<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): November 19, 1996
BANK PLUS CORPORATION
- -------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-28292 95-4571410
- ------------------ ----------------- ------------------
(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
4565 COLORADO BOULEVARD, LOS ANGELES, CALIFORNIA 90039
- -------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 241-6215
-----------------
N/A
- -------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 5. OTHER EVENTS
Bank Plus Corporation ("Registrant") is a savings and loan holding company
for Fidelity Federal Bank, A Federal Savings Bank (the "Bank"). Registrant
became subject to the reporting requirements of the Securities and Exchange
Act on May 15, 1996 when its registration statement on Form 8-B became
effective. Registrant is the successor issuer to the Bank which, prior to
the reorganization and merger with Registrant, was a publicly held
federally chartered savings and loan institution filing reports with the
Office of Thrift Supervision ("OTS").
Registrant is hereby filing the Quarterly Report on Form 10-Q of the Bank
for the quarterly period ended March 31, 1996 (the "Form 10-Q"), which was
filed with the OTS on April 30, 1996, in anticipation of filing a
Registration Statement on Form S-8 which would incorporate the Form 10-Q by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
99.1 Quarterly Report on Form 10-Q of Fidelity Federal Bank, A Federal
Savings Bank for the quarterly period ended March 31, 1996, as
filed with the Office of Thrift Supervision on April 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
BANK PLUS CORPORATION
Date: November 19, 1996 By: /s/ Richard M. Greenwood
--------------------------------
Richard M. Greenwood
Chairman and Chief Executive
Officer
<PAGE>
===============================================================================
OFFICE OF THRIFT SUPERVISION
1700 G STREET, N.W.
WASHINGTON, D.C. 20552
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 March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to____________
OTS DOCKET NUMBER 5770
----------------------
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UNITED STATES 95-1782887
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4565 COLORADO BOULEVARD 90039
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 241-6215
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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
_____ _____
As of April 30, 1996, Registrant had outstanding 18,242,465 shares of Class A
Common Stock, par value $.01 per share.
===============================================================================
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited) as of March 31,
1996 and December 31, 1995..................................................... 1
Consolidated Statements of Operations (Unaudited) for the three months ended
March 31, 1996 and 1995........................................................ 2
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
March 31, 1996 and 1995....................................................... 3
Notes to Consolidated Financial Statements.................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 26
Item 2. Changes in Securities......................................................... 27
Item 3. Defaults Upon Senior Securities............................................... 27
Item 4. Submission of Matters to a Vote of Security Holders........................... 27
Item 5. Other Information............................................................. 27
Item 6. Exhibits and Reports on Form 8-K.............................................. 28
a. Exhibits................................................................... 28
b. Reports on Form 8-K........................................................ 30
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............. $ 57,697 $ 94,794
Investment securities available for
sale, at fair value................... 161,175 94,305
Mortgage-backed securities available
for sale, at fair value............... 29,337 31,733
Loans receivable, net of allowances of
$81,430 and $89,435 at March 31, 1996
and December 31, 1995, respectively... 2,878,311 2,935,116
Interest receivable.................... 21,083 20,162
Investment in FHLB stock............... 50,066 49,425
Real estate owned, net................. 23,533 19,521
Premises and equipment, net............ 34,117 34,333
Other assets........................... 24,245 20,055
---------- ----------
$3,279,564 $3,299,444
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits.............................. $2,579,062 $2,600,869
FHLB advances......................... 232,700 292,700
Commercial paper...................... 100,000 50,000
Mortgage-backed notes................. 100,000 100,000
Other borrowings...................... 9,900 --
Other liabilities..................... 30,363 26,832
---------- ----------
3,052,025 3,070,401
---------- ----------
Stockholders' equity:
Serial preferred stock, no par value,
10,000,000 shares authorized;
2,070,000 shares outstanding;
liquidation preference $25 per share. 51,750 51,750
Common Stock:
Class A Common stock, par value $.01
per share; 78,500,000 shares
authorized; 18,242,465 shares
outstanding......................... 182 182
Paid-in capital....................... 262,151 262,151
Unrealized (losses) gains on
securities........................... (695) 788
Accumulated deficit................... (85,849) (85,828)
---------- ----------
227,539 229,043
---------- ----------
$3,279,564 $3,299,444
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
INTEREST INCOME:
Loans.................................. $56,180 $55,455
Mortgage-backed securities............. 504 975
Investment securities and other........ 3,368 4,140
----------- ----------
Total interest income................. 60,052 60,570
----------- ----------
INTEREST EXPENSE:
Deposits............................... 31,033 28,433
FHLB advances.......................... 3,667 5,111
Other borrowings....................... 3,514 9,097
----------- ----------
Total interest expense................ 38,214 42,641
----------- ----------
NET INTEREST INCOME 21,838 17,929
Provision for estimated loan losses.... 3,905 4,020
----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
ESTIMATED LOAN LOSSES.................. 17,933 13,909
----------- ----------
NONINTEREST INCOME (EXPENSE):
Loan fee income........................ 814 1,373
Losses on loan sales, net.............. -- (292)
Fee income from sale of uninsured
investment products................... 1,199 1,209
Fee income on deposits and other income 790 898
(Losses) gains on securities
activities, net....................... (83) 939
Gains on sale of servicing............. -- 4,319
----------- ----------
2,720 8,446
----------- ----------
Provision for estimated real estate
losses................................ (668) (391)
Direct costs of real estate
operations, net....................... (1,787) (1,769)
----------- ----------
(2,455) (2,160)
----------- ----------
Total noninterest income.............. 265 6,286
----------- ----------
OPERATING EXPENSE:
Personnel and benefits................. 6,973 9,397
Occupancy.............................. 2,717 2,986
FDIC insurance......................... 2,031 2,060
Professional services.................. 2,503 2,295
Office-related expenses................ 1,086 1,253
Other.................................. 1,317 1,155
----------- ----------
Total operating expense............... 16,627 19,146
----------- ----------
EARNINGS BEFORE INCOME TAXES............ 1,571 1,049
Income tax expense..................... 40 --
----------- ----------
NET EARNINGS............................ $ 1,531 $ 1,049
Preferred dividends.................... 1,553 --
----------- ----------
NET (LOSS) EARNINGS AVAILABLE FOR
COMMON STOCKHOLDERS.................... $ (22) $ 1,049
=========== ==========
NET (LOSS) EARNINGS PER COMMON SHARE.... $ -- $ 0.16
=========== ==========
WEIGHTED AVERAGE COMMON SHARES 18,242,465 6,492,465
OUTSTANDING............................ =========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................... $ 1,531 $ 1,049
Adjustments to reconcile net earnings
to net cash provided
by (used in) operating activities:
Provisions for estimated loan and
real estate losses.................. 4,573 4,411
Losses (gains) on sale of loans and
securities.......................... 83 (647)
Amortization of deferred items, net.. (441) (889)
FHLB stock dividend.................. (649) (733)
Depreciation and amortization........ 978 1,568
Interest receivable increase........... (921) (451)
Other assets increase.................. (5,180) (7,880)
Interest payable increase.............. 1,598 9,069
Other liabilities increase............. 1,724 104
------- -------
Net cash provided by operating
activities........................ 3,296 5,601
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities
available for sale.................... (67,575) (45,569)
Maturities of investment securities
available for sale.................... -- 5,000
Proceeds from sales of investment
securities available for sale......... -- 65,154
Purchases of investment securities
held to maturity...................... -- (25,001)
Maturities of investment securities
held to maturity...................... -- 10,000
Purchases of mortgage-backed
securities available for sale......... -- (27,858)
Principal repayments of
mortgage-backed securities available
for sale.............................. 1,907 2,335
Proceeds from sales of mortgage-backed
securities available for sale......... -- 34,659
Purchases of mortgage-backed
securities held to maturity........... -- (16,234)
Principal repayments of mortgage-backed
securities held to maturity........... -- 1,606
Loans receivable decrease.............. 44,554 21,823
Net proceeds from sales of real estate. 3,944 2,490
Net dispositions of premises and
equipment............................. 236 257
------- -------
Net cash (used in) provided by
investing activities.............. (16,934) 28,662
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings (66,854) (34,783)
decrease..............................
Certificate accounts increase.......... 45,047 87,762
Payments of preferred stock dividend... (1,552) --
Proceeds from FHLB advances............ -- 80,000
Repayments of FHLB advances............ (60,000) (120,000)
Short-term borrowings increase
(decrease)............................ 59,900 (50,900)
------- -------
Net cash used in financing activities. (23,459) (37,921)
------- -------
Net decrease in cash and cash
equivalents....................... (37,097) (3,658)
Cash and cash equivalents at the
beginning of the period.............. 94,794 74,065
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $57,697 $70,407
======= =======
</TABLE>
(Continued on following page)
3
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
-------- -------
<S> <C> <C>
(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the period
for:
Interest on deposits, advances and
other borrowings..................... $35,939 $33,493
Income tax (refund) paid.............. (383) 85
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Additions to real estate acquired 8,874 11,399
through foreclosure...................
Loans originated to finance sale of
real estate acquired through
foreclosure........................... 250 1,283
Mortgage-backed securities transferred
from available for sale to held to -- 3,603
maturity..............................
Mortgage loans exchanged for -- 45,294
mortgage-backed securities............
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Fidelity Federal
Bank, A Federal Savings Bank and its subsidiaries (the "Bank" or "Fidelity").
The Bank offers a broad range of consumer financial services, including demand
and term deposits, and loans to consumers, through 33 full-service branches, all
of which are located in Southern California, principally in Los Angeles and
Orange counties. All significant intercompany transactions and balances have
been eliminated. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the 1996 presentation. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire year of 1996.
In the fourth quarter of 1995, Fidelity completed a plan of recapitalization
(the "1995 Recapitalization") of the Bank, pursuant to which Fidelity raised
approximately $134.4 million in net new equity through the sale of 2,070,000
shares of 12% Noncumulative Exchangeable Perpetual Preferred Stock, Series A
("Series A Preferred Stock"), and 47,000,000 shares of Class A Common Stock. As
part of the 1995 Recapitalization, Fidelity adopted the accelerated asset
resolution plan (the "Accelerated Asset Resolution Plan"), which is designed to
aggressively dispose of, resolve, or otherwise manage a pool of primarily
multifamily mortgage loans and real estate owned ("REO"). As a result, the Bank
recorded a $45.0 million loan portfolio charge in the allowance for estimated
loan losses which represents the estimated additional losses expected to be
incurred.
On February 9, 1996, the Bank's stockholders approved a one-for-four reverse
stock split (the "Reverse Stock Split") of the issued and outstanding shares of
the Bank's Common Stock. Upon effectiveness of the Reverse Stock Split, each
stockholder became the owner of one share of Common Stock for each four shares
of Common Stock held at the time of the Reverse Stock Split and became entitled
to receive cash in lieu of any fractional shares. All per share data and
weighted average common shares outstanding have been retroactively adjusted to
reflect the Reverse Stock Split.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and include all
information and footnotes required for interim financial statement presentation.
The financial information provided herein, including the information under the
heading Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" ("MD&A"), is written with the presumption that the users
of the interim financial statements have read, or have access to, the most
recent Annual Report on Form 10-K which contains the latest available audited
consolidated financial statements and notes thereto, as of December 31, 1995,
together with the MD&A as of such date.
Supplementary Earnings/Loss per Share Data
Assuming that 18,242,465 shares of Class A Common Stock were issued and
outstanding at the beginning of 1995, the net earnings per common share would
have been $0.06 for the quarter ended March 31, 1995.
5
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The following table summarizes the Bank's investment securities and mortgage-
backed securities ("MBS") portfolios. Amortized cost amounts shown for
securities included in the held to maturity portfolio that were previously
transferred from the available for sale portfolio may include unamortized market
value adjustments recorded at the time of transfer.
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED AGGREGATE
------------------
COST GAINS LOSSES FAIR VALUE
--------- ------ ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MARCH 31, 1996
Available for sale:
Investment Securities:
U.S. Treasury and agency securities... $ 152,265 $1,803 $ (75) $ 153,993
Other investments (1)................. 7,197 4 (19) 7,182
--------- ------ ------ ----------
159,462 1,807 (94) 161,175
--------- ------ ------ ----------
MBS:
FHLMC................................. 2,804 -- (39) 2,765
Participation Certificates............ 26,572 -- -- 26,572
--------- ------ ------ ----------
29,376 -- (39) 29,337
--------- ------ ------ ----------
Total available for sale................ $ 188,838 $1,807 $ (133) $ 190,512
========= ====== ====== ==========
DECEMBER 31, 1995
Available for sale:
Investment securities:
U.S. Treasury and agency securities... $ 84,200 $2,984 $ -- $ 87,184
Other investments (1)................. 7,449 52 (30) 7,471
--------- ------ ------ ----------
91,649 3,036 (30) 94,655
--------- ------ ------ ----------
MBS:
FHLMC................................. 3,068 -- (30) 3,038
FNMA.................................. 55 36 -- 91
Participation certificates............ 28,123 481 -- 28,604
--------- ------ ------ ----------
31,246 517 (30) 31,733
--------- ------ ------ ----------
Total available for sale................ $ 122,895 $3,553 $ (60) $ 126,388
========= ====== ====== ==========
</TABLE>
____________________
(1) Represents U.S. Treasury securities which have been pledged as credit
support to a securitization of loans by the Bank.
6
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
At the end of the first quarter of 1995, the Bank transferred $3.6 million of
MBS from its available for sale portfolio to its held to maturity portfolio, at
fair value.
As a consequence of concerns regarding the Bank's ability to maintain minimum
regulatory capital levels to remain adequately capitalized, the Bank
reclassified all held to maturity investment securities and MBS to its available
for sale portfolio in the second quarter of 1995. Subsequent to their
reclassification, certain available for sale securities were sold. Under the
Bank's current operating plan, all securities will be classified as available
for sale for the foreseeable future. The Bank may be precluded from classifying
securities as held to maturity for a period of time.
The following table summarizes the weighted average yield of debt securities
as of the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Available for sale:
Investment securities... 5.70% 4.70%
MBS..................... 7.04% 6.85%
</TABLE>
The following table presents the Bank's debt securities at March 31, 1996 by
contractual maturity. Actual maturities on MBS may differ from contractual
maturities due to prepayments.
<TABLE>
<CAPTION>
MATURITY
------------------------------------------------------------
WITHIN OVER 1 YEAR OVER 5 YEARS OVER 10
1 YEAR TO 5 YEARS TO 10 YEARS YEARS TOTAL
-------- ----------- ------------ -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Available for sale:
Investment securities... $ 25,137 $ 93,504 $ 10,025 $ 32,509 $ 161,175
MBS..................... -- -- -- 29,337 29,337
-------- ----------- ------------ -------- ---------
$ 25,137 $ 93,504 $ 10,025 $ 61,846 $ 190,512
======== =========== ============ ======== =========
</TABLE>
Net unrealized gains (losses) associated with the available for sale
securities which are included in stockholders' equity in the consolidated
statement of financial condition consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
--------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net unrealized (losses) gains, securities... $(1,230) $127
Net unrealized gains, hedging activities.... 535 661
------- ----
Net unrealized (losses) gains............. $ (695) $788
======= ====
</TABLE>
7
<PAGE>
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
The following gains and losses were realized from the sale of investment
securities and MBS, the costs of which were computed on a specific
identification method, during the periods indicated:
<TABLE>
<CAPTION>
SALES GAINS LOSSES
------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31,
- -------------------------------
1996............... $ -- $ -- $ --
1995............... 99,813 749 (566)
</TABLE>
The Bank has engaged in certain option activities related to securities.
Realized losses from such activities totaled $0.1 million for the quarter ending
March 31, 1996 compared to realized gains of $0.8 million for the comparable
period in 1995. There were no open positions in this program at March 31, 1996.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Fidelity offers a broad range of consumer financial services, including demand
and term deposits, and loans to consumers, through 33 full-service branches, all
of which are located in Southern California, principally in Los Angeles and
Orange counties. At this time, the Bank primarily provides residential mortgages
and consumer loans, which the Bank does not underwrite or fund, by referral to
certain established providers of mortgage and consumer loan products with which
the Bank has negotiated strategic alliances. In addition, through its
subsidiary, Gateway Investment Services, Inc. ("Gateway"), a National
Association of Securities Dealers, Inc. ("NASD") registered broker/dealer, the
Bank provides customers with uninsured investment products, including a number
of mutual funds, annuities and unit investment trusts. The principal executive
offices of Fidelity are located at 4565 Colorado Boulevard, Los Angeles,
California 90039, telephone number (818) 241-6215.
RECENT DEVELOPMENTS
1995 Recapitalization
In the fourth quarter of 1995, Fidelity completed the 1995 Recapitalization of
the Bank, pursuant to which Fidelity raised approximately $134.4 million in net
new equity. As part of the 1995 Recapitalization, Fidelity adopted an
Accelerated Asset Resolution Plan which is designed to aggressively dispose of,
resolve or otherwise manage a pool of primarily multifamily loans. See "--
Accelerated Asset Resolution Plan."
On February 9, 1996, the Bank's stockholders approved a one-for-four Reverse
Stock Split of the issued and outstanding shares of the Bank's Class A Common
Stock. Upon effectiveness of the Reverse Stock Split, each stockholder became
the owner of one share of Common Stock for each four shares of Common Stock held
at the time of the Reverse Stock Split and became entitled to receive cash in
lieu of any fractional shares. All per share data and weighted average common
shares outstanding have been retroactively adjusted to reflect the Reverse Stock
Split.
Also in February 1996, Fidelity filed an application with the Office of Thrift
Supervision ("OTS") to reorganize into a unitary savings and loan holding
company structure (the "Holding Company Reorganization"). The OTS has approved
the application for the Holding Company Reorganization. The OTS is currently
reviewing certain other applications related to the Holding Company
Reorganization, approval of which is expected in due course. At the Bank's
annual stockholders' meeting held April 24, 1996, the Holding Company
Reorganization was approved by the stockholders. It is anticipated that,
pursuant to the proposed Holding Company Reorganization, the Bank would become a
subsidiary of Bank Plus Corporation, a newly-formed Delaware holding company
("Bank Plus"), and that the issued and outstanding shares of Fidelity's Common
Stock would be converted into issued and outstanding shares of common stock of
Bank Plus.
Effective March 14, 1996, the Bank's Class A Common Stock was listed on the
Nasdaq National Market ("NASDAQ") under the symbol "FIDF". The Bank believes
that listing on NASDAQ will facilitate the marketability and liquidity of the
Class A Common Stock.
OTS Examinations
The OTS is nearing the completion of its annual safety and soundness
examination. While a final report of examination has not been issued,
management believes that the primary areas of regulatory concern will relate to
the Bank's asset quality relative to peer thrifts, earnings history, interest
rate risk management, and the need for stronger controls and increased
management supervision in the treasury department functions. The Bank is
addressing all of the OTS concerns. As a result of the findings during the
examination process, the Bank has been notified that it is no longer considered
by the OTS to be an institution "requiring more than normal supervision."
9
<PAGE>
In the fourth quarter of 1995, the OTS completed the Compliance and Community
Reinvestment Act ("CRA") examinations of the Bank. The Bank has received a
satisfactory compliance rating. The Bank also received a "needs improvement" in
the CRA area. While management strongly disagrees with the examiners' CRA
findings, the result of which could have an adverse effect on certain of the
Bank's planned activities, management is evaluating plans to contest the CRA
rating through the normal appeal procedures. The OTS examiners have indicated
that the "needs improvement" rating stems directly from the Bank's cessation of
lending primarily during the first nine months of 1995 relative to the 24 month
examination period. The Bank's curtailment of loan origination activities
during the examination period was necessitated by its change in business
strategy to de-emphasize multifamily loan originations to conserve capital. The
Bank is evaluating various options to otherwise respond to the rating. These
actions may include the purchase of whole loans for the Bank's portfolio and
other actions.
Business Strategy
Fidelity's business strategy is to (i) improve the quality of its loan
portfolio by reducing the level of problem assets through aggressive management
and resolution of excessive levels of problem assets, including execution of the
Accelerated Asset Resolution Plan (as discussed below), (ii) continue to
increase operating efficiency and reduce and maintain lower levels of operating
expenses and (iii) be a consumer-focused provider of financial services, by
enhancing its franchise to integrate its traditional services and products
(deposit services, checking and savings accounts) with the offering of
investment products by Gateway and consumer credit products through strategic
partners. As a part of such strategy, management continues to explore new
opportunities to expand the integrated sales platform, to increase fee income
growth, and to build upon the use of technology in delivering financial products
and services. The Bank is examining the use of various electronic delivery
systems and software to enhance customer convenience and the Bank's fee income
opportunities.
Accelerated Asset Resolution Plan
The Bank's business strategy includes the reduction of risk in the Bank's
multifamily portfolio. Upon the successful closing of the 1995 Recapitalization,
the Bank adopted the Accelerated Asset Resolution Plan designed to aggressively
dispose of, resolve or otherwise manage a pool of primarily multifamily loans
which generally have lower debt coverage ratios than the remainder of the Bank's
multifamily loan portfolio and thereby are considered by the Bank to have higher
risk of future nonperformance or impairment relative to the remainder of the
Bank's multifamily loan portfolio. This plan reflects both an acceleration in
estimated timing of resolution of assets within the pool, as well as a potential
change in recovery method from that which would be anticipated through the
normal course of business.
As of March 31, 1996, the Accelerated Asset Resolution Pool was comprised of
297 assets with an aggregate gross book value of approximately $150.8 million,
consisting primarily of accruing and non accruing multifamily real estate loans
and REO properties. As of March 31, 1996, the Bank had resolved assets with an
aggregate gross book value of $61.3 million, and utilized $7.8 million in
Accelerated Asset Resolution Pool reserves.
In an effort to maximize recovery on loans included in the accelerated
resolution pool, the Accelerated Asset Resolution Plan provides for a range of
possible methods of resolution including, but not limited to (i) the bulk sale
of loans, (ii) individual loan restructuring, which may include additional
extensions of credit or write-off of existing principal, (iii) foreclosure and
sale of collateral properties, and (iv) securitization of loans. While
resulting in reduced recoveries on certain assets, the Accelerated Asset
Resolution Plan is intended to reduce, among other things, levels of problem
assets, the related utilization of management resources, and direct and indirect
costs of credit administration and problem asset management. Execution of this
plan will allow management to focus on the Bank's core operations.
10
<PAGE>
Continued Reduction of Operating Expenses
During the first quarter of 1996 as compared to the same 1995 period, the Bank
reduced quarterly operating expenses by 13.2%, including reductions in personnel
expenses of 25.8%, which reflect a reduction in the quarterly average number of
full-time-equivalent employees of 25.1% (from 713 during 1995 to 534 during
1996).
Insurance Premium Assessments
FDICIA directed the FDIC to establish a risk-based system for setting deposit
insurance premium assessments. The FDIC has implemented such a system, under
which an institution's insurance assessments will vary depending on the level of
capital the institution holds and the degree to which it is the subject of
supervisory concern to the FDIC.
Congress has discussed proposing legislation to address the disparity in bank
and thrift deposit insurance premiums. The proposed legislation would, among
other things, impose a requirement on all SAIF member institutions to fully
recapitalize the SAIF by paying a one-time special assessment of approximately
80 basis points on all assessable deposits as of a certain date.
While the outcome of the proposed legislation cannot be predicted with
certainty, it is possible that some kind of legislative or regulatory action
will be taken that will impact the Bank's insured deposits. A one-time special
assessment of 80 basis points would result in the Bank paying approximately $22
million in additional SAIF premiums, gross of related tax benefits, if any. The
enactment of such legislation may have the effect of immediately reducing the
regulatory capital of SAIF member institutions by the amount of the fee,
although provisions are included in the legislation that could exempt a savings
association from paying the assessment in a lump sum if the payment would result
in the association becoming undercapitalized. As of March 31, 1996, after
giving effect to the payment and deduction of an 80 basis point assessment, the
Bank's core and risk-based capital ratios would have been approximately 6.33%
and 11.42%, respectively, and the Bank would have remained well capitalized
under the PCA regulations.
Due to the uncertainty of the legislative process generally, management cannot
predict whether legislation reducing SAIF premiums and/or imposing a special
one-time assessment will be adopted, or, if adopted, the amount of the
assessment, if any, that would be imposed on the Bank.
RESULTS OF OPERATIONS
The Bank reported net earnings of $1.5 million ($0.00 per common share (after
giving effect to the preferred stock dividend of $1.6 million); computed on the
basis of 18,242,465 weighted average common shares outstanding) for the three
months ended March 31, 1996, compared to net earnings of $1.0 million ($0.16 per
common share; computed on the basis of 6,492,465 weighted average common shares
outstanding) for the same period in 1995.
Results of operations for the quarter ended March 31, 1996, as compared to the
same period in 1995, were favorably affected by: (a) $3.9 million increase in
net interest income primarily due to the impact of rising interest rates on the
Bank's interest-earning assets, (b) decreased operating expenses of $2.5
million, and (c) decreased provisions for loan losses of $0.1 million. These
favorable variances were partially offset by: (a) a reduction in noninterest
income, primarily due to gains on sale of servicing of $4.3 million in the first
quarter of 1995 with no comparable amounts in 1996, and (b) increased real
estate provisions and costs of $0.3 for the quarter ended March 31, 1996.
NET INTEREST INCOME
Net interest income is the difference between interest earned on loans,
mortgage-backed securities and investment securities ("interest-earning assets")
and interest paid on savings deposits and borrowings ("interest-bearing
liabilities").
11
<PAGE>
For the three months ended March 31, 1996, net interest income totaled $21.8
million, increasing by $3.9 million from $17.9 million for the comparable period
in 1995.
Net interest income is affected by (a) the average volume and repricing
characteristics of the Bank's interest-earning assets and interest-bearing
liabilities, (b) the level and volatility of market interest rates, (c) the
level of nonaccruing loans and (d) the interest rate spread between the yields
earned and the rates paid.
The following table presents the primary determinants of the Bank's net
interest income for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
DAILY YIELD/ DAILY YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- -------- -------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................................. $3,004,641 $56,180 7.48% $3,342,889 $55,455 6.64%
MBS.................................... 30,430 504 6.63 57,558 975 6.78
Investment securities.................. 147,639 2,720 7.39 208,970 3,407 6.61
Investment in FHLB stock............... 49,866 648 5.21 47,502 733 6.26
---------- ------- ---------- -------
Total interest-earning assets........ 3,232,576 60,052 7.43 3,656,919 60,570 6.63
------- -------
Noninterest-earning assets.............. 52,017 95,939
---------- ----------
Total assets......................... $3,284,593 $3,752,858
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits....................... $ 304,643 755 0.99 $ 309,741 539 0.71
Savings deposits...................... 154,724 899 2.33 191,217 1,289 2.73
Time deposits......................... 2,116,138 29,379 5.57 2,170,225 26,605 4.97
---------- ------- ---------- -------
Total deposits....................... 2,575,505 31,033 4.83 2,671,183 28,433 4.32
---------- ------- ---------- -------
Borrowings............................. 444,591 7,181 6.48 895,714 14,208 6.43
---------- ------- ---------- -------
Total interest-bearing liabilities.... 3,020,096 38,214 5.08 3,566,897 42,641 4.85
---------- ------- ---------- -------
Noninterest-bearing liabilities......... 35,973 30,077
Stockholders' equity.................... 228,524 155,884
---------- ----------
Total liabilities and equity............ $3,284,593 $3,752,858
========== ==========
Net interest income; interest rate
spread................................. $21,838 2.35% $17,929 1.78%
======= ===== ======= =====
Net yield on interest-earning assets
("net interest margin")................ 2.68% 1.90%
===== =====
Average nonaccruing loan balance
included in average loan balance....... $ 72,325 $ 80,359
========== ==========
Net delinquent interest reserve removed
from interest income................... $ 1,691 $ 1,296
======= =======
Reduction in net yield on
interest-earning assets due to
delinquent interest (in basis points).. 21 14
===== =====
</TABLE>
12
<PAGE>
The following tables present the dollar amount of changes in interest income
and expense for each major component of interest-earning assets and interest-
bearing liabilities and the amount of change attributable to changes in average
balances and average rates for the periods indicated. Because of numerous
changes in both balances and rates, it is difficult to allocate precisely the
effects thereof. For purposes of these tables, the change due to volume is
initially calculated as the change in average balance multiplied by the average
rate during the prior period and the change due to rate is calculated as the
change in average rate multiplied by the average volume during the prior period.
Any change that remains unallocated after such calculations is allocated
proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO MARCH 31, 1995
FAVORABLE (UNFAVORABLE)
------------------------------------
VOLUME RATE NET
------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans............................ $ (5,917) $ 6,642 $ 725
Mortgage-backed securities....... (450) (21) (471)
Investment securities............ (1,071) 384 (687)
Investment in FHLB stock......... 38 (123) (85)
-------- -------- --------
Total interest income......... (7,400) 6,882 (518)
-------- -------- --------
Interest expense:
Deposits:
Demand deposits................. 9 (225) (216)
Savings deposits................ 220 170 390
Time deposits................... 622 (3,396) (2,774)
-------- -------- --------
Total deposits................ 851 (3,451) (2,600)
Borrowings....................... 6,552 475 7,027
-------- -------- --------
Total interest expense.......... 7,403 (2,976) 4,427
-------- -------- --------
Increase in net interest income... $ 3 $ 3,906 $ 3,909
======== ======== ========
</TABLE>
The $3.9 million increase in net interest income between the first quarter
1996 and the first quarter 1995 was primarily the result of increased rates on
average interest-earning assets combined with a decline in the average level of
interest-bearing liabilities. This was partially offset by a decline in the
level of interest-earning assets and increased rates on interest-bearing
liabilities. The rates on interest-earning assets and interest-bearing
liabilities of the Bank both tend to rise or fall in step with the Federal Home
Loan Bank ("FHLB") Eleventh District Cost of Funds Index ("COFI"), the index to
which most of the Bank's loans are tied. However, due to reporting and
contractual look-back periods contained in the Bank's loan documents, the 92% of
the Bank's loans which are indexed to COFI, as with all COFI portfolios in the
industry, do not reprice until some time after the industry liabilities
composing COFI reprice. The Bank's liabilities reprice in the same period as
the cost of funds of institutions which comprise the FHLB Eleventh District. In
the Bank's case, the lag between the repricing of its liabilities and its
adjustable rate mortgage ("ARM") loans indexed to COFI is approximately four
months. As such, when rates rise sharply there will be upward pressure on rates
paid on deposit accounts and wholesale borrowings, and the Bank's net interest
income will be adversely affected until the majority of its interest-earning
assets fully reprice. Conversely, in a falling interest rate environment, net
interest income will be positively affected. As interest rates continued to
rise in the first quarter 1996, the Bank's liabilities continued to reprice at
higher rates throughout the quarter.
ASSET/LIABILITY MANAGEMENT
To reduce fluctuations in net interest income, the Bank maintains a loan
portfolio with a yield that generally fluctuates in step with the cost of its
liabilities. The Bank has traditionally done this by originating and purchasing
primarily ARM loans for its portfolio. ARM loans comprised 97% of the total
loan portfolio at March 31, 1996.
13
<PAGE>
All else being equal, to the extent that the composition of the Bank's
liabilities parallels the composition of COFI, changes in the Bank's cost of
funds should parallel changes in COFI. However, due to the lag in COFI-based
ARMs repricing discussed above and depending upon the level of increase or
decrease in interest rates, interim disparities do occur. The decline in short-
term rates from 1990 to early 1993 contributed significantly to the Bank's net
interest margin. Subsequent increases in rates have caused a reduction in net
interest income. If interest rates were to increase again, Fidelity's net
interest income may again be negatively impacted.
The Bank may employ interest rate swaps, caps and floors in the management of
interest rate risk. Interest rate swaps generally involve the exchange of fixed
or floating interest payments without the exchange of the underlying principal
amounts. Interest rate caps and floors generally involve the payment of a one-
time premium to a counterparty who, if interest rates rise or fall above or
below a predetermined level, will make payments to the Bank at an agreed upon
rate for the term of the agreement until such time as interest rates fall below
or rise above the cap or floor level.
During the first quarter of 1995, the Bank terminated interest rate swap
agreements with a notional amount of $700 million, resulting in a deferred gain
of $1.2 million, which was fully amortized in 1995. Also, during the fourth
quarter of 1995, the Bank terminated the remaining interest swap agreements with
a notional amount of $446.7 million and as a result recorded a deferred loss of
$3.2 million. As part of its total risk management, the Bank entered into these
interest rate swap agreements in 1993 and 1994 with various reputable
counterparties. An interest rate swap agreement is a financial transaction
where two counterparties agree to exchange different streams of payments over
time. An interest rate swap involves no exchange of principal either at
inception or upon maturity; rather, it involves the periodic exchange of
interest payments arising from an underlying notional principal amount. These
interest rate swap agreements are intended to modify the repricing
characteristics of specific assets and liabilities. There were no outstanding
interest rate swap agreements at March 31, 1996.
The Bank is developing a plan to increase the asset size of the Bank by up to
$500 million during 1996. The plan, in general terms, is based upon certain
risk adjusted return and liquidity objectives. This action is designed to
increase the securities and loan portfolios to enhance the Bank's earnings
capabilities. The proposed increase in earning assets may be at a lower
interest rate spread than the Bank is currently yielding. Accordingly, if the
plan is implemented, the Bank's interest rate spread may decline. Management
intends to implement the plan in a manner that will not adversely affect the
current well-capitalized status of the Bank.
14
<PAGE>
The following table sets out the maturity and rate sensitivity of the Bank's
interest-earning assets and interest-bearing liabilities as of March 31, 1996.
"Gap," as reflected in the table, represents the estimated difference between
the amount of interest-earning assets and interest-bearing liabilities repricing
during future periods and based on certain assumptions, including those stated
in the notes to the table.
MATURITY AND RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
MATURITY OR REPRICING
-----------------------------------------------------------------------------------
WITHIN 3 4-12 1-5 6-10 OVER 10
MONTHS MONTHS YEARS YEARS YEARS TOTAL
----------- ------------ --------- ------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Cash................................... $ 17,695 $ -- $ -- $ -- $ -- $ 17,695
Investment securities (1) (2).......... 72,991 2,212 93,504 10,025 32,509 211,241
MBS (1)................................ 26,572 2,765 -- -- -- 29,337
Loans receivable:
ARMs and other adjustables (3)........ 2,431,113 301,371 147,208 3,269 115 2,883,076
Fixed rate loans...................... 279 1,397 7,912 25,673 47,581 82,842
---------- ------------ --------- ------- ------- ----------
Total gross loans receivable........ 2,431,392 302,768 155,120 28,942 47,696 2,965,918
---------- ------------ --------- ------- ------- ----------
Total.............................. 2,548,650 307,745 248,624 38,967 80,205 $3,224,191
---------- ------------ --------- ------- ------- ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts (4)... 375,684 -- -- -- -- $ 375,684
Money market accounts (4)........... 90,032 -- -- -- -- 90,032
Fixed maturity deposits:
Retail customers................... 426,855 1,480,416 188,687 792 1,209 2,097,959
Wholesale customers............... 2,190 4,929 8,268 -- -- 15,387
---------- ------------ --------- ------- ------- ----------
Total deposits................... 894,761 1,485,345 196,955 792 1,209 2,579,062
---------- ------------ --------- ------- ------- ----------
Borrowings:
FHLB advances (3)................... 212,700 -- 20,000 -- -- 232,700
Other............................... 83,900 26,000 100,000 -- -- 209,900
---------- ------------ --------- ------- ------- ----------
Total borrowings................... 296,600 26,000 120,000 -- -- 442,600
---------- ------------ --------- ------- ------- ----------
Total............................ 1,191,361 1,511,345 316,955 792 1,209 $3,021,662
---------- ------------ --------- ------- ------- ==========
REPRICING GAP.......................... $1,357,289 $ (1,203,600) $ (68,331) $38,175 $78,996
========== ============ ========= ======= =======
GAP TO TOTAL ASSETS.................... 41.39% (36.70)% (2.08)% 1.16% 2.41%
CUMULATIVE GAP TO TOTAL ASSETS......... 41.39% 4.69% 2.61% 3.77% 6.18%
</TABLE>
- ----------
(1) Repricings shown are based on the contractual maturity or repricing
frequency of the instrument.
(2) Investment securities include FHLB stock of $50.1 million.
(3) ARMs and variable rate borrowings from the FHLB system ("FHLB advances") are
primarily in the shorter categories as they are subject to interest rate
adjustments.
(4) These liabilities are subject to daily adjustments and are therefore
included in the "Within 3 Months" category.
Analysis of the Gap provides only a static view of the Bank's interest rate
sensitivity at a specific point in time. The actual impact of interest rate
movements on the Bank's net interest income may differ from that implied by any
Gap measurement. The actual impact on net interest income may depend on the
direction and magnitude of the interest rate movement, as well as competitive
and market pressures.
Fidelity's interest rate risk is reviewed on an ongoing basis. At December 31,
1995, the latest date for which information is available, the Bank's interest
rate sensitivity measure was in the 90th percentile (only 10% of institutions
were less sensitive) of all institutions supervised by the OTS, as measured by
the OTS' interest rate risk model. Due to the Bank's relatively low level of
interest rate risk, the Bank would not have been required to
15
<PAGE>
include an interest rate risk component in its risk-based capital had the new
regulation regarding such inclusion been in effect at March 31, 1996.
ASSET QUALITY
The Bank's loan portfolio is primarily located in Southern California and is
comprised principally of single family and multifamily (2 units or more)
residential loans. At March 31, 1996, 19% of Fidelity's real estate loan
portfolio consisted of California single family residences, while another 11%
and 62% consisted of California multifamily dwellings of 2 to 4 units and 5 or
more units, respectively. At March 31, 1995, 21% of Fidelity's real estate loan
portfolio consisted of California single family residences while another 12% and
59% consisted of California multifamily dwellings of 2 to 4 units and 5 or more
units, respectively.
The performance of the Bank's multifamily and commercial loan portfolios has
been adversely affected by Southern California economic conditions. These
portfolios are particularly susceptible to the potential for further declines in
the Southern California economy, such as increasing vacancy rates, declining
rents, increasing interest rates, declining debt coverage ratios, and declining
market values for multifamily and commercial properties. In addition, the
possibility that investors may abandon properties or seek bankruptcy protection
with respect to properties experiencing negative cash flow, particularly where
such properties are not cross-collateralized by other performing assets, can
also adversely affect the multifamily loan portfolio. While diminishing in
impact, the Bank's portfolio continues to experience some adverse effects from
the January 17, 1994 Northridge Earthquake.
California has been hit particularly hard by the current recession and
Southern California has experienced the brunt of the economic downturn in the
state. The Southern California economy is characterized by higher unemployment
than the national and state averages and real estate values that, in many cases,
continue to decline. There can be no assurances that these economic conditions
will improve in the near future as many factors key to recovery may be impacted
adversely by the Federal Reserve Board Bank's interest rate policy as well as
other factors. Consequently, rents and real estate values may not stabilize,
which may affect future delinquency and foreclosure levels and may adversely
impact the Bank's asset quality, earnings performance and capital levels.
16
<PAGE>
During the first quarter of 1996, total delinquent loans decreased $34.3
million, or 34.0%, from March 31, 1995. The following table presents loan
delinquencies by number of days delinquent and by property type as of the dates
indicated. All assets are reported net of specific reserves and writedowns.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
---------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Delinquencies by number of days:
30 to 59 days.......................... 0.59% 0.43% 0.60%
60 to 89 days.......................... 0.33 0.24 0.35
90 days and over....................... 1.37 1.74 2.20
------- ---------- ----------
Loan delinquencies to net loan portfolio. 2.29% 2.41% 3.15%
======= ========== ==========
Delinquencies by property type:
Single family:
30 to 59 days.......................... $ 4,285 $ 4,283 $ 3,974
60 to 89 days.......................... 1,704 924 1,521
90 days and over....................... 5,897 7,226 9,914
------- ---------- ----------
11,886 12,433 15,409
------- ---------- ----------
Percent to applicable loan portfolio.. 2.09% 2.10% 2.19%
Multifamily (2 to 4 units):
30 to 59 days.......................... 1,914 1,748 1,807
60 to 89 days.......................... 1,735 282 1,791
90 days and over....................... 4,951 6,671 9,069
------- ---------- ----------
8,600 8,701 12,667
------- ---------- ----------
Percent to applicable loan portfolio.. 2.60% 2.57% 3.28%
Multifamily (5 to 36 units):
30 to 59 days.......................... 8,427 5,434 8,884
60 to 89 days.......................... 5,128 5,801 7,983
90 days and over....................... 20,698 14,312 22,687
------- ---------- ----------
34,253 25,547 39,554
------- ---------- ----------
Percent to applicable loan portfolio.. 2.33% 1.71% 2.50%
Multifamily (37 units and over):
30 to 59 days.......................... 698 304 3,322
60 to 89 days.......................... -- -- --
90 days and over....................... 4,720 3,190 5,135
------- ---------- ----------
5,418 3,494 8,457
------- ---------- ----------
Percent to applicable loan portfolio.. 1.67% 1.07% 2.52%
Commercial and Industrial:
30 to 59 days.......................... 1,811 958 1,336
60 to 89 days.......................... 985 213 --
90 days and over....................... 3,845 20,511(1) 23,714(1)
------- ---------- ----------
6,641 21,682 25,050
------- ---------- ----------
Percent to applicable loan portfolio.. 2.94% 9.26% 10.27%
Total loan delinquencies, net............ $66,798 $ 71,857 $ 101,137
======= ========== ==========
Loan delinquencies to net loan portfolio. 2.29% 2.41% 3.15%
======= ========== ==========
</TABLE>
- ----------
(1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
17
<PAGE>
The following table presents net delinquent loans at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1996 1995 (1) 1995 (1) 1995 (1) 1995 (1)
--------- ------------- -------------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of days delinquent:
30 to 59 days.............. $17,135 $ 12,727 $ 17,963 $ 9,567 $ 19,323
60 to 89 days.............. 9,552 7,220 8,379 10,343 11,295
90 days and over........... 40,111 51,910 54,313 64,827 70,519
------- -------- -------- -------- --------
Total delinquencies..... $66,798 $ 71,857 $ 80,655 $ 84,737 $101,137
======= ======== ======== ======== ========
</TABLE>
_______________
(1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
Total classified assets increased $69.8 million or 31.9% from December 31,
1995, to $288.9 million at March 31, 1996. This increase was primarily due to an
increase of $74.6 million in performing classified assets during the first
quarter of 1996 as a result of the continued implementation of the loan grading
system. This enhanced grading process, started in the second half of 1995,
reviewed a substantial portion of the loan portfolio and as a result downgraded
a considerable number of loans to Special Mention or Substandard for reasons
other than degradation of collateral or the borrower's ability to fully repay
the debt. This increase was partially offset by a decrease in nonperforming
assets ("NPAs") of $7.8 million during the first quarter of 1996. The ratio of
NPAs to total assets decreased from 2.50% at March 31, 1995, to 1.94% at March
31, 1996. This decrease is primarily due to reduced levels of nonaccruing loans
at March 31, 1996, compared to March 31, 1995. All assets and ratios are
reported net of specific reserves and writedowns unless otherwise stated. The
following table presents asset quality details at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1996 1995 (1) 1995 (1) 1995 (1) 1995 (1)
--------- ------------ ------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NPAs by Type:
Nonaccruing loans................... $ 40,111 $ 51,910 $ 55,114 $ 64,944 $ 70,519
REO, net of REO GVA................. 23,533 19,521 37,550 27,808 21,350
-------- -------- -------- ------------ --------
Total NPAs......................... $ 63,644 $ 71,431 $ 92,664 $ 92,752 $ 91,869
======== ======== ======== ============ ========
NPAs by Composition:
Single family residences............ $ 9,461 $ 10,178 $ 12,396 $ 10,627 $ 11,549
Multifamily 2 to 4 units............ 10,197 9,269 11,266 10,593 10,843
Multifamily 5 units and over........ 34,202 25,923 36,956 37,987 36,266
Commercial and other................ 10,184 28,361 32,046 33,545 33,211
REO GVA............................. (400) (2,300) -- -- --
-------- -------- -------- ------------ --------
Total NPAs......................... 63,644 71,431 92,664 92,752 91,869
Total TDRs.......................... 53,745 32,691 47,340 47,991 52,932
-------- -------- -------- ------------ --------
Total TDRs and NPAs................ $117,389 $104,122 $140,004 $ 140,743 $144,801
======== ======== ======== ============ ========
Classified Assets:
NPAs................................ $ 63,644 $ 71,431 $ 92,664 $ 92,752 $ 91,869
Performing classified loans......... 222,279 147,646 88,337 74,140 73,979
Other classified assets............. 2,979 -- -- -- --
-------- -------- -------- ------------ --------
Total classified assets............ $288,902 $219,077 $181,001 $ 166,892 $165,848
======== ======== ======== ============ ========
Classified Asset Ratios:
Nonaccruing loans to total assets... 1.22% 1.57% 1.63% 1.88% 1.92%
NPAs to total assets................ 1.94% 2.16% 2.74% 2.68% 2.50%
TDRs to total assets................ 1.64% 0.99% 1.40% 1.39% 1.44%
NPAs and TDRs to total assets....... 3.58% 3.16% 4.14% 4.06% 3.93%
Classified assets to total assets... 8.81% 6.64% 5.35% 4.82% 4.50%
REO to NPAs......................... 36.98% 27.33% 40.52% 29.98% 23.24%
Nonaccruing loans to NPAs........... 63.02% 72.67% 59.48% 70.02% 76.76%
</TABLE>
- ----------
(1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
18
<PAGE>
Direct costs of foreclosed real estate operations totaled $1.8 million for
both the three months ended March 31, 1996, and 1995. The following table
provides information about the change in the book value and the number of
properties owned and foreclosed for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REO net book value...................... $23,533 $21,350
Increase in REO for the period.......... $ 4,012 $ 7,235
Number of real properties owned......... 131 73
Increase in number of properties owned
for the period......................... 22 9
Number of properties foreclosed for the 69 38
period.................................
Gross book value of properties
foreclosed............................. $20,563 $16,742
Average gross book value of properties
foreclosed............................. $ 298 $ 441
</TABLE>
19
<PAGE>
The following table summarizes the Bank's reserves, writedowns and certain
coverage ratios at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans:
GVA................................... $ 38,202 $ 48,921 $40,000
Specific reserves...................... 43,228(1) 40,514 22,834
---------- ---------- -------
Total allowance for estimated losses. $ 81,430(2) $ 89,435(2) $62,834
========== ========== =======
Writedowns (3)......................... $ 316 $ 316 $ 502
========== ========== =======
Total allowance and loan writedowns to
gross loans........................... 2.74% 2.96% 1.93%
Total loan allowance to gross loans (3) 2.73% 2.95% 1.92%
Loan GVA to loans (4).................. 1.31% 1.64% 1.23%
Loan GVA to nonaccruing loans.......... 95.24% 94.24% 56.72%
Nonperforming loans to total loans..... 1.39% 1.77% 2.20%
Real Estate Owned:
REO GVA................................ $ 400 $ 2,300 $ --
Specific reserves...................... 2,693 1,192 2,029
---------- ---------- -------
Total allowance for estimated losses. $ 3,093 $ 3,492 $ 2,029
========== ========== =======
Writedowns (3)......................... $ 18,157 $ 17,584 $19,964
========== ========== =======
Total REO allowance and REO writedowns
to gross REO.......................... 47.45% 51.92% 50.74%
Total REO allowance to gross REO (5)... 11.62% 15.17% 8.68%
REO GVA to REO (4)..................... 1.67% 10.54% --%
Total Loans and REO:
GVA.................................... $ 38,602 $ 51,221 $40,000
Specific reserves...................... 45,921 41,706 24,863
---------- ---------- -------
Total allowance for estimated losses. $ 84,523 $ 92,927 $64,863
========== ========== =======
Writedowns (3)......................... $ 18,473 $ 17,900 $20,466
========== ========== =======
Total allowance and writedowns to
gross loans and REO................... 3.41% 3.60% 2.57%
Total allowance to gross loans and REO 2.81% 3.04% 1.96%
(4)...................................
Total GVA to loans and REO............. 1.31% 1.70% 1.22%
Total GVA to NPAs...................... 60.27% 69.47% 43.54%
</TABLE>
- ----------
(1) Includes specific reserves on non-mortgage loans totaling $0.2 million.
(2) The allowance for estimated loan losses includes the effect of the $45
million reserve established in 1995 in connection with the adoption of the
Accelerated Asset Resolution Plan.
(3) Writedowns include cumulative charge-offs on outstanding loans and REO as of
the date indicated.
(4) Loans and REO, as applicable, in these ratios are calculated prior to their
reduction for loan and REO general valuation allowance ("GVA"),
respectively, but are net of specific reserves and writedowns.
(5) Net of writedowns.
20
<PAGE>
The following schedule summarizes the activity in the Bank's allowances for
estimated loan and real estate losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------
1996 1995
-------------------------------------- --------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ ---------- --------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance on January 1,......... $ 89,435 $ 3,492 $ 92,927 $ 67,202 $2,318 $ 69,520
Provision for losses......... 3,905 668 4,573 4,020 391 4,411
Charge-offs.................. (12,127) (1,391) (13,518) (9,473) (680) (10,153)
Allocation from GVA to REO... (324) 324 -- -- -- --
Recoveries and other......... 541 -- 541 1,085 -- 1,085
--------- -------- --------- -------- ------ ---------
Balance on March 31,.......... $ 81,430 $ 3,093 $ 84,523 $ 62,834 $2,029 $ 64,863
========= ======== ========= ======== ====== =========
</TABLE>
The following table details the activity affecting specific loss reserves for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTH ENDED
MARCH 31, 1996
--------------------------------------
REAL ESTATE
LOANS OWNED TOTAL
---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance on January 1,................. $ 40,514 $ 1,192 $ 41,706
Allocations from GVA to specific
reserves....................... 14,841 2,892 17,733
Charge-offs........................ (12,127) (1,391) (13,518)
--------- -------- ---------
Balance at end of period indicated.... $ 43,228 $ 2,693 $ 45,921
========= ======== =========
</TABLE>
NONINTEREST INCOME (EXPENSE)
Noninterest income has three major components: (a) noninterest income from
ongoing operations, which includes loan fee income, gains or losses on loans
held for sale, fees earned on the sale of securities and annuities and retail
banking fees, (b) income/expenses associated with REO, which includes both the
provision for real estate losses as well as income/expenses incurred by the Bank
associated with the operation of its REO properties and (c) gains and losses on
the sales of loan servicing, investment securities and mortgage-backed
securities. Items (b) and (c) can fluctuate widely, and could therefore mask the
underlying fee generating performance of the Bank on an ongoing basis.
Net noninterest income decreased by $6.0 million from net noninterest income
of $6.3 million in the first quarter 1995 to net noninterest income of $0.3
million in the first quarter 1996. The major components of this decrease are:
(a) other noninterest income (expense) decreased by $4.3 million as a result of
a net gain of $4.3 million realized from the sale of $435.8 million in rights to
service loans for others in the first quarter of 1995, with no comparable
amounts in 1996; (b) real estate provisions and costs increased by $0.3 million
as a result of increased levels of REO provisions; (c) net gains on securities
activities in the first quarter of 1996 decreased by $1.0 million primarily as a
result of increased sales of securities in 1995 for regulatory capital
maintenance purposes.
21
<PAGE>
OPERATING EXPENSES
Operating expenses decreased by $2.5 million to $16.6 million for the first
quarter 1996 compared to $19.2 million for the first quarter 1995. The change
was primarily due to (a) a $2.4 million decrease in personnel and benefit
expense due to a decline of 179 or 25.1% in the three month average number of
full-time equivalent employees, and (b) a decrease of $0.4 million in occupancy
and other office related costs. These favorable variances were partially offset
by an increase of $0.2 million in professional services and other costs.
Decreased operating expenses resulted in a decrease in the annualized
operating expense ratio to 2.04% for the first quarter 1996 from 2.07% for the
first quarter 1995, notwithstanding the decrease in total average asset size of
the Bank (from $3.8 billion for the quarter ended March 31, 1995 to $3.3
billion for the quarter ended March 31, 1996).
Due to the sensitivity of the operating expense ratio to changes in the size
of the balance sheet, management also looks at trends in the efficiency ratio to
assess the changing relationship between operating expenses and income. The
efficiency ratio measures the amount of cost expended by the Bank to generate a
given level of revenues in the normal course of business. It is computed by
dividing total operating expense by net interest income and noninterest income,
excluding infrequent items. A decrease in the efficiency ratio is favorable in
that it indicates that less expenses were incurred to generate a given level of
revenue.
The efficiency ratio decreased to 67.71% for the first quarter 1996 from
91.58% for the first quarter 1995. This decrease was due to increased net
interest income and decreased operating expense, which were partially offset by
decreased net noninterest income (expense).
INCOME TAXES
The Bank's combined federal and state statutory tax rate is approximately
42.4% of earnings before income taxes. The effective tax rate of 2.5% on
earnings before income taxes in the first quarter 1996 reflects the utilization
of federal and state net operating loss carryforwards for financial reporting
purposes. For the first quarter 1995, no income tax provision was recognized
due to the utilization of federal and state net operating loss carryforwards for
financial reporting purposes.
Due to the 1995 Recapitalization and the restructuring and recapitalization
completed in the third and fourth quarters of 1994 (the "1994 Restructuring and
Recapitalization"), the utilization in future periods of net operating loss
carryforwards generated prior to these events will be limited.
REGULATORY CAPITAL COMPLIANCE
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required the OTS to implement a system providing for regulatory sanctions
against institutions that are not adequately capitalized. The severity of these
sanctions increases to the extent that an institution's capital continues to
decline. Under FDICIA, the OTS issued the PCA Regulations which established
specific capital ratios for five separate capital categories as set forth below:
<TABLE>
<CAPTION>
CORE CAPITAL TO CORE CAPITAL
ADJUSTED TO TOTAL CAPITAL
TOTAL ASSETS RISK-WEIGHTED TO
(LEVERAGE RATIO) ASSETS RISK-WEIGHTED ASSETS
---------------- ------------- --------------------
<S> <C> <C> <C>
Well capitalized................. 5% or above 6% or above 10% or above
Adequately capitalized........... 4% or above 4% or above 8% or above
Undercapitalized................. Under 4% Under 4% Under 8%
Significantly undercapitalized... Under 3% Under 3% Under 6%
Critically undercapitalized...... Ratio of tangible equity to adjusted total assets of 2% or
less
</TABLE>
22
<PAGE>
The following table summarizes the capital ratios required by FDICIA for an
institution to be considered well capitalized and Fidelity's regulatory capital
at March 31, 1996 as compared to such ratios.
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL TO CORE CAPITAL TO TOTAL CAPITAL TO
TO ADJUSTED ADJUSTED RISK-WEIGHTED RISK-WEIGHTED
TOTAL ASSETS TOTAL ASSETS ASSETS ASSETS
--------------------- --------------------- ---------------------- ----------------------
BALANCE % BALANCE % BALANCE % BALANCE %
----------- ------- ----------- ------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity's regulatory capital... $ 227,800 6.95% $ 228,100 6.96% $ 228,100 11.24% $ 253,600 12.49%
Well capitalized requirement.... 98,300 3.00% 163,900 5.00% 121,800 6.00% 203,000 10.00%
---------- ----- ---------- ----- ---------- ------ ---------- ------
Excess capital.................. 129,500 3.95% $ 64,200 1.96% $ 106,300 5.24% $ 50,600 2.49%
========== ===== ========== ===== ========== ====== ========== ======
Adjusted assets (1)............. $3,277,500 $3,277,900 $2,030,400 $2,030,400
========== ========== ========== ==========
</TABLE>
- ----------
(1) The term "adjusted assets" refers to the term "adjusted total assets" as
defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core
capital requirements, and refers to the term "risk-weighted assets" as
defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital
requirements.
The proposed changes discussed in "Recent Developments--Insurance Premium
Assessments" would also have an impact on the Bank's capital ratios. As of
March 31, 1996, after giving effect to the payment and deduction of an 80 basis
point SAIF deposit assessment, the Bank's core and risk-based capital ratios
would have been approximately 6.33% and 11.42%, respectively, and the Bank would
have remained well-capitalized under the PCA Regulations.
FDICIA also required the OTS and the federal bank regulatory agencies to
revise their risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk, and risks
of nontraditional activities. Effective January 1, 1994, the OTS incorporated an
interest rate risk component into its regulatory capital rule. Under the revised
rule, savings institutions with "above-normal" interest rate risk exposure would
be subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. An institution's interest rate risk is measured
by the decline in the net present value ("NPV") of its assets that would result
from a hypothetical 200-basis point increase or decrease in market interest
rates divided by the estimated economic value of a bank's assets, as calculated
in accordance with guidelines set forth by the OTS. An institution whose
measured interest rate risk exposure exceeds 2% would be required to deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of a bank's assets. That dollar
amount would be deducted from a bank's total capital in calculating compliance
with its risk-based capital requirement. Under the rule, there is a lag between
the reporting date of an institution's financial data and the effective date for
the new capital requirement based on that data. However, the OTS has temporarily
postponed the implementation of the new rule until the OTS has collected
sufficient data to determine whether the rule is effective in monitoring and
managing interest rate risk. No interest rate risk component would have been
required to be added to the Bank's risk-based capital requirement at December
31, 1995 had the rule been in effect at that time. Effective in January 1995,
the OTS amended the risk-based capital standards by explicitly identifying
concentration of credit risk and the risks arising from nontraditional
activities, as well as an institution's ability to manage those risks, as
important factors to be taken into account by the agency in assessing an
institution's overall capital adequacy.
23
<PAGE>
The Bank is also subject to OTS capital regulations under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). These
regulations require Fidelity to maintain: (a) tangible capital of at least 1.5%
of adjusted total assets (as defined in the regulations), (b) core capital of at
least 3% of adjusted total assets (as defined in the regulations) and (c) total
capital of at least 8.0% of risk-weighted assets (as defined in the
regulations).
<TABLE>
<CAPTION>
RISK-BASED
TANGIBLE CAPITAL CORE CAPITAL CAPITAL
-------------------------------- ---------------------------- --------------------------
BALANCE % BALANCE % BALANCE %
------------ ----------------- ------------ ------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity (1).......... $ 227,500 $ 227,500 $ 227,500
Unrealized losses on securities... 700 700 700
Adjustments
Intangible assets............... (300) -- --
Nonincludable subsidiaries...... (100) (100) (100)
General valuation reserves...... -- -- 25,500
---------- ---------- ----------
Regulatory capital (2)............ 227,800 6.95% 228,100 6.96% 253,600 12.49%
Required minimum.................. 49,200 1.50% 98,300 3.00% 162,400 8.00%
---------- ----- ---------- ----- ---------- -----
Excess capital.................... $ 178,600 5.45% $ 129,800 3.96% $ 91,200 4.49%
========== ===== ========== ===== ========== =====
Adjusted assets (3)............... $3,277,500 $3,277,900 $2,030,400
========== ========== ==========
</TABLE>
- ----------
(1) Fidelity's total stockholders' equity, in accordance with generally accepted
accounting principles, was 6.94% of its total assets at March 31, 1996.
(2) Both the OTS and the FDIC may examine the Bank as part of their legally
prescribed oversight of the industry. Based on their examinations, the
regulators can direct that the Bank's financial statements be adjusted in
accordance with their findings.
(3) The term "adjusted assets" refers to the term "adjusted total assets" as
defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core
capital requirements, and refers to the term "risk-weighted assets" as
defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital
requirements.
CAPITAL RESOURCES AND LIQUIDITY
Sales of Loans: There were no sales of loans from the held for sale portfolio
in the three months ended March 31, 1995. Sales of loans are dependent upon
various factors, including volume of loans originated, interest rate movements,
investor demand for loan products, deposit flows, the availability and
attractiveness of other sources of funds, loan demand by borrowers, desired
asset size and evolving capital and liquidity requirements. Due to the
volatility and unpredictability of these factors, the volume of Fidelity's sales
of loans has fluctuated significantly and no estimate of future sales can be
made at this time. At March 31, 1996 and March 31, 1995, the Bank had no loans
held for sale. Sales of loans from the held for investment portfolio would be
caused by unusual events. The level of future sales, if any, is difficult to
predict.
During the first quarter of 1995, the Bank securitized $46.4 million of
single-family adjustable rate mortgages through a swap of whole loans for
mortgage-backed securities which are held in the Bank's available for sale
portfolio.
FHLB Advances: The Bank had net repayments of FHLB advances of $60.0 million
for the three months ended March 31, 1996. This compares to net repayments of
$40.0 million for the three months ended March 31, 1995.
Commercial paper: Commercial paper outstanding was increased by $50.0 million
for the three months ended March 31, 1996 and reduced by $50.9 million for the
three months ended March 31, 1995.
Loan payments and payoffs: Loan principal payments, including prepayments and
payoffs, provided $56.1 million for the three months ended March 31, 1996
compared to $38.6 million for the same period in 1995. The Bank expects that
loan payments and prepayments will remain a significant funding source.
24
<PAGE>
Sales of securities: There were no sales of investment and mortgage-backed
securities for the three months ended March 31, 1996 compared to $99.8 million
in sales during the same period in 1995. The Bank held $190.5 million in its
available for sale portfolio as of March 31, 1996, compared to $126.4 million at
December 31, 1995, and $79.2 million at March 31, 1995.
Undrawn sources: Fidelity maintains other sources of liquidity to draw upon,
which at March 31, 1996 include (a) a line of credit with the FHLB with $114.4
million available (assuming all of the $500.0 million commercial paper capacity
is used); (b) unused commercial paper facility capacity of $400 million; (c)
$138.1 million in unpledged securities available to be placed in reverse
repurchase agreements or sold; and (d) $763.6 million of unpledged loans, some
of which would be available to collateralize additional FHLB or private
borrowings, or be securitized.
Deposits: At March 31, 1996, Fidelity had deposits of $2.6 billion. The
following table presents the distribution of the Bank's deposit accounts:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------- --------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market savings accounts........... $ 87,047 3.4% $ 93,901 3.6%
Checking accounts....................... 315,890 12.2 309,065 11.8
Passbook accounts....................... 62,779 2.5 62,934 2.4
---------- ------ ---------- ------
Total transaction accounts............ 465,716 18.1 465,900 17.8
---------- ------ ---------- ------
Certificates of Deposit $100,000 and
over................................... 529,506 20.5 528,320 20.3
Certificates of deposit less than 1,583,840 61.4 1,606,649 61.9
$100,000............................... ---------- ------ ---------- ------
Total certificates of deposit......... 2,113,346 81.9 2,134,969 82.2
---------- ------ ---------- ------
Total deposits....................... $2,579,062 100.0% $2,600,869 100.0%
========== ====== ========== ======
</TABLE>
Repurchase Agreements: From time to time the Bank enters into reverse
repurchase agreements by which it sells securities with an agreement to
repurchase the same securities at a specific future date (overnight to 30 days).
The Bank deals only with dealers perceived by management to be financially
strong and who are recognized as primary dealers in U.S. Treasury securities by
the Federal Reserve Board. Repurchase agreements outstanding at March 31, 1996,
totaled $9.9 million with no comparable amount at March 31, 1995. In the three
months ended March 31, 1996, the Bank borrowed net funds from repurchase
agreements of $9.9 million compared to $40.4 million of funds borrowed and
repaid during the three months ended March 31, 1995.
Loan Fundings: Fidelity funded $0.3 million of gross loans (excluding
Fidelity's refinancings) in the three months ended March 31, 1996 compared to
$4.7 million in the same period of 1995. The closing of the Bank's wholesale
and correspondent lending operations in the fourth quarter of 1994 resulted in
reduced loan fundings in 1995 and a significant decrease in loan fundings during
the first quarter of 1996.
Contingent or potential uses of funds: The Bank had no unfunded loans at March
31, 1996, compared to $6.8 million at March 31, 1995.
Liquidity: OTS regulations require the maintenance of an average regulatory
liquidity ratio of at least 5% of deposits and short-term borrowings. The
Bank's average regulatory liquidity ratio was 5.50% and 5.71% for the quarters
ended March 31, 1996 and 1995, respectively.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank has been named as a defendant in a purported class action lawsuit
alleging violations of federal securities laws in connection with the offering
of common stock by the Bank in 1994 as part of the Bank's previously reported
1994 Restructuring and Recapitalization. The suit was filed by Harbor Finance
Partners in an alleged class action complaint in the United States District
Court-Central District of California on July 28, 1995 and originally named as
defendants the Bank, Citadel Holding Co., Richard M. Greenwood (the Bank's chief
executive officer and Citadel's former chief executive officer), J. P. Morgan
Securities, Inc., and Deloitte & Touche. The suit alleged that false or
misleading information was provided by the defendants in connection with the
Bank's 1994 Restructuring and Recapitalization and stock offering and that the
defendants knew and failed to disclose negative information concerning the Bank.
A motion to dismiss the original complaint was filed by the Bank, and was
granted without opposition. An amended complaint has recently been received and
the Bank has filed a motion to dismiss the amended complaint, as well. The
amended complaint does not include J. P. Morgan Securities, Inc. and Deloitte &
Touche as defendants and contains some factual and legal contentions which are
different from those set forth originally.
Both the original complaint filed by Harbor Finance Partners and the amended
complaint raise certain issues previously raised in a wrongful termination and
defamation action brought by William Strocco against the Bank and Citadel, which
was filed in Los Angeles County Superior Court on March 9, 1995 although the
nature and use of the same varies in the two pleadings. Plaintiff in the
Strocco case is a former manager of the Bank's REO department who alleged, among
other things, that his employment was terminated in violation of public policy
and was a result of breaches of his implied employment contract and the implied
covenant of good faith and fair dealing based on the notion that he objected to
various aspects of the Bank's 1994 Restructuring and Recapitalization, including
the selling of REO properties in bulk sales, as not in the best interests of the
Bank, and that he asserted that the same were not fully disclosed to potential
investors and to the OTS. Plaintiff also seeks damages for defamation and
interference with contractual relationship.
Both of these complaints seek damages, including punitive damages, in an
unspecified amount. The Bank believes that these claims are meritless and plans
to vigorously contest them.
In addition, the Bank is a defendant in several individual and purported class
actions brought by several borrowers which raise similar claims with respect to
the manner in which the Bank serviced certain adjustable rate mortgages which
were originated during the period 1983 through 1988. The actions have been filed
between July 1, 1992 and February of 1995. One case is pending in the Ninth
Circuit Court of Appeals after the Bank won a judgment at the trial level. In
two other cases, judgment in favor of the Bank was recently entered. Plaintiff
has appealed in one case and the time for appeal has not expired in the other.
The others are pending in the Los Angeles Superior Court. The plaintiffs'
principal claim is that the Bank selected an inappropriate review date to
consult the index upon which the rate adjustment is based that was one or two
months earlier than what was required under the terms of the notes. In a
declining interest rate environment, the lag effect of an earlier review period
defers the benefit to the borrower of such decline, and the reverse would be
true in a rising interest rate environment. The Bank strongly disputes these
contentions and is vigorously defending these suits. The legal responsibility
and financial exposure of these claims presently cannot be reasonably
ascertained and, accordingly, there is a risk that the final outcome of one or
more of these claims could result in the payment of monetary damages which could
be material in relation to the financial condition or results of operations of
the Bank. At this point, the Bank does not believe the likelihood of such a
result is probable and has not established any specific litigation reserves with
respect to such lawsuits.
In addition, a purchaser of assets from the Bank in the Bulk Sales has
asserted claims against the Bank in an aggregate amount of $18.3 million. The
Bank is evaluating the merits of these claims and believes that such claims are
without merit.
26
<PAGE>
In the normal course of business, the Bank and certain of its subsidiaries
have a number of other lawsuits and claims pending. The Bank's management and
its counsel believe that none of the lawsuits or claims pending will have a
materially adverse impact on the financial condition or business of the Bank.
An adverse outcome with respect to the foregoing claims could have a
material adverse effect on the Bank's financial condition, results of operations
and regulatory capital.
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
At the annual meeting of shareholders held on April 24, 1996, the
shareholders reelected George Gibbs, Jr., Lilly V. Lee, Mark K. Mason, Gordon V.
Smith and W. Pendleton Tudor, to the Board of Directors of Fidelity to serve for
one to three year terms, approved an Agreement and Plan of Reorganization under
which all of the outstanding common stock of the Bank will be converted
automatically, on a one-for-one basis, into all of the outstanding common stock
of a newly formed Delaware corporation, Bank Plus, with Bank Plus becoming the
holding company for the Bank, and ratified the appointment of Deloitte & Touche
LLP as Fidelity's independent public accountants for 1996. Of the 18,242,465
shares of Class A Common Stock outstanding as of the record date, March 26,
1996, the following indicates the number of votes cast for and against, as well
as the number of votes abstaining and broker non-votes, with respect to each of
the five directors, the formation of Bank Plus as the holding company for the
Bank and the ratification of Deloitte & Touche LLP:
<TABLE>
<CAPTION>
NUMBER OF VOTES
------------------------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal 1 - Election of Directors:
George Gibbs, Jr...................... 16,343,125 6,300 0 N/A
Lilly V. Lee.......................... 16,343,025 6,400 0 N/A
Mark K Mason.......................... 16,342,925 6,500 0 N/A
Gordon V. Smith....................... 16,343,125 6,300 0 N/A
W. Pendleton Tudor.................... 16,343,125 6,300 0 N/A
Proposal 2 - Agreement and Plan of
Reorganization......................... 11,363,165 94,537 552 4,891,171
Proposal 3 - Ratification of
Independent Public Accountants......... 16,195,514 89,362 952 63,597
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ------- ---------------------------------------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization,
dated as of March 27, 1996, among
Fidelity, Bank Plus Corporation and
Fidelity Interim Bank.
3.1 Amended and Restated Charter S of the
Bank (incorporated by reference to
Exhibit 4.1 to the Form 10-K filed with *
the OTS for the fiscal year ended
December 31, 1994 (Docket No. 5770)
(the "1994 Form 10-K")).
3.2 Amended and Restated Bylaws of the
Bank, as amended (incorporated by
reference to Exhibit 3.2 of the Form OC *
of which the Offering Circular dated
November 9, 1995 is a part (Docket No.
5770) (the "1995 Form OC")).
3.3 Form of Certificate of Resolutions
adopting the First Supplemental Section
to Section 5(B) of the Amended and *
Restated Charter S of the Bank relating
to Series A Preferred Stock
(incorporated by reference to Exhibit
3.3 to the 1995 Form OC).
4.1 Specimen of Class A Common Stock
Certificate (incorporated by reference
to Exhibit 4.1 to the Form OC of which *
the Offering Circular dated July 12,
1994 is a part (Docket No. 5770) (the
"1994 Form OC")).
4.2 Specimen of Class C Common Stock
Certificate (incorporated by reference *
to Exhibit 4.3 to the 1994 Form OC).
4.3 Specimen of Right to purchase Class A
and Class C Common Stock (incorporated *
by reference to Exhibit 4.3 of the 1995
Form OC).
4.4 Registration Rights Agreement dated as
of June 30, 1994, between Fidelity,
Citadel and certain holders of Class C
Common Stock of Fidelity Federal Bank *
(incorporated by reference to Exhibit
4.3 to the Form 10-Q filed with the OTS
for the quarterly period ended on June
30, 1994 (Docket No. 5770) (the "Form
10-Q")).
4.5 Stockholders Agreement, dated as of
June 30, 1994, between Citadel and *
Fidelity (incorporated by reference to
Exhibit 4.4 to the Form 10-Q).
4.6 Form of Indenture relating to senior
notes (incorporated by reference to *
Exhibit 4.6 of the 1995 Form OC).
10.1 Settlement Agreement between Fidelity,
Citadel and certain lenders, dated as
of June 3, 1994 (the "Letter *
Agreement") (incorporated by reference
to Exhibit 10.18 to the 1994 Form OC).
10.2 Amendment No. 1 to Letter Agreement,
dated as of June 20, 1994 (incorporated *
by reference to Exhibit 10.2 to the
Form 10-Q).
10.3 Amendment No. 2 to Letter Agreement,
dated as of July 28, 1994 (incorporated *
by reference to Exhibit 10.3 to the
Form 10-Q).
10.4 Amendment No. 3 to Letter Agreement,
dated as of August 3, 1994 *
(incorporated by reference to Exhibit
10.4 to the Form 10-Q).
10.5 Mutual Release, dated as of August 4,
1994, between Fidelity, Citadel and *
certain lenders (incorporated by
reference to Exhibit 10.5 to the Form
10-Q).
10.6 Mutual Release between Fidelity,
Citadel and The Chase Manhattan Bank, *
NA, dated June 17, 1994 (incorporated
by reference to Exhibit 10.6 to the Form
10-Q).
10.7 Loan and REO Purchase Agreement
(Primary), dated as of July 13, 1994,
between Fidelity and Colony Capital, *
Inc. (incorporated by reference to
Exhibit 10.7 to the Form 10-Q).
10.8 Real Estate Purchase Agreement, dated
as of August 3, 1994, between Fidelity *
and CRI (incorporated by reference to
Exhibit 10.8 to the Form 10-Q).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ------- ---------------------------------------- -----------
<C> <S> <C>
10.9 Loan and REO Purchase Agreement
(Secondary), dated as of July 12, 1994,
between Fidelity and EMC Mortgage *
Corporation (incorporated by reference
to Exhibit 10.9 to the Form 10-Q).
10.10 Loan and REO Purchase Agreement
(Secondary), dated as of July 21, 1994,
between Fidelity and International
Nederlanden (US) Capital Corporation, *
Farallon Capital Partners, L.P.,
Tinicum Partners, L.P. and Essex
Management Corporation (incorporated by
reference to Exhibit 10.10 to the Form
10-Q).
10.11 Purchase of Assets and Liability
Assumption Agreement by and between
Home Savings of America, FSB and *
Fidelity, dated as of July 19, 1994
(incorporated by reference to Exhibit
10.11 to the Form 10-Q).
10.12 Promissory Note, dated July 28, 1994,
by CRI in favor of Fidelity and related
loan documents (3943 Veselich Avenue) *
(incorporated by reference to Exhibit
10.12 to the Form 10-Q).
10.13 Promissory Note, dated July 28, 1994,
by CRI in favor of Fidelity and related
loan documents (23200 Western Avenue) *
(incorporated by reference to Exhibit
10.13 to the Form 10-Q).
10.14 Promissory Note, dated August 3, 1994,
by CRI in favor of Fidelity and related
loan documents (1661 Camelback Road) *
(incorporated by reference to Exhibit
10.14 to the Form 10-Q).
10.15 Guaranty Agreement, dated August 3,
1994, by Citadel in favor of Fidelity *
(incorporated by reference to Exhibit
10.15 to the Form 10-Q).
10.16 Tax Disaffiliation Agreement, dated as
of August 4, 1994, by and between *
Citadel and Fidelity (incorporated by
reference to Exhibit 10.16 to the Form
10-Q).
10.17 Option Agreement, dated as of August 4,
1994, by and between Fidelity and *
Citadel (incorporated by reference to
Exhibit 10.17 to the Form 10-Q).
10.18 Executive Employment Agreement, dated
as of June 2, 1995, between Richard M.
Greenwood and Fidelity (incorporated by *
reference to Exhibit 10.18 to the 1995
Form OC).
10.19 Amended Service Agreement between
Fidelity and Citadel dated as of August *
1, 1994 (incorporated by reference to
Exhibit 10.19 to the Form 10-Q).
10.20 Side letter, dated August 3, 1994,
between Fidelity and CRI (incorporated *
by reference to Exhibit 10.20 to the
Form 10-Q).
10.21 Placement Agency Agreement, dated July
12, 1994, between Fidelity, Citadel and *
J.P. Morgan Securities Inc.
(incorporated by reference to Exhibit
10.21 to the Form 10-Q).
10.22 Stock Purchase Agreement, dated as of
August 3, 1994, between Fidelity and *
Citadel (incorporated by reference to
Exhibit 10.22 to the Form 10-Q).
10.23 Litigation and Judgment Assignment and
Assumption Agreement, dated as of
August 3, 1994, between Fidelity and *
Citadel (incorporated by reference to
Exhibit 10.23 to the Form 10-Q).
10.24 1996 Equity Incentive Plan.
10.25 Retirement Plan for Non-Employee
Directors (incorporated by reference to *
Exhibit 10.26 to the 1994 Form 10-K).
10.26 Form of Severance Agreement between the
Bank and each of Messrs. Johnson and *
Osborne (incorporated by reference to
Exhibit 10.27 to the Form 1994
10-K).
10.27 Form of Severance Agreement between the
Bank and each of Messrs. Condon, Evans,
Mason, Stutz and Taylor (incorporated *
by reference to Exhibit 10.27 to the
1995 Form OC).
10.28 Form of Severance Agreement between the
Bank and each of Messrs. Michel and *
Renstrom (incorporated by reference to
Exhibit 10.28 to the 1995 Form OC).
10.29 Form of Incentive Stock Option
Agreement between the Bank and certain *
officers (incorporated by reference to
Exhibit 10.28 to the 1994 Form 10-K).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ------- ---------------------------------------- -----------
<C> <S> <C>
10.30 Form of Non-Employee Director Stock
Option Agreement between the Bank and *
certain directors (incorporated by
reference to Exhibit 10.29 to the 1994
Form 10-K).
10.31 Loan and REO Purchase Agreement, dated
as of December 15, 1994 between
Fidelity and Berkeley Federal Bank & *
Trust FSB (incorporated by reference to
Exhibit 10.30 to the 1994 Form 10-K).
10.32 Standard Office Lease-Net, dated July
15, 1994, between the Bank and 14455 *
Ventura Blvd., Inc. (incorporated by
reference to Exhibit 10.31 to the 1994
Form 10-K).
10.33 Loan Servicing Purchase and Sale
Agreement dated March 31, 1995 between
the Bank and Western Financial Savings *
Bank, FSB (incorporated by reference to
Exhibit 10.32 to the Form 10-Q filed
with the OTS for the quarterly period
ended March 31, 1995).
10.34 Supervisory Agreement dated June 28,
1995, between Fidelity and the OTS
(incorporated by reference to Exhibit *
10.33 to the Form 10-Q filed with the
OTS for the quarterly period ended June
30, 1995).
10.35 Form of Indemnity Agreement between the
Bank and its directors and senior *
officers (incorporated by reference to
Exhibit 10.35 to the 1995 Form OC).
10.36 Letter from the OTS to the Bank dated
December 8, 1995, terminating the
Supervisory Agreement as of the date of
the letter (incorporated by reference
to Exhibit 10.36 to the Form 10-K filed
with the OTS for the fiscal year ended
December 31, 1995 (Docket No. 5770)).
21.1 List of Subsidiaries of the Bank
(incorporated by reference to Exhibit *
21.1 to the 1995 Form OC).
</TABLE>
(b) Reports on Form 8-K
None
* Previously filed.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 563g.18 OF THE REGULATIONS OF THE
OFFICE OF THRIFT SUPERVISION, REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
Registrant
Date: April 30, 1996 /s/ Richard M. Greenwood
-------------------------------------
Richard M. Greenwood
President and Chief Executive Officer
Date: April 30, 1996 /s/ William L. Sanders
-------------------------------------
William L. Sanders
Executive Vice President and
Chief Financial Officer
Date: April 30, 1996 /s/ Scott S. Spooner
-------------------------------------
Scott S. Spooner
Senior Vice President, Controller and
Chief Accounting Officer
31
