral pledged, and by federal funds lines of credit with two major banks with an available borrowing capacity of $30.0 million. Total deposit accounts increased to $924.6 million at June 30, 2000 from $913.6 million at December 31, 1999. ITLA Capital retained a significant amount of the funds which matured through rollover of maturing deposit accounts during the three and six month periods ended June 30, 2000. Although ITLA Capital competes for deposits primarily on the basis of rates, management believes that a significant portion of deposits will remain with ITLA Capital upon maturity on an ongoing basis based on its historical experience regarding retention of deposits. CAPITAL RESOURCES As of June 30, 2000, the Bank's Leverage (Core), Tier I and Total Risk-Based capital ratios were 8.6 percent, 9.8 percent and 11.0 percent, respectively. These ratios were 9.0 percent, 10.1 percent and 11.4 percent, respectively, as of December 31, 1999. The decline in capital ratios from December 31, 1999 to June 30, 2000 was due to the payment of a $14.3 million cash dividend from the Bank to its parent, ITLA Capital. These funds were utilized by ITLA Capital to complete the acquisition of 100 percent of the equity and certain CMO's of the Trust. The minimum regulatory requirement for Leverage (Core), Tier I and Total Risk-Based capital are 4.0 percent, 4.0 percent and 8.0 percent, respectively. As of June 30, 2000, the Bank's capital position was designated as "well capitalized" for regulatory purposes. ITLA Capital's shareholders' equity increased $5.3 million from December 31, 1999 to June 30, 2000 primarily due to the accumulation of $8.8 million in net income, partially offset by purchases of treasury stock of $2.7 million and the net change in unrealized gain (loss) on investment securities available for sale of $0.9 million. There were no dividends declared or paid by ITLA Capital during the first six months of 2000. MARKET RISK ITLA Capital's 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 ITLA Capital's annual report on Form 10-K for the year ended December 31, 1999. 15 16 PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS ITLA Capital is a party to certain legal proceedings incidental to its business. Management believes that the outcome of such proceedings, in the aggregate, will not have a material effect on ITLA Capital's financial condition or results of operations. ITEM 2 CHANGES IN SECURITIES Not applicable. ITEM 3 DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5 OTHER INFORMATION None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit (3)(ii) - Amended and Restated Bylaws. Exhibit (10.1) - Employment Agreement of George Haligowski Exhibit (10.2) - Salary Continuation Plan (b) A report was filed on May 5, 2000 announcing the appointment of new executives to the positions of Chief Financial Officer and Treasurer. 16 17 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: August 14, 2000 /s/ George W. Haligowski ------------------------------------- George W. Haligowski Chairman of the Board, President and Chief Executive Officer Date: August 14, 2000 /s/ Timothy M. Doyle ------------------------------------- Timothy M. Doyle Managing Director and Chief Financial Officer 17 EX-3.(II) 2 ex3-ii.txt EXHIBIT 3(II) 1 EXHIBIT (3)(ii) ITLA CAPITAL CORPORATION BY-LAWS AMENDED AND RESTATED ARTICLE I STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix. Section 2. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of at least one-third of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be 2 required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 6. Conduct of Business. (a) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than 90 days prior to the anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered by the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day following the day on which public disclosure (which may be made by or through (a) a press release, (b) in a publicly available filing at the United States Securities and Exchange Commission, (c) a mailed notice or (d) otherwise) of the date of the annual meeting is first made. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual 2 3 meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder who proposed such business, (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he or she should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. (c) Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than 90 days prior to the date of the meeting; provided, however, that in the event that less than 100 days' public disclosure of the date of the meeting is given to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of the meeting is mailed or (ii) the day on which public disclosure of the date of the meeting is first made. For the purpose of the prior sentence, the term "public disclosure" shall include disclosure in (a) a press release, (b) a publicly available filing with the United States Securities and Exchange Commission, (c) a mailed notice to shareholders or (d) otherwise. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice: (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The officer 3 4 of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Section 7. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing (or as otherwise permitted under applicable law) by the stockholder or his duly authorized attorney-in-fact filed in accordance with the procedure established for the meeting. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or in the absence of such direction, as determined by a majority of the Board of Directors. No proxy shall be valid after eleven months from the date of its execution except for a proxy coupled with an interest. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or in the Certificate of Incorporation of the Corporation or as required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. The officer who has charge of the stock transfer books of the Corporation shall prepare and make, in the time and manner required by applicable law, a list of stockholders entitled to vote and shall make such list available for such purposes, at such places, at such times and to such persons as required by applicable law. The stock transfer books shall be the only evidence as to the identity of the stockholders entitled to examine the stock transfer books or to vote in person or by proxy at any meeting of stockholders. Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. 4 5 Section 10. Inspectors of Election The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. ARTICLE II BOARD OF DIRECTORS Section 1. General Powers, Number and Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The number of directors shall be as provided for in the Certificate of Incorporation. The Board of Directors shall annually elect a Chairman of the Board and a President from among its members and shall designate, when present, either the Chairman of the Board or the President to preside at its meetings. The directors, other than those who may be elected by the holders of any class or series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until such director's successor shall have been duly 5 6 elected and qualified. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the President and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Powers. 6 7 The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation's business and affairs. Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. ARTICLE III COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it 7 8 thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Nominating Committee. The Board of Directors may appoint a Nominating Committee of the Board, consisting of not less than three members, one of which shall be the President if, and only so long as, the President remains in office as a member of the Board of Directors. The Nominating Committee shall have authority (i) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in order to determine compliance with such By-law and (ii) to recommend to the Whole Board nominees for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing. ARTICLE IV OFFICERS Section 1. Generally. (a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a President, a Secretary and a Treasurer and from time to 8 9 time may choose such other officers as it may deem proper. The President shall be chosen from among the directors. Any number of offices may be held by the same person. (b) The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors. (c) All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Section 2. President. The President shall be the chief executive officer and, subject to the control of the Board of Directors, shall have general power over the management and oversight of the administration and operation of the Corporation's business and general supervisory power and authority over its policies and affairs. The President shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. Each meeting of the stockholders and of the Board of Directors shall be presided over by such officer as has been designated by the Board of Directors or, in his absence, by such officer or other person as is chosen at the meeting. The Secretary or, in the Secretary's absence, the General Counsel of the Corporation or such officer as has been designated by the Board of Directors or, in his absence, such officer or other person as is chosen by the person presiding, shall act as secretary of each such meeting. Section 3. Vice President. The Vice President or Vice Presidents, if any, shall perform the duties of the President in his absence or during his disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President. Section 4. Secretary. The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President. 9 10 Section 5. Treasurer. The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate. The Treasurer shall sign or countersign such instruments as require his signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him by the Board of Directors, the Chairman of the Board or the President, and may be required to give bond, payable by the Corporation, for the faithful performance of his duties in such sum and with such surety as may be required by the Board of Directors. Section 6. Assistant Secretaries and Other Officers. The Board of Directors may appoint one or more assistant secretaries and one or more assistant treasurers, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these By-laws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President. Section 7. Action with Respect to Securities of Other Corporations Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other Corporation. ARTICLE V STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. 10 11 Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than 60 nor less than ten days before the date of any meeting of stockholders, nor more than 60 days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 1. Notices. 11 12 Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mail, postage paid, by sending such notice by prepaid telegram or mailgram or by sending such notice by facsimile machine or other electronic transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mail, by telegram or mailgram or by facsimile machine or other electronic transmission, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within 12 13 such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. ARTICLE VIII AMENDMENTS The By-laws of the Corporation may be adopted, amended or repealed as provided in Article SEVENTH of the Certificate of Incorporation of the Corporation. 13 EX-10.1 3 ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered as of this 28th day of January, 2000, by and between ITLA Capital Corporation (the "Company") and its subsidiaries and affiliates, including but not limited to Imperial Capital Bank, formerly known as Imperial Thrift and Loan Association (Imperial) and George W. Haligowski (the "Executive"). WHEREAS, the Executive has served as the Chief Executive Officer and Chairman of the Board of Directors of the Company since its inception and of Imperial since July, 1992; WHEREAS, the board of directors of the Company ("Board of Directors") recognizes that, as is the case with publicly held corporations generally, the possibility of a change in control of the Company and/or Imperial may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company, and Imperial and their respective stockholders; and WHEREAS, the Executive is a party to that certain employment agreement with the Company dated October 27, 1995, under which the Executive is entitled to certain severance benefits under certain conditions (the "Prior Employment Agreement"), which he is willing to terminate in consideration of this Agreement becoming effective; WHEREAS, the Executive is a party to that certain employment agreement with the Company dated July 23rd, 1997, which he and the Company are willing to terminate for the mutual consideration as set forth in this Agreement becoming effective. WHEREAS, the Board of Directors believes it is in the best interest of the Company and its subsidiaries to enter into this Agreement with the Executive in order to assure continuity of management of the Company and its subsidiaries and to reinforce and encourage the continued attention and dedication of the Executive to the Executive's assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change in control of the Company or Imperial, although no such change is now contemplated; WHEREAS, the Board of Directors has approved and authorized the execution of this Agreement with the Executive; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows: 1. Definition. (a) The term "Change in Control" means the occurrence of any of the following events with respect to the Company, or with respect to Imperial: (1) any person (as the term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), 1 2 directly or indirectly of securities of the Company, or Imperial representing 33.33% or more of the Company's or Imperial's outstanding securities; (2) individuals who are members of the Board of Directors of the Company or Imperial on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least two-thirds of the directors comprising the Incumbent Board, or whose nomination for election by the Company's or Imperial's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Company or Imperial, or a similar transaction in which the Company or Imperial is not the resulting entity (unless the continuing ownership requirements clause (4) below are met with respect to the resulting entity); or (4) a merger or consolidation of the Company or Imperial with any other corporation other than a merger or consolidation in which the voting securities of the Company or Imperial outstanding immediately prior thereto represent at least 66.67% of the total voting power represented by the voting securities of the Company or Imperial or the surviving entity outstanding immediately after such merger or consolidation. The term "Change in Control" shall not include: (1) an acquisition of securities by an employee benefit plan of the Company or Imperial; (2) any of the above mentioned events or occurrences involving any other subsidiary of the Company or Imperial, although this may be amended at a later date; (3) any of the above mentioned events or occurrences which require but do not receive the requisite government or regulatory approval to bring the event or occurrence to fruition. (b) The term "Date of Termination" means the date upon which the Executive's employment with the Company or Imperial ceases, as specified in a notice of termination pursuant to Section 8 of this Agreement. (c) The term "Disability" means the Executive's incapacity due to physical or mental illness to perform substantially his duties on a full-time basis for six consecutive months. (d) The term "Effective Date" means January 28, 2000. (e) The term "Involuntary Termination" means the termination of the employment of the Executive by the Company or Imperial without the Executive's express written consent or a material diminution of or interference with the Executive's duties, responsibilities and benefits as Chief Executive Officer of the Company or Imperial, including (without limitation) any of the following actions unless consented to in writing by the Executive: (1) following the occurrence of a Change of Control a requirement that the Executive be based at a place other than the Executive's present work location immediately prior to the Change of Control or within 35 miles thereof, except for reasonable travel on Company or Imperial business; (2) a material demotion of the Executive; (3) a material reduction in the number or seniority of other Company or Imperial personnel reporting to the Executive or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Executive, other than as part of a Company-wide reduction in staff; (4) a material adverse change in the Executive's compensation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Company or Imperial; (5) a 2 3 material permanent increase in the required hours of work or the workload of the Executive; (6) the failure of the Board of Directors to elect him as Chairman and Chief Executive Officer of the Company or Imperial (or a successor of the Company or Imperial) or any action by the Board of Directors (or a board of directors of a successor of the Company or Imperial) removing him from either of such offices; (7) death of the Executive or termination of the Executive's employment by the Company or Imperial for Disability as provided for in and subject to sections 7(f) and 7(c) below; or (8) other material breach of this Agreement by the Company or Imperial not cured within 30 days after notice thereof to the Company or Imperial by the Executive; or (9) a material increase or decrease in the business responsibilities and duties, such that the Executive's qualifications as utilized immediately prior to the Change of Control are no longer consistent with the qualifications needed for the revised position; or (10) any termination of the Executive's employment by the Executive, the Company, Imperial or the surviving entity immediately after a merger or consolidation (as defined above in section 1(a)) within 60 months after a Change in Control. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement on or after the Executive attains age 65. (f) The terms "Termination for Cause" and "Terminated for Cause" mean termination by the Company or Imperial of the employment of the Executive because of (i) willful and continued failure by the Executive substantially to perform his duties, (other than a failure resulting from physical or mental illness) after a demand for substantial performance is delivered to the Executive by the Board of Directors of the Company or Imperial which specifically identifies the manner in which the Executive has not substantially performed his duties, (ii) the Executive's willful dishonestly, willful incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation or final cease-and-desist order relating to the Executive's employment with the Company or Imperial or otherwise interfering with the Executive's ability to carry out the duties of his employment, or material breach of any provision of this Agreement; provided that no act or failure to act shall be considered "willful" unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the act or omission was in or not opposed to the best interests of the Company or Imperial. Any act or failure to act based upon authority pursuant to a resolution duly adopted by the Board of Directors or upon the advice of counsel for the Company or Imperial shall be conclusively presumed to be done or omitted to be done in good faith and in the best interests of the Company or Imperial. The Executive's attention to matters not directly related to the business of the Company or Imperial shall not provide a basis for Termination for Cause if the Board of Directors has approved the Executive's engagement in such activities. The Executive shall not be deemed to have been Terminated for Cause unless and until the Company or Imperial has delivered to the Executive a notice containing a resolution adopted by not less than three-quarters of the entire membership of the Board of Directors at a meeting called and held for the purpose, after reasonable notice to the Executive and opportunity for him to appear with counsel before the Board of Directors, finding that in the good faith opinion of the Board of Directors the Executive has engaged in conduct described in this section 1(f) and specifying the particulars in detail. 2. Term: Termination of Prior Employment Agreement. The term of this Agreement shall be a period of 60 months commencing on the Effective Date, subject to earlier termination 3 4 as provided herein. Beginning on the first anniversary of the Effective Date and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that the Company or Imperial has not given notice to the Executive in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further, and provided further that notwithstanding the delivery of any such notice, the term of this Agreement shall be extended until the expiration of 60 months following the date upon which a Change in Control shall have occurred during the term of this Agreement including extensions of the term pursuant to the first proviso of this sentence. The Executive's Prior Employment Agreement shall terminate immediately prior to the commencement of the term of this Agreement. 3. Employment. The Executive is employed as the Chief Executive Officer of the Company and Imperial. As such, the Executive shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other executive policy and management powers and duties as the Board of Directors may prescribe from time to time. The Executive shall also render services to any affiliates of the Company or Imperial as requested by the Company or Imperial from time to time consistent with his executive position. The Executive shall devote his best efforts and full attention and energies to the business and affairs of the Company and Imperial as provided here under. Notwithstanding the foregoing and with the prior approval of the Board of Directors, which may not be unreasonably withheld, the Executive may serve on boards of directors of nonaffiliated companies and may devote reasonable time to fulfilling his responsibilities as a member of such boards to the extent permissible under applicable federal and state laws and regulations which may limit such service. 4. Cash Compensation. (a) Salary. The Company agrees to pay the Executive during the term of the Agreement a base salary ("Base Salary") the annualized amount of which shall be not less than the annualized aggregate amount of the Executive's base salary in effect at the Effective Date. The Base Salary shall be paid in accordance with the Company's payroll practices for executives and shall be subject to customary tax withholding. The amount of the Executive's Base Salary may be increased by the Board of Directors from time to time in its discretion but shall be not be decreased during the term of this Agreement. As of the Effective Date of this Agreement, the Executive's Base Salary shall be $397,500.00. The Executive may voluntarily elect to contribute a portion of his Base Salary to any (i) plan sponsored by the Company or Imperial which includes a cash-or-deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) "cafeteria plan" sponsored by the Company or Imperial under Section 125 of the Code, or (iii) plan sponsored by the Company or Imperial in which management may participate and which includes a cash-or-deferred arrangement such as a nonqualified deferred compensation plan. (b) Housing and Automobile Allowances. The Company shall pay to the Executive a housing allowance of not less than $2,500 per month and at the Executive's election 4 5 an automobile allowance of not less than $1,950 per month or use of a Company vehicle pursuant to the Company's Automobile Policy. These allowances may be increased by the Board of Directors from time to time in its discretion but shall be not be decreased during the term of this Agreement. (c) Annual Incentive Plan; Bonuses. The Executive shall be entitled to participate on terms not less favorable, but generally greater than those applicable to any other executive officer of the Company or Imperial in such performance-based awards and discretionary bonuses, if any, as are authorized and declared by the Board of Directors for executive officers of the Company or Imperial, including but not limited to the Company's or Imperial's Annual Incentive Compensation Plan. (d) Stock Benefit Plans. The Executive shall be entitled to be considered for benefits under all of the stock and stock option related plans in which the Company's or Imperial's executive officers are eligible or become eligible to participate, including but not limited to the ITLA Capital Corporation and/or Imperial Thrift and Loan Association 1995 Employee Stock Incentive Plan (Stock Plan) and the Recognition and Retention Plan (RRP). (e) Supplemental Executive Retirement Plan (SERP). The Executive shall be entitled to participate in any Supplemental Executive Retirement Plan (SERP) implemented by the Company or Imperial, which shall provide that following the Change of Control an additional funding of an amount equal to 3.95 times the sum of Executive's annual Base Salary shall occur and all benefits and RRP stock granted to the Executive under the SERP shall immediately vest, as more particularly set forth in Section 4.4 of the Company's Supplemental Executive Retirement Plan Effective January 1, 1997, as amended on January 28, 2000, or as amended thereafter. To the extent this SERP differs with this Agreement, this Agreement shall control however, the distribution of RRP stock shall be contingent upon the availability of the same stock as delineated in the SERP. (f) Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses and continuing education expenses incurred by the Executive in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Company or Imperial, provided that the Executive accounts for such expenses as required under such policies and procedures. Continuing education expenses include, but are not limited to, reasonable and continuing expenses incurred by the Executive related to his membership in the Young Presidents' Organization (YPO) and the Harvard Business School Alumni Association. (g) Salary Continuation Plan (SCP). The Executive shall be entitled to participate in any Salary Continuation Plan (SCP) implemented by the Company or Imperial which shall provide that the Executive shall receive 75% of the average of his three preceding years' Base Salary payable over a fifteen year period following the Executive's termination of employment, other than a Termination for Cause or a Voluntary Termination. In the event that the Executive incurs a Voluntary Termination prior to attaining age 65, the benefit payable under the SCP shall be reduced as set forth in the SCP. Upon a Change in Control prior to termination of 5 6 employment, the Executive shall receive a benefit under the SCP equal to 75% of the average of his three preceding years' Base Salary for fifteen (15) years, but payable over a ten (10) year period commencing upon the Change in Control. No benefit shall be payable under the SCP in the event that the Executive incurs a Termination for Cause. The compensation received by the Executive under the SCP shall be in addition to the benefits and compensation received by the Executive under any terms and conditions of this Agreement. 5. Benefits. (a) Participation in Benefit Plans. The Executive shall be entitled to participate, to the same extent as executive officers of the Company or Imperial generally, in all plans of the Company or Imperial relating to group or other life, accidental death and dismemberment, medical and dental, short and long term disability, travel and accident insurance, education, pension, thrift, profit-sharing, savings, other retirement or employee benefits or combinations thereof, including coverage for eligible dependents as provided for in such plans. (b) Life Insurance. The Company shall provide to the Executive and shall pay the premiums on a personal life insurance policy providing benefits in an amount equal to at least four times his annual Base Salary. (c) Memberships in Organizations and Clubs. The Executive shall be entitled to Company paid non-equity membership in one private Club in an initial amount not to exceed $7,500 with monthly dues of $400, or as may be increased or decreased by the Club. In addition, the Company shall pay all of Executive's reasonable expenses and costs associated with his membership in the Young Presidents Organization, or after attaining age forty-nine (49) the World's President Organization, and the Harvard Business School Alumni Association. The Executive shall also be entitled to participate in a Company sponsored equity club membership. This membership shall have an equity ownership value of up to $140,000 plus annual dues, and may be chosen solely at the discretion of the Executive. Any and all rights to this equity club membership shall immediately vest in the interest of the Executive following Change of Control, upon the Executive's retirement, or after the Executive attains the age of 65. (d) Other Fringe Benefits. The Executive shall be eligible to participate in, and receive benefits under, any other fringe benefit plans or perquisites which are or may become generally available to the Company's or Imperial's executive officers, including but not limited to supplemental retirement, incentive compensation, supplemental medical or life insurance plans, club dues, physical examinations, financial planning and tax preparation services. Eligible dependents of the Executive shall be participants in such plans and perquisites to the same extent as eligible dependents of the Company's or Imperial's executive officers generally. The Executive shall also be entitled to receive a one time payment of up to $25,000, plus imputed taxes, for the Executive's personal estate planning, and shall be entitled to receive up to $6,500 per annum, plus imputed taxes, for the maintenance of the Executive's personal estate and tax planning. 6 7 6. Vacations; Leave. The Executive shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive officers, in no event less than five weeks per year, and to voluntary leaves of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion. 7. Termination of Employment. (a) Involuntary Termination. In the event of the Involuntary Termination of the Executive by the Company or Imperial (or both), the Company or Imperial shall pay to the Executive, within 25 business days of the Date of Termination of employment; (i) in a lump sum an amount equal to the product of the amount of cash bonus and other cash incentive compensation paid or payable to the Executive for the most recently completed fiscal year of the Company multiplied by a fraction with a numerator equal to the number of days in the fiscal year elapsed through the Date of Termination and a denominator of 365; and (ii) during the remaining term of the Agreement, or if a Change of Control has occurred, for the 60 months following the Date of Termination, pay to the Executive monthly one-twelfth of his Base Salary at the highest annual rate in effect during the three years prior to the Date of Termination and one-twelfth of the average annual amount of cash bonus and cash incentive compensation of the Executive, based on the average of the amounts of such compensation earned by the Executive for the two full fiscal years preceding the Date of Termination; or, if the Executive elects, shall pay to him the amount of all payments under this section 7(a)(ii) in a lump sum; and (iii) during the 60 months following the Date of Termination, except as provided in section 7(g) below, maintain substantially the same benefits described in section 5 of this Agreement for the benefit of the Executive and his eligible dependents and beneficiaries who would have been eligible for such benefits if the Executive had not suffered Involuntary Termination and on terms substantially as favorable to the Executive including amounts of coverage and deductibles and other costs to him in effect immediately prior to such Involuntary Termination or maintain the same benefits described in section 5 for the benefit of the Executive and his eligible dependents, at the same cost to the Executive, as he would have enjoyed if he had remained employed by the Company or Imperial; or at the election of the Executive (or, notwithstanding the election of the Executive at the election of the Company or Imperial, if coverage under the Company's or Imperial's group plan is not available to the Executive and his eligible dependents and beneficiaries) cash in an amount equal to the premium cost being paid by the Company or Imperial with respect to the Executive for such benefits immediately prior to the Date of Termination); and 7 8 (iv) Retain Executive as a consultant for a period of 18 months following the termination of Executive's employment following a Change of Control. Executive shall be paid in addition to any an all other compensation and benefits, including payments under the SCP, a monthly consulting fee equal to 75% of the monthly Base Salary of the Executive at the time of termination. In addition, during the term of the consulting engagement the Company or Imperial will provide office space and secretarial support of the same type as it provided to the Executive Officer during his employment; and (v) transfer title of the Company or Imperial owned or leased vehicle currently being utilized by the Executive to the Executive, free and clear. All costs of such transfer such as lease buy-out, registration fees and sales taxes to be borne by Company or Imperial; and (vi) notwithstanding anything to the contrary, all of Executive's outstanding stock options and restricted stock awards, including but not limited to Stock Plan options and RRP stock held in the SERP, shall immediately vest upon the Involuntary Termination of the Executive. (b) Change in Control. In the event that any payments or benefits provided or to be provided to the Executive pursuant to this Agreement in combination with payments or benefits, if any, from other plans or arrangements maintained by the Company or Imperial or any of its affiliates, constitute "excess parachute payments" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") that are subject to excise tax under section 4999 of the Code, the Company or Imperial shall pay to the Executive in cash an additional amount equal to the amount of the Gross Up Payment (as hereinafter defined). The "Gross Up Payment" shall be the amount needed to insure that the amount of such payments and the value of such benefits received by the Executive (net of such excise tax and any federal, state and local tax on the Company's or Imperial's payment to him attributable to such excise tax) equals the amount of such payments and value of such benefits as he would receive in the absence of such excise tax and any federal, state and local tax on the Company's or Imperial's payment to him attributable to such excise tax. The Company or Imperial shall pay the Gross Up Payment within 25 business days after the Date of Termination. For purposes of determine the amount of the Gross Up Payment, the value of any non-cash benefits and deferred payments or benefits shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code. In the event that, after the Gross Up Payment is made, the amount of the excise tax is determined to be less than the amount calculated in the determination of the actual Gross Up Payment made by the Company, the Employee shall repay to the Company or Imperial, at the time that such reduction in the amount of excise tax is finally determined, the portion of the Gross Up Payment attributable to such reduction, plus interest on the amount of such repayment at the applicable federal rate under Section 1274 of the Code from the date of the Gross Up Payment to the date of the repayment. The amount of the reduction of the Gross Up Payment shall reflect any subsequent reduction in excise taxes resulting from such repayment. In the event that, after the Gross Up Payment is made, the amount of the excise tax is determined to 8 9 exceed the amount anticipated at the time the Gross Up Payment was made, the Company or Imperial shall pay to the Employee, in immediately available funds, at the time that such additional amount of excise tax is finally determined, an additional payment ("Additional Gross Up Payment") equal to such additional amount of excise tax and any federal, state and local taxes thereon, plus all interest and penalties, if any, owed by the Employee with respect to such additional amount of excise and other tax. The Employee shall have the right to challenge any excise tax assessment against him as to which the Employee is entitled to (or would be entitled if such assessment is finally determined to be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all costs and expenses incurred in such a challenge shall be borne by the Company or Imperial and the Company or Imperial shall indemnify the Employee and hold him harmless, on an after-tax basis, from any excise or other tax (including interest and penalties with respect thereto) imposed as a result of such payment of costs and expenses by the Company or Imperial. (c) Termination Due to Disability. In the event that the Company or Imperial desires to terminate the employment of the Executive due to Disability, it shall send him a notice as provided in Section 8 stating that it has determined that he has a Disability as defined in section 1(c) of this Agreement. If, within 30 days after receiving such a notice, the Executive does not return to the performance of his duties on a full-time basis, his employment shall be terminated on the 30th day after such receipt and such day shall be the Termination date, provided that if the Executive does not concur that a Disability has occurred, a licensed medical doctor, selected jointly by the Company and the Executive, shall determine the existence of a Disability. In the event that the Company and the Executive cannot agree on the selection of such a doctor, each shall select a doctor, and the two doctors shall select a third doctor, and the three doctors shall determine whether a Disability exists. (d) Termination for Cause. In the event of Termination for Cause, the Company or Imperial shall have no further obligation to the Executive under this Agreement after the Date of Termination, subject to any benefit continuation requirement under applicable law. (e) Voluntary Termination. The Executive may terminate his employment voluntarily at any time by a notice pursuant to Section 8 of this Agreement. In the event that the Executive voluntarily terminates his employment other than by reason of any of the actions that constitute Involuntary Termination under Section 1(e) of this Agreement or in connection with or within 60 months after a Change in Control, the Company or Imperial shall be obligated to the Executive for the amount of his Base Salary and benefits only through the Date of Termination, at the time such payments are due, and the SCP benefits set forth in Section 4(g) of this Agreement, and the Company or Imperial shall have no further obligation to the Executive under this Agreement, subject to any benefits continuation requirement under applicable law. (f) Death. In the event of the death of the Executive while employed under this Agreement and prior to any termination of employment, the Company or Imperial shall pay to the Executive's estate, or such person as the Executive may have previously designated in writing, the same payments and benefits as the Executive would have been entitled to under 9 10 section 7 (excluding the amounts which would have been payable under section 7(a)(iv)) if he had suffered Involuntary Termination, and the amount of any bonus or incentive compensation for the fiscal year in which the Executive died if he had remained employed, the amounts of which shall be pro-rated in accordance with the portion of the fiscal year prior to his death; provided that such amounts shall be payable when and as ordinarily payable under the applicable plans. (g) No Mitigation Except As To Health Benefits. The Executive shall be under no obligation to mitigate the amount of payments or benefits to which he is entitled under this section 7 by seeking employment or otherwise, provided that to the extent, if any, that the Executive and his eligible dependents under the Company's or Imperial's medical, dental and short- and long-term disability plans become entitled to substantially the same coverage at substantially the same cost (if any) to the Executive as applies under this section 7, then the Company's or Imperial's obligation to provide such benefits shall be reduced accordingly. In the event that the Executive becomes entitled to such benefits from another employer during the period in which the Company or Imperial provides benefits under this section 7, the Executive shall notify the Company or Imperial in writing within 30 days, and shall notify the Company or Imperial of such changes as may occur in such benefits from time to time in each case within 30 days, in such details as the Company or Imperial may reasonably request. (h) Forfeiture. Notwithstanding any other provisions of this Agreement, the Executive shall forfeit any right to receive payments or benefits under this section 7 following any breach of Section 9 or Section 10 of this Agreement. 8. Notice of Termination. In the event that the Company or Imperial desires to terminate the employment of the Executive during the term of this Agreement, the Company or Imperial shall deliver to the Executive a written notice of termination, stating whether such termination constitutes Termination for Cause or Involuntary Termination, setting forth in reasonable detail the facts and circumstances that are the basis for the termination, and specifying the date upon which employment shall terminate, which date shall be at least 30 days after the date upon which the notice is delivered, except in the case of Termination for Cause. In the event that the Executive determines in good faith that he has experienced an Involuntary Termination of his employment, he shall send a written notice to the Company or Imperial stating the circumstances that constitute such Involuntary Termination and the date upon which his employment shall have ceased due to such Involuntary Termination. In the event that the Executive desires to terminate his employment with the Company or Imperial, he shall deliver a written notice to the Company or Imperial, stating the date upon which employment shall terminate, which, except in the case of termination of employment in connection with or within 60 months after a Change in Control, shall be at least 90 days after the date upon which the notice is delivered, unless the parties agree to a date sooner. 9. Confidentiality, Noncompete and Nonsolicitation Agreement. (a) The Executive acknowledges that in the course of his employment by the Company or Imperial, he will have access to and become informed of confidential and secret 10 11 information which is a competitive asset of the Company or Imperial ("Confidential Information"), including, without limitation, (i) the terms of any agreement between the Company or Imperial and any employee, customer or supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product development ideas and strategies, (v) personnel training and development programs, (vi) financial results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems software, and (ix) any nonpublic information concerning the Company or Imperial, its employees, suppliers or customers. The Executive agrees that he will keep all Confidential Information in strict confidence and will not intentionally make known, divulge, reveal, furnish, make available, or use any Confidential Information that could materially affect the Company's or Imperial's operations, profitability or reputation (except in the course of his regular authorized duties on behalf of the Company or Imperial). The Executive may disclose information as required by law (after giving the Company or Imperial notice and an opportunity to contest such requirement). The Executive's obligations under this Section 9 are in addition to, and not in limitation of or preemption of, all other obligations of confidentiality which the Executive may have to the Company or Imperial under general legal or equitable principles. (b) Except in the ordinary course of the Company's or Imperial's business, the Executive has not made, nor shall at any time following the date of this Agreement, make or cause to be made, any copies, pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries including or reflecting Confidential Information. All such documents and other property furnished to the Executive by the Company or Imperial or otherwise acquired or developed by the Company or Imperial shall at all times be the property of the Company or Imperial. Upon termination of the Executive's employment by the Company or Imperial, the Executive will return to the Company or Imperial any such documents or other property of the Company or Imperial which are in the possession, custody or control o the Executive. (c) Without the prior written consent of the Company or Imperial (which may not be unreasonably withheld), except in the ordinary course of the Company's or Imperial's business, the Executive shall not at any time during the term of this agreement or during the period payments are being made by the Company or Imperial resulting from an Involuntary Termination, (the "Restricted Period") engage in any business or division of a business of a kind in whole or in part similar to that heretofore engaged in by the Company or Imperial or any of its subsidiaries ("Restricted Business"), or disclose in any manner to any person, firm, partnership, association, trust, venture, corporation or business organization or enterprise engaged in the Restricted Business, any Confidential Information. (d) During the Restricted Period, the Executive shall not engage in or participate in the Restricted Business of the Company or Imperial, directly or indirectly, as a partner, shareholder, officer, director, employee, consultant, independent contractor, agent or otherwise, within California without prior written consent of the Company or Imperial, other than by working for the Company or Imperial, or its successors or assigns. 11 12 (e) In the event of that the Executive's employment with the Company or Imperial terminates for any reason, the Executive agrees that during the Restricted Period, he will not in any capacity, on his own behalf or on behalf of any other firm, person or entity, undertake or assist in the solicitation of any employee to terminate his or her employment with the Company or Imperial. 10. Post-termination Assistance. The Executive agrees that after his employment with the Company or Imperial has terminated for any reason, he will provide, upon reasonable notice, such information and assistance to the Company or Imperial as may reasonably be requested by the Company or Imperial in connection with any litigation in which it or any of its affiliates is or may become a party; provided that the Company or Imperial agrees to reimburse the Executive for any reasonably related expenses, including travel expenses. 11. Arbitration. Any dispute between the Executive and the Company or Imperial under this Agreement shall be determined in accordance with the procedures established in this section and the Federal Arbitration Act. The dispute will be determined by arbitration in accordance with the following procedures: (a) Arbitration may be initiated by providing the other party with a written demand to arbitrate. (b) Within 21 calendar days of receipt of a written demand to arbitrate, the parties shall select an arbitrator to hear the dispute. In the event that the parties are unable to agree upon an arbitrator, either party may, within 30 calendar days of the written demand for arbitration, petition the presiding judge of the local state trial court having jurisdiction for an appointment of a retired judge to serve as arbitrator. (c) The arbitrator will hold a hearing at which the parties to the dispute may submit evidence, including examining witnesses. The arbitrator may issue subpoenas to compel the testimony of third parties and the production of documents. Testimony shall be taken under oath and the parties may be represented by legal counsel. (d) The arbitrator shall issue a written decision within 21 calendar days of the conclusion of the hearing. The decision shall be final and binding upon the parties and may be entered in any court having jurisdiction. (e) The Company and Imperial shall bear the direct costs of the arbitration proceedings (arbitration fees, transcripts expenses, etc.), but each party shall otherwise bear its own expenses. 12. Attorneys Fees. The Company and Imperial shall pay all legal fees and related expenses (including the cost of experts, evidence and counsel) incurred by the Executive as a result of (i) the Executive's contest or disputing any termination of employment, or (ii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company or Imperial (or its successors) under 12 13 which the Executive is or may be entitled to receive benefits; provided that the Company's or Imperial's obligation to pay such fees and expenses is subject to the Executive's prevailing with respect to the matters in dispute in any action initiated by the Executive or the Executive's having been determined to have acted reasonably and in good faith with respect to any action initiated by the Company or Imperial. 13. No Assignments. (a) This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided that the Company or Imperial shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) by an assumption agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company or Imperial would be required to perform it if no such succession or assignment had taken place. Failure of the Company or Imperial to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Executive to compensation and benefits from the Company or Imperial in the same amount and on the same terms as the compensation pursuant to Section 7 hereof. For purposes of implementing the provision of this Section 13, the date on which any such succession becomes effective shall be deemed the Date of Termination. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate. 14. Delivery of Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Company or Imperial at its home office, to the attention of the Board of Directors with a copy to the Secretary of the Company, or if to the Executive, to such home or other address as the Executive has most recently provided in writing to the Company. 15. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties. 16. Headings. The heading used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 13 14 17. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability or any provision shall not affect the validity or enforceability of the other provisions hereof. 18. Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the Sate of California. 19. Withholding of Taxes. The Company or Imperial may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as the Company or Imperial is required to withhold pursuant to any law or governmental regulation or ruling. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION, WHICH MAY BE ENFORCED BY THE PARTIES. ITLA CAPITAL CORPORATION EXECUTIVE and IMPERIAL CAPITAL BANK - ----------------------------------- ---------------------------- By: Jeffery Lipscomb By: George W. Haligowski Its: Member of the Board of Directors Executive Chairman of the Compensation Committee ITLA CAPITAL CORPORATION and IMPERIAL CAPITAL BANK - ----------------------------------- By: Hirotaka Oribe Its: Member of the Board of Directors and the Compensation Committee ITLA CAPITAL CORPORATION and IMPERIAL CAPITAL BANK - ----------------------------------- 14 15 By: Timothy Doyle Its: Managing Director and Chief Financial Officer 15 EX-10.2 4 ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 ITLA CAPITAL CORPORATION SALARY CONTINUATION PLAN (EFFECTIVE MARCH 31, 2000) Preamble ITLA Capital Corporation, a Delaware business corporation and its subsidiaries, have adopted the ITLA Capital Corporation Salary Continuation Plan as of the Effective Date, for a select group of executives and senior management personnel to ensure that the overall effectiveness of the Company's executive compensation program will attract, retain and motivate qualified executives and senior management personnel. ARTICLE I DEFINITIONS When used herein, the following words shall have the meanings below unless the context clearly indicates otherwise: 1.1 The term "Change in Control" means the occurrence of any of the following events with respect to the Company: (1) any person (as the term is used in section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing 33.33% or more of the Company's outstanding securities; (2) individuals who are members of the Board of Directors of the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least two thirds of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Company or a similar transaction in which the Company is not the resulting entity (unless the continuing ownership requirements clause (4) below are met with respect to the resulting entity); or (4) a merger or consolidation of the Company with any other corporation other than a merger or consolidation in which the voting securities of the Company outstanding immediately prior thereto represent at least 66.67% of the total voting power represented by the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation. The term "Change in Control" shall not include: (1) an acquisition of securities by an employee benefit plan of the Company; or (2) any of the above mentioned events or occurrences which require but do not receive the requisite government or regulatory approval to bring the event or occurrence to fruition. 1.2 "Claims Reviewer" means the Compensation Committee of the Board of Directors of the Company, unless another person or organizational unit is designated by the Company as Claims Reviewer. 2 1.3 "Company" means ITLA Capital Corporation and its subsidiaries and any successor(s) thereto. For purposes of determining whether a Participant is employed by the Company at any particular time, the term "Company" shall also include any entity that would be treated as a single employer with the Company under Section 414 of the Internal Revenue Code. 1.4 "Designated Beneficiary" means the individual the Participant designates as his or her beneficiary in such Participant's ITLA Capital Corporation Salary Continuation Plan designation of beneficiary form. 1.5 "Disability" means, with respect to Mr. Haligowski, Disability as defined in Mr. Haligowski's Employment Agreement dated January 28, 2000, or as later amended, or, with respect to any other Participant, as defined in the Participant's Change in Control Severance Agreement. If the Participant does not have a Change in Control Severance Agreement defining the term "Disability," then Disability shall mean total and permanent disability as defined in the Company's long term disability plan. 1.6 "Effective Date" means March 31, 2000. 1.7 "Involuntary Termination" means, with respect to Mr. Haligowski, an involuntary termination as defined in Mr. Haligowski's Employment Agreement dated January 28, 2000, or as later amended, or, with respect to any other Participant, as defined in the Participant's Change in Control Severance Agreement. 1.8 "Normal Retirement Date" means retirement from service with the Company, which becomes effective on or after the first day of the calendar month following the month in which the Participant reaches his or her 65th birthday. 1.9 "Participant" means any employee of the Company who meets the eligibility requirements of Article II and is designated and approved for participation in the Plan as set forth in Article II. 1.10 "Participation Date" means the date any employee of the Company becomes a Participant in the Plan. 1.11 "Plan" means the ITLA Capital Corporation Salary Continuation Plan, as set forth herein and as amended from time-to-time. 1.12 "Plan Year" means the calendar year. 1.13 "Termination for Cause" means, with respect to Mr. Haligowski, a termination for cause as defined in Mr. Haligowski's Employment Agreement dated January 28, 2000, or as later amended, or, with respect to any other Participant, as defined in the Participant's Change in Control Severance Agreement. 1.14 "Voluntary Termination" or "Voluntarily Terminates" means an employee's intentional conclusion of employment with the Company other than by death, Disability, attainment of the Normal Retirement Date, or Involuntary Termination. With respect to -2- 3 Mr. Haligowski's participation in the Plan, "Voluntary Termination" shall be as defined in Mr. Haligowski's Employment Agreement dated January 28, 2000, or as later amended. ARTICLE II ELIGIBILITY TO PARTICIPATE 2.1 Eligibility to Participate. For purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Plan is limited to a select group of management and highly compensated employees. 2.2 Designated Participants. An executive or senior management employee of the Company is eligible to become a Participant in the Plan; provided such employee is designated as a Participant on Exhibit A attached hereto or, such employee is later designated as a Participant by the Compensation Committee of the Board of Directors of the Company and, such designation is attached as a written amendment to the Plan signed by a duly authorized officer of the Company. Under no circumstance shall an employee below the level of Managing Director or Senior Vice President be eligible to participate in the Plan. Once an employee becomes a Participant, he or she shall remain a Participant until all benefits to which he or she (or his or her Designated Beneficiary) is entitled under the Plan have been paid. ARTICLE III ELIGIBILITY FOR AND PAYMENT OF BENEFITS 3.1 Eligibility for Retirement Benefits. Each Participant shall be eligible to receive the benefits under the Plan upon the earlier of the attainment of the Normal Retirement Date, or the Participant's death, Disability, or termination of employment (other than a Termination for Cause), or upon Change in Control. Except upon a Change in Control as set forth in Section 3.6 below, no benefits shall be payable from the Plan to a Participant while such Participant is employed with the Company. 3.2 Calculation of Benefit. A Participant's benefit under the Plan will be calculated as of the earlier of Participant's attainment of the Normal Retirement Date, the Participant's death, Disability, termination of employment (other than a Termination for Cause), or upon Change in Control. 3.3 Incidents of Ownership. Notwithstanding the above, a Participant shall have no incidents of ownership with respect to the benefits under the Plan. 3.4 Benefits. If the Participant's employment with the Company is terminated prior to a Change in Control as a result of attaining the Normal Retirement Date, death, or Disability or termination for any reason other than Voluntary Termination or Termination for Cause, the Participant shall be entitled to receive a monthly salary continuation benefit from the Company, beginning on the first day of the month following the termination of employment and continuing on the first day of each month thereafter for a period of 15 years in an amount set forth in Exhibit A attached hereto or in the written amendment to the Plan designating the individual as a Participant in the Plan. -3- 4 3.5 Benefits upon Voluntary Termination Prior to Normal Retirement Date. If a Participant Voluntarily Terminates employment with the Company prior to attainment of the Normal Retirement Date, the Participant shall be entitled to receive monthly, beginning on the first day of the month following written notice of Voluntary Termination to the Company and continuing on the first day of each month thereafter, for a period of 15 years, a reduced benefit payment equal to the salary continuation benefit set forth in Exhibit A attached hereto (or applicable amendment), multiplied by a fraction: a. The numerator of which is the actual number of months the Participant has been employed by the Company from the Participant's Participation Date in this Plan until the date of Voluntary Termination; and b. The denominator of which is the actual number of months the Participant would have been employed by the Company from the Participation Date until his or her Normal Retirement Date (at age 65). For purposes of determining the applicable number of months of participation, a Participant shall be deemed to have been a Participant as of January 1 of any Plan Year if such Participant is designated as a Participant prior to the end of the Plan Year and remains an employee of the Company as of the end of such Plan Year. 3.6 Benefits upon Change in Control. Upon Change in Control prior to commencement of benefits under Sections 3.4 or 3.5 of the Plan, the Participant shall be entitled to receive the salary continuation benefit set forth in Exhibit A attached hereto (or in the written amendment to the Plan designating the individual as a Participant in the Plan) for a 15-year period. Notwithstanding the preceding sentence, the actual salary continuation benefit payable upon a Change in Control shall be paid monthly, beginning on the first day of the month following the Change in Control and continuing on the first day of each month thereafter for a ten-year period, with each monthly payment increased to reflect the shorter payment period. The present value of the payments made over the ten-year period set forth in the preceding sentence shall be equivalent to the present value of the salary continuation benefit set forth in Exhibit A paid over a 15-year period. 3.7 Participant's Death. If a Participant dies while employed by the Company and prior to commencement of benefits to which the Participant is entitled to under the Plan, the Participant's Designated Beneficiary shall receive the benefits the Participant would otherwise receive under the Plan. If a Participant dies after the commencement of benefits hereunder, all of the remaining benefits to which the Participant was entitled at the time of his or her death shall be paid to the Participant's Designated Beneficiary. If a Participant survives his or her Designated Beneficiary or the Participant fails to name a Designated Beneficiary prior to receipt of the entire distribution to which the Participant is entitled hereunder, then all of the distribution to which the Participant is entitled under the Plan and which has not been distributed to such Participant at the date of death shall be payable to the Participant's estate. 3.8 Termination for Cause. Notwithstanding any other provision of this Plan, in no event shall any benefits be payable under this Plan to a Participant whose employment with the Company is Terminated for Cause. -4- 5 3.9 Commencement of Benefit. A Participant's benefit payable on account of the occurrence of a Change in Control or the Participant's death, Disability, attainment of the Normal Retirement Date or termination of employment shall be payable commencing on the first day of the calendar month next following the occurrence of the event giving rise to the payment. 3.10 No Duplication of Benefits. The Plan is intended to pay salary continuation benefits to eligible Participants upon the first to occur of the events described in Section 3.1 of the Plan: attainment of Normal Retirement Date, death, Disability, termination of employment (other than a Termination for Cause) or a Change in Control. In no event shall benefits be payable to any Participant under this Plan for more than one event listed in Section 3.1 of the Plan. Thus, if benefits are payable to a Participant upon a Change in Control as set forth in Section 3.6 of the Plan, a subsequent termination of the Participant's employment shall not entitle the Participant to any additional benefits under the Plan. Similarly, if a Participant becomes entitled to benefits under Section 3.1 of the Plan as a result of a termination of employment with ITLA Capital Corporation or a subsidiary, no additional benefits will be payable to the Participant upon a Change in Control or termination of employment from another related entity. In addition, except as otherwise set forth in a Participant's Employment Agreement or upon a Change in Control, no benefits shall be payable to a Participant upon a termination of employment with the Company if the Participant continues to be employed by a subsidiary or successor of the Company. 3.11 Limitation on Distribution to Covered Employees. Notwithstanding any other provision of the Plan, in the event that the Participant is a "covered employee" as defined in Section 162(m)(3) of the Internal Revenue Code, or would be a covered employee if the benefits were distributed in accordance with the other provisions of Article III, the maximum amount which may be distributed in any Plan Year shall not exceed one million dollars ($1,000,000) less the amount of compensation paid by the Company to the Participant in such Plan Year which is not "performance-based" (as defined in Internal Revenue Code Section 162(m)(4)(C)). The amount of compensation which is not "performance-based" shall be reasonably determined by the Company at the time of the proposed distribution. Any amount which is not distributed to the Participant in a Plan Year as a result of the limitation set forth in this Section 3.11 shall be distributed to the Participant in the next Plan Year, subject to compliance with the foregoing limitation set forth in this Section 3.11. The provisions of this Section 3.11 shall not apply if the Compensation Committee of the Board of Directors, upon consultation with legal counsel, determines that the restrictions of Code Section 162(m) do not apply to limit the deductibility of payments made under the Plan (or otherwise by the Company) to the Participant. 3.12 Acceleration in Payment of Benefits. Notwithstanding any other provision of this Plan and without regard to whether benefits are currently payable under this Article III, the Company in its sole and absolute discretion may at any time elect to pay a Participant or Beneficiary a lump sum payment equal to the present value of the remaining payments due such Participant or Beneficiary. Present value shall be determined using such actuarial factors and interest rates as determined by the Compensation Committee of the Board of Directors of the Company. The payment of the lump sum shall discharge all of the Company's obligations hereunder with respect to the Participant. The Company shall not be responsible for any increased taxes imposed on the Participant as a result of receiving benefits in a lump sum payment under the Plan. -5- 6 3.13 Parachute Payments. In the event that any payments or benefits provided or to be provided to a Participant pursuant to this Plan in combination with payments or benefits, if any, from other plans or arrangements maintained by the Company constitute "excess parachute payments" under Section 280G of the Internal Revenue Code of 1986, as amended, the Company shall either reduce the payments to the Participant under the Plan or provide an additional Gross Up Payment to the Participant in accordance with the provisions of the Participant's Change in Control Severance Agreement or Employment Agreement. If the Participant does not have a Change in Control Severance Agreement or Employment Agreement that addresses the treatment of excess parachute payments, then the Compensation Committee of the Board of Directors of the Company shall, in its sole and absolute discretion and notwithstanding any other provision of this Plan, either reduce the benefits payable to the Participant under this Plan so that none of the payments are excess parachute payments or provide the Participant with a gross-up payment to offset the additional tax on any Plan benefits that are treated as excess parachute payments under Section 280G of the Internal Revenue Code. ARTICLE IV AMENDMENT AND TERMINATION 4.1 Amendment or Termination. The Company intends the Plan to remain in existence until all Participants in the Plan have received all of their benefits payable under the Plan. The Company, however, reserves the right to amend or terminate the Plan. No such amendment may reduce or eliminate benefits payable under the Plan to any Participant or remove the obligation of the Company to contribute amounts to a grantor trust as set forth in Section 5.1 below. In the event that the Company elects to terminate the Plan prior to the commencement of any benefits hereunder, each Participant shall be entitled to begin receiving the salary continuation benefit set forth in Section 3.4 of the Plan, with the amount of the benefit calculated as of the date of termination of the Plan. Any amendment or termination of the Plan shall be made pursuant to a resolution of the Compensation Committee of the Board of Directors of the Company. ARTICLE V ADMINISTRATION 5.1 Funding of Benefits. The Company shall establish a grantor trust to hold assets to pay benefits due Participants under the Plan. At least annually, the Company shall contribute to the trust an amount determined by the actuaries for the Company (using reasonable actuarial assumptions) as necessary to fund the benefits payable under the Plan. In addition, within 15 days after a Change in Control, the Company shall contribute an amount to the trust as determined by the actuaries for the Company to be necessary to fully fund the benefits payable under Article III of the Plan. At no time shall the Participant be deemed to have a lien nor right, title nor interest in or to any specific funding investment or to any assets of the Company. If the Company elects to invest in a life insurance or annuity policy for the life of the Participant, then the Participant shall assist the Company by freely submitting to a physical examination and supply such additional information necessary to obtain such insurance or annuities. 5.2 Unsecured Claims. The right of a Participant or his or her Designated Beneficiary to receive a benefit hereunder shall be an unsecured claim against the general assets of the -6- 7 Company, and neither a Participant nor his or her Designated Beneficiary shall have any rights in or against any amount credited under this Plan or under any trust established under the Plan or any other assets of the Company. Notwithstanding any other provisions to the contrary, the Plan at all times shall be considered entirely unfunded both for tax purposes and for purposes of Title I of ERISA as amended. Any funds invested hereunder shall continue for all purposes to be part of the general assets of the Company and available to its general creditors in the event of bankruptcy or insolvency. Any benefits which may be payable pursuant to this Plan are not subject in any manner to anticipation, sale, alienation, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of a Participant or his or her Designated Beneficiary. The Plan constitutes a mere unsecured promise by the Company to make benefit payments in the future. No interest or right to receive a benefit may be taken, either voluntarily of involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 5.3 Plan Administration. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company, which shall have the authority, duty and power in its sole and absolute discretion to interpret and construe the provisions of the Plan as the Compensation Committee of the Board of Directors deems appropriate including the authority to determine eligibility for benefits under the Plan. The Compensation Committee of the Board of Directors shall have the duty and responsibility of maintaining records, making the requisite calculations and disbursing the payments hereunder. The interpretations, determinations, regulations and calculations of the Compensation Committee of the Board of Directors shall be final and binding on all persons and parties concerned. The Compensation Committee may delegate any of its duties, to an employee or employees of the Company or other persons as it deems appropriate. 5.4 Expenses. Expenses of administration of the Plan shall be paid by the Company. The Compensation Committee of the Board of Directors of the Company shall be entitled to rely on all tables, valuations, certificates, opinions, data and reports furnished by any actuary, accountant, controller, counsel or other person employed or retained by the Company with respect to the Plan. 5.5 Statements. The Compensation Committee of the Board of Directors of the Company or its agents shall furnish individual periodic statements of benefits being paid to each Participant (or if the Participant's Designated Beneficiary is currently receiving benefits under the Plan, to such Participant's Designated Beneficiary) in such form as determined by the Compensation Committee of the Board of Directors or as may be required by the law. 5.6 No Enlargement of Rights. The sole rights of a Participant or his or her Designated Beneficiary under this Plan shall be to have this Plan administered according to its provisions, to receive whatever benefits he or she may be entitled to hereunder, and nothing in the Plan shall be interpreted as a guaranty that any benefits which may be established in connection with the Plan or assets of the Company will be sufficient to pay any benefit hereunder. Further, the adoption and maintenance of this Plan shall not be construed as creating any contract of employment between the Company and the Participant. The Plan shall not affect -7- 8 the right of the Company to deal with any Participants in employment respects, including their hiring, discharge, compensation and conditions of employment. 5.7 Rules and Procedures. The Company may from time to time establish rules and procedures which it determines to be necessary for the proper administration of the Plan and the benefits payable to an individual in the event that individual is declared incompetent and a conservator or other person legally charged with that individual's care is appointed. Except as otherwise provided herein, when the Company determines that such individual is unable to manage his or her financial affairs, the Company may pay such individual's benefits to such conservator, person legally charged with such individual's care, or institution then contributing toward or providing for the care and maintenance of such individual. Any such payment shall constitute a complete discharge of any liability of the Company and the Plan for such individual. 5.8 Information. Each Participant shall keep the Company informed of his or her current address and the current address of his or her Designated Beneficiary. The Company shall not be obligated to search for any person. If such person(s) is (are) not located within three (3) years after the date on which payment of the Participant's benefits payable under this Plan may first be made, payment may be made as though the Participant or his or her Designated Beneficiary had died at the end of such three-year period. 5.9 Loss. Notwithstanding any provision herein to the contrary, neither the Company nor any individual acting as an employee or agent of the Company shall be liable to any Participant, his or her Designated Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of the Company or any such employee or agent of the Company. 5.10 Indemnification. The Company shall indemnify and hold harmless the members of the Board of Directors, and any other employees to whom any responsibility with respect to the Plan is allocated or delegated, from and against any and all liabilities, costs and expenses, including attorneys' fees, incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and under ERISA, other than such liabilities, costs and expenses as may result from the bad faith, willful misconduct or criminal acts of such persons or to the extent such indemnification is specifically prohibited by ERISA. The Company shall have the obligation to conduct the defense of such persons in any proceeding to which this Section applies. If any Board member or any employee covered by this indemnification clause determines that the defense provided by the Company is inadequate, that member or employee shall be entitled to retain separate legal counsel for his or her defense and the Company shall be obligated to pay for all reasonable legal fees and other court costs incurred in the course of such defense unless a court of competent jurisdiction finds such person has acted in bad faith or engaged in willful misconduct or criminal acts. 5.11 Applicable Law. All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and the extent not preempted by such laws, by the laws of the State of California. -8- 9 5.12 Withholdings. All benefit payments under this Plan shall be reduced by taxes and other required or authorized withholdings. The Company may also, in its discretion, reduce any benefit payment payable hereunder to a Participant by any amounts that the Participant owes the Company at the time of the payment from the Plan. ARTICLE VI CLAIMS PROCEDURE 6.1 Claims Procedure. An initial claim for benefits under the Plan must be made by the Participant or his or her Designated Beneficiary in accordance with the terms of the Plan through which the benefits are provided. Not later than 90 days after receipt of such a claim, the Claims Reviewer will render a written decision on the claim to the claimant, unless special circumstances require the extension of such 90-day period. If such extension is necessary, the Claims Reviewer shall provide the Participant or his or her Designated Beneficiary with written notification of such extension before the expiration of the initial 90-day period. Such notice shall specify the reason or reasons for such extension and the date by which the final decision can be expected. In no event shall such extension exceed a period of 90 days from the end of the initial 90-day period. In the event the Claims Reviewer denies the claim of a Participant or his or her Designated Beneficiary in whole or in part, the Claims Reviewer's written notification shall specify, in a manner calculated to be understood by the claimant, the reason for the denial; a reference to the Plan or other document or form that is the basis for the denial; a description of any additional material or information necessary for the claimant to perfect the claim; an explanation as to why such information or material is necessary; and an explanation of the applicable claims procedure. Should the claim be denied in whole or in part and should the claimant be dissatisfied with the Claim's Reviewer's disposition of the claimant's claim, the claimant may have a full and fair review of the claim by the Company upon written request therefore submitted by the claimant or the claimant's duly authorized representative and received by the Company within 60 days after the claimant receives written notification that the claimant's claim has been denied. In connection with such review, the claimant or the claimant's duly authorized representative shall be entitled to review pertinent documents and submit the claimant's views as to the issues, in writing. The Company shall act to deny or accept the claim within 60 days after receipt of the claimant's written request for review unless special circumstances require the extension of such 60-day period. If such extension is necessary, the Company shall provide the claimant with written notification of such extension before the expiration of such initial 60-day period. In all events, the Company shall act to deny or accept the claim within 120 days of the receipt of the claimant's written request for review. The action of the Company shall be in the form of a written notice to the claimant and its contents shall include all of the requirements for action on the original claim. In no event may a claimant commerce legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Article VII. -9- 10 IN WITNESS WHEREOF, ITLA Capital Corporation has caused this Plan to be executed on this _____ day of ________________, 2000. By: ------------------------------------------ Jeffrey Lipscomb, Member of the Board of Directors Chairman of the Compensation Committee On Behalf of ITLA Capital Corporation and Its Subsidiaries -10- 11 ITLA CAPITAL CORPORATION SALARY CONTINUATION PLAN EXHIBIT A
Designated Participant Date of Designation Salary Continuation Benefit - ---------------------- ------------------- --------------------------- George Haligowski March 31, 2000 75 percent of Mr. Haligowski's average annual base salary for the three full calendar years preceding the calendar year in which he becomes eligible for benefits under Article III of the Plan. The monthly salary continuation benefit shall be 1/12th of the annual amount determined under the preceding sentence.
-11- EX-27 5 ex27.txt FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 11,348 32,466 0 0 48,062 0 0 1,199,297 25,515 1,302,330 924,586 27,500 14,496 206,801 0 0 128,947 0 128,947 55,297 2,765 0 58,062 26,390 31,265 26,797 1,800 1,412 11,871 14,844 14,844 0 0 8,837 1.23 1.21 4.58 9,767 0 918 36,349 19,895 1,185 391 25,515 25,515 0 0 INCLUDED IN (EXPENSE--OTHER) IS A $1,400,000 NONRECURRING CHARGE RELATING TO THE RELOCATION OF IMPERIAL CAPITAL BANK'S HEADQUARTERS TO LA JOLLA, CALIFORNIA THE ALLOWANCE FOR LOAN LOSSES INCREASED DUE TO PURCHASES OF $4,614,000 DURING THE PERIOD
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