<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to _______________
COMMISSION FILE NUMBER 0-28292
--------------
BANK PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4571410
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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 November 1, 1996, Registrant had outstanding 18,242,965 shares of Common
Stock, par value $.01 per share.
================================================================================
<PAGE>
BANK PLUS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited) as of
September 30, 1996 and December 31, 1995.............................. 1
Consolidated Statements of Operations (Unaudited) for the quarters
and nine months ended September 30, 1996 and 1995..................... 2
Consolidated Statements of Cash Flows (Unaudited) for the quarters
and nine months ended September 30, 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..................................................... 28
Item 2. Changes in Securities................................................. 29
Item 3. Defaults Upon Senior Securities....................................... 29
Item 4. Submission of Matters to a Vote of Security Holders................... 29
Item 5. Other Information..................................................... 29
Item 6. Exhibits and Reports on Form 8-K...................................... 30
a. Exhibits........................................................... 30
b. Reports on Form 8-K................................................ 32
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............. $ 57,433 $ 94,794
Investment securities available for
sale, at fair value................... 215,704 94,305
Investment securities held to
maturity, at amortized cost (fair
value of $7,366 at September 30, 1996) 7,378 --
Mortgage-backed securities available
for sale, at fair value............... 110,429 31,733
Mortgage-backed securities held to
maturity, at amortized cost (fair
value approximates cost).............. 31,421 --
Loans receivable, net of allowances of
$62,832 and $89,435 at September 30,
1996 and December 31, 1995,
respectively.......................... 2,743,085 2,935,116
Interest receivable.................... 21,111 20,162
Investment in FHLB stock............... 51,514 49,425
Real estate owned, net................. 25,216 19,521
Premises and equipment, net............ 32,535 34,333
Other assets........................... 27,383 20,055
---------- ----------
$3,323,209 $3,299,444
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits.............................. $2,516,769 $2,600,869
FHLB advances......................... 339,028 292,700
Commercial paper...................... 95,000 50,000
Mortgage-backed notes................. 100,000 100,000
Other liabilities..................... 62,653 26,832
---------- ----------
3,113,450 3,070,401
---------- ----------
Preferred stock issued by consolidated
subsidiary............................ 51,750 51,750
Stockholders' equity:
Common stock, par value $.01 per
share; 78,500,000 shares authorized;
18,242,965 shares outstanding at
September 30, 1996 and 18,242,465
at December 31, 1995................. 182 182
Paid-in capital....................... 261,918 262,151
Unrealized (losses) gains on
securities........................... (952) 788
Accumulated deficit................... (103,139) (85,828)
---------- ----------
158,009 177,293
---------- ----------
$3,323,209 $3,299,444
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans.................................. $ 52,142 $ 57,559 $ 162,418 $ 170,518
Mortgage-backed securities............. 1,617 582 2,877 3,046
Investment securities and other........ 5,261 3,559 13,335 11,227
----------- ---------- ----------- ----------
Total interest income................. 59,020 61,700 178,630 184,791
----------- ---------- ----------- ----------
INTEREST EXPENSE:
Deposits............................... 29,808 33,513 90,630 94,796
FHLB advances.......................... 3,827 4,154 10,669 13,285
Other borrowings....................... 4,140 5,951 12,482 23,803
----------- ---------- ----------- ----------
Total interest expense................ 37,775 43,618 113,781 131,884
----------- ---------- ----------- ----------
NET INTEREST INCOME..................... 21,245 18,082 64,849 52,907
Provision for estimated loan losses.... 3,900 8,773 11,710 23,924
----------- ---------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
ESTIMATED LOAN LOSSES.................. 17,345 9,309 53,139 28,983
----------- ---------- ----------- ----------
NONINTEREST INCOME (EXPENSE):
Loan fee income........................ 462 831 1,836 3,210
Gains on loan sales, net............... 3 15 9 661
Fee income from sale of uninsured
investment products................... 1,005 878 3,296 3,242
Fee income on deposits................. 761 823 2,319 2,592
Gains on securities and trading
activities, net....................... 610 -- 762 4,098
Gains on sale of servicing............. -- 183 -- 4,502
Other.................................. (186) 100 (80) (152)
----------- ---------- ----------- ----------
2,655 2,830 8,142 18,153
----------- ---------- ----------- ----------
Provision for estimated real estate
losses................................ (731) (1,229) (1,977) (2,773)
Direct costs of real estate
operations, net....................... (1,393) (1,023) (4,417) (4,264)
----------- ---------- ----------- ----------
(2,124) (2,252) (6,394) (7,037)
----------- ---------- ----------- ----------
Total noninterest income............... 531 578 1,748 11,116
----------- ---------- ----------- ----------
OPERATING EXPENSE:
Personnel and benefits................. 7,358 8,671 21,164 26,696
Occupancy.............................. 2,490 3,188 7,896 9,332
FDIC insurance......................... 1,850 2,043 5,812 6,162
Professional services.................. 2,922 3,394 8,205 7,991
Office-related expenses................ 867 974 2,799 3,390
Other.................................. 1,946 2,196 4,722 5,081
----------- ---------- ----------- ----------
17,433 20,466 50,598 58,652
SAIF special assessment................ 18,000 -- 18,000 --
----------- ---------- ----------- ----------
Total operating expense............... 35,433 20,466 68,598 58,652
----------- ---------- ----------- ----------
LOSS BEFORE INCOME TAXES................ (17,557) (10,579) (13,711) (18,553)
Income tax (benefit) expense........... (1,186) -- (1,093) 4
----------- ---------- ----------- ----------
LOSS BEFORE DIVIDENDS ON PREFERRED STOCK
OF SUBSIDIARY.......................... (16,371) (10,579) (12,618) (18,557)
Dividends on preferred stock of
subsidiary............................ 1,553 -- 4,658 --
----------- ---------- ----------- ----------
LOSS APPLICABLE TO COMMON STOCKHOLDERS.. $ (17,924) $ (10,579) $ (17,276) $ (18,557)
=========== ========== =========== ==========
LOSS PER COMMON SHARE................... $ (0.98) $ (1.63) $ (0.95) $ (2.86)
=========== ========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 18,242,715 6,492,465 18,242,549 6,492,465
=========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Losses................................. $ (16,371) $ (10,579) $ (12,618) $ (18,557)
Adjustments to reconcile loss to net cash
provided by (used in) operating
activities:
Provisions for estimated loan and
real estate losses.................. 4,631 10,002 13,687 26,697
Gains on sale of loans and securities (613) (15) (771) (4,759)
Amortization of deferred items, net.. (670) (912) (1,679) (2,446)
FHLB stock dividend.................. (804) (588) (2,179) (1,764)
Depreciation and amortization........ 961 1,346 2,931 4,370
Purchases of mortgage-backed
securities held for trading........... (25,013) -- (25,013) --
Principal repayments of MBS held for
trading............................... 38 -- 38 --
Proceeds from sales of MBS held for
trading............................... 24,971 -- 24,971 --
Proceeds from sales of loans held for
sale.................................. -- 703 -- 1,993
Interest receivable decrease (increase) 257 (518) (949) (416)
Other assets (increase) decrease....... (355) 1,202 (7,121) (3,294)
Interest payable increase.............. 2,418 6,271 2,500 9,566
Other liabilities increase (decrease).. 28,500 (1,403) 33,165 (3,891)
--------- --------- ---------- ----------
Net cash provided by operating
activities.......................... 17,950 5,509 26,962 7,499
--------- --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities
available for sale.................... (50,288) (350) (201,313) (45,919)
Maturities of investment securities
available for sale.................... -- 5,000 22,950 10,000
Proceeds from sales of investment
securities available for sale......... 48,765 -- 48,765 102,061
Purchases of investment securities
held to maturity...................... -- -- -- (25,001)
Maturities of investment securities
held to maturity...................... -- -- -- 10,000
Purchases of MBS available for sale.... (98,200) -- (137,161) (27,858)
Principal repayments of MBS available
for sale.............................. 488 969 3,247 4,967
Proceeds from sales of MBS available
for sale.............................. 20,332 -- 40,490 162,365
Purchases of MBS held to maturity...... (15,869) -- (15,869) (16,234)
Principal repayments of MBS held to
maturity.............................. -- -- -- 3,408
Loans receivable decrease.............. 48,807 34,723 147,003 93,056
Net proceeds from sales of real estate. 8,777 5,907 26,374 13,549
Net (additions to) dispositions of
premises and equipment................ (90) 1,030 (1,111) 2,463
--------- --------- ---------- ----------
Net cash (used in) provided by
investing activities................ (37,278) 47,279 (66,625) 286,857
--------- --------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings
decrease.............................. (15,343) (9,265) (117,083) (73,315)
Certificate accounts (decrease)
increase.............................. (20,834) (62,524) 32,983 41,634
Payments of dividends on preferred
stock of subsidiary................... (1,553) -- (4,658) --
Proceeds from FHLB advances............ 106,631 -- 106,631 80,000
Repayments of FHLB advances............ (303) -- (60,303) (120,000)
Short-term borrowings (decrease)
increase.............................. (57,357) (5,600) 45,000 (247,000)
Other financing activity............... (232) -- (268) --
--------- --------- ---------- ----------
Net cash provided by (used in)
financing activities................. 11,009 (77,389) 2,302 (318,681)
--------- --------- ---------- ----------
Net decrease in cash and cash
equivalents......................... (8,319) (24,601) (37,361) (24,325)
Cash and cash equivalents at the
beginning of the period.............. 65,752 74,341 94,794 74,065
--------- --------- ---------- ----------
Cash and Cash Equivalents at End of $ 57,433 $ 49,740 $ 57,433 $ 49,740
Period................................. ========= ========= ========== ==========
</TABLE>
(Continued on following page)
3
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash (paid) received during the period
for:
Interest on deposits, advances and
other borrowings..................... $(34,844) $(34,660) $(109,414) $(119,907)
Income taxes.......................... (45) 467 257 378
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND
FINANCING ACTIVITIES:
Additions to real estate acquired
through foreclosure................... 14,205 19,012 35,425 47,361
Loans originated to finance sale of
real estate acquired through
foreclosure........................... -- 2,134 1,379 7,604
Loans originated to finance sale of
office building through foreclosure -- -- -- 5,339
Transfers from held to maturity to
available for sale portfolio:
Loans................................ -- -- -- 68,995
Investment securities................ -- -- -- 141,678
Mortgage-backed securities........... -- -- -- 16,404
Transfer from available for sale to
held to maturity portfolio:
Investment securities................ 7,378 -- 7,378 --
Mortgage-backed securities........... 15,552 -- 15,552 3,603
Mortgage loans exchanged for
mortgage-backed securities............ -- -- -- 112,840
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In May 1996, Fidelity Federal Bank, A Federal Savings Bank ("Fidelity" or the
"Bank"), completed a reorganization pursuant to which all of the outstanding
common stock of Fidelity were converted on a one-for-one basis into all of the
outstanding common stock of a recently formed Delaware corporation, Bank Plus
Corporation ("Bank Plus"), and Bank Plus became the holding company for Fidelity
(the "Reorganization"). Bank Plus' headquarters are in Los Angeles, California
and its principal operating subsidiaries are Fidelity and Gateway Investment
Services, Inc. ("Gateway"), which prior to the Reorganization was a subsidiary
of the Bank. Bank Plus currently has no significant business or operations
other than serving as the holding company for Fidelity and Gateway. Unless
otherwise indicated, references to the "Company" include Bank Plus, Fidelity,
Gateway, and all subsidiaries of Fidelity and Bank Plus. All references to
"Fidelity" prior to the Reorganization include Gateway.
The Company 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
periods' consolidated financial statements to conform to the current period
presentation. The results of operations for the nine months ended September 30,
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"), 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 Fidelity 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, Fidelity
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 in connection with the 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.
The Series A Preferred Stock of the Bank is presented on the Company's
Consolidated Statements of Financial Condition as "Preferred stock issued by
consolidated subsidiary."
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 Bank's
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.
5
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996
Supplementary Loss per Share Data
Assuming that 18,242,965 shares of Common Stock were issued at the beginning
of 1995, the net loss per common share would have been $0.58 and $1.02 for the
quarter and nine months ended September 30, 1995, respectively.
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The following table summarizes the Company's investment securities and
mortgage-backed securities ("MBS") portfolios.
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED --------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
--------- ------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Available for sale:
Investment securities:
U.S. Treasury and agency securities
(1).................................. $215,318 $1,213 $ (827) $ 386 $215,704
-------- ------ ------- ------- --------
MBS:
FHLMC................................. 47,139 498 -- 498 47,637
GNMA.................................. 36,989 31 (189) (158) 36,831
Participation certificates............ 25,961 -- -- -- 25,961
-------- ------ ------- ------- --------
110,089 529 (189) 340 110,429
-------- ------ ------- ------- --------
Total available for sale............. $325,407 $1,742 $(1,016) 726 $326,133
======== ====== ======= ------- ========
Held to maturity:
Investment securities:
Other investments (2)................. $ 7.378 $ -- $ -- -- $ 7,378
-------- ------ ------- ------- --------
MBS:
LIBOR asset trust..................... 31,421 -- -- -- 31,421
-------- ------ ------- ------- --------
Total held to maturity............... $ 38,799 $ -- $ -- -- $ 38,799
======== ====== ======= ========
Net unrealized losses on investment
securities included in amortized cost
(1)................................... (2,264)
Net unrealized gains, hedging
activities............................ 586
-------
Net unrealized losses included in
stockholders' equity................. $ (952)
=======
DECEMBER 31, 1995
Available for sale:
Investment securities:
U.S. Treasury and agency securities
(1).................................. $ 84,200 $2,984 $ -- $ 2,984 $ 87,184
Other investments (2)................. 7,099 52 (30) 22 7,121
-------- ------ ------- ------- --------
91,299 3,036 (30) 3,006 94,305
-------- ------ ------- ------- --------
MBS:
FHLMC................................. 3,068 -- (30) (30) 3,038
FNMA.................................. 55 36 -- 36 91
Participation certificates............ 28,123 481 -- 481 28,604
-------- ------ ------- ------- --------
31,246 517 (30) 487 31,733
-------- ------ ------- ------- --------
Total available for sale............. $122,545 $3,553 $ (60) 3,493 $126,038
======== ====== ======= ========
Net unrealized losses on investment
securities included in amortized cost
(1)................................... (3,366)
Net unrealized gains, hedging
activities............................ 661
-------
Net unrealized gains included in
stockholders' equity................. $ 788
=======
</TABLE>
- ---------------------
(1) Amortized cost of certain securities that were previously transferred from
available for sale to held to maturity and back to available for sale,
includes unamortized market value adjustments recorded at the time of
transfer to the held to maturity portfolio.
(2) Represents U.S. Treasury securities which have been pledged as credit
support to a securitization of loans by the Bank.
6
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
The following table summarizes the weighted average yield of securities as of
the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Available for sale:
Investment securities... 6.33% 4.70%
MBS..................... 7.51 6.85
Held to maturity:
Investment securities... 5.55% --
MBS..................... 7.52 --
</TABLE>
The following table presents the Company's securities at September 30, 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... $ -- $173,787 $ -- $ 41,917 $215,704
MBS..................... -- -- 6,743 103,686 110,429
------ -------- ------ -------- --------
$ -- $173,787 $6,743 $145,603 $326,133
====== ======== ====== ======== ========
Held to maturity:
Investment securities... $2,278 $ -- $5,100 $ -- $ 7,378
MBS..................... -- -- -- 31,421 31,421
------ -------- ------ -------- --------
$2,278 $ -- $5,100 $ 31,421 $ 38,799
====== ======== ====== ======== ========
</TABLE>
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>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales of investment securities and MBS:
Available for sale..................... $69,097 $ -- $ 89,255 $264,426
Held for trading....................... 24,971 -- 24,971 --
------- ----- -------- --------
$94,068 $ -- $114,226 $264,426
======== ======== ======== ========
Gains (losses) on sales of securities:
Gains.................................. $ 541 $ -- $ 776 $ 3,903
Losses................................. (71) -- (71) (566)
------- ----- -------- --------
Gains on sales of securities, net..... 470 -- 705 3,337
- ----------------------------------------
Gains on trading activities, net....... 140 -- 57 761
------- ----- -------- --------
Gains on securities and trading $ 610 $ -- $ 762 $ 4,098
activities, net...................... ======= ===== ======== ========
</TABLE>
7
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996
3. SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT
On September 30, 1996 legislation was enacted that would require member
institutions to recapitalize the SAIF by paying a one-time special assessment of
approximately 65.7 basis points on all assessable deposits as of March 31, 1995.
The one-time special assessment resulted in the Bank recording an $18.0 million
charge in additional SAIF premiums. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments--Insurance Premium Assessments."
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company 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. The Company also provides residential mortgages and
consumer loans, which the Company does not underwrite or fund, by referral to
certain established providers of mortgage and consumer loan products with which
the Company has negotiated strategic alliances. In addition, through its
subsidiary, Gateway, a National Association of Securities Dealers, Inc. ("NASD")
registered broker/dealer, the Company provides customers with uninsured
investment products, including a number of mutual funds, annuities and unit
investment trusts. The principal executive offices of Bank Plus and Fidelity are
located at 4565 Colorado Boulevard, Los Angeles, California 90039, telephone
number (818) 241-6215.
RECENT DEVELOPMENTS
Insurance Premium Assessments
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
directed the Federal Deposit Insurance Corporation ("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.
Legislation was enacted on September 30, 1996, to address the disparity in
bank and thrift deposit insurance premiums. The legislation will, 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
65.7 basis points on all assessable deposits as of March 31, 1995.
This one-time special assessment of 65.7 basis points resulted in the Bank
recording $18.0 million in additional SAIF premiums, gross of related tax
benefits. As of September 30, 1996, after giving effect to the deduction of 65.7
basis point assessment, the Bank's core and risk-based capital ratios are 6.25%
and 11.70%, respectively, and the Bank remains well capitalized under the Prompt
Corrective Action ("PCA") regulations.
Recapitalization and Reverse Stock Split
In the fourth quarter of 1995, Fidelity completed a plan of recapitalization
(the "1995 Recapitalization"), 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 Fidelity 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, Fidelity
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 in connection with the 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.
9
<PAGE>
Reorganization into Holding Company Structure
In May 1996, Fidelity completed a holding company Reorganization pursuant to
which all of the outstanding common stock of Fidelity was converted on a one-
for-one basis into all of the outstanding common stock of Bank Plus, a recently
formed Delaware corporation, and Bank Plus became the holding company for
Fidelity. Effective May 17, 1996, Bank Plus Common Stock was listed on the
Nasdaq National Market ("NASDAQ") under the symbol "BPLS".
Business Strategy
The Company's business strategy is to (i) improve the quality of its loan
portfolio by reducing the level of problem assets through aggressive management
including execution of the Accelerated Asset Resolution Plan (as discussed
below), (ii) continue to increase operating efficiency by reducing and
maintaining 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 Company is examining the use
of various electronic delivery systems, which includes an Internet bank
solution, and software to enhance customer convenience and the Company's fee
income opportunities. With regards to the software opportunity, Bank Plus has
an investment of $525,000 in a software development company for which it expects
to receive preferred stock of that company. Bank Plus has also loaned $443,908
to that company's principal, primarily secured by a significant block of common
stock in the aforementioned software development company. The investment is of
high risk and is speculative in nature. Bank Plus continues to explore the
feasibility of acquiring the software development capability of that company.
As a part of its business strategy, the Company is addressing issued raised in
discussions with the OTS regarding plans to purchase assets (loans and
securities) that may exceed $150 million in 1997. The plan, in general terms,
is based upon certain risk adjusted return and liquidity objectives and is
designed to increase the Company's securities and loan portfolios to enhance the
Company's earning capabilities. The proposed increase in earning assets may be
at a lower interest rate spread than the Company is currently yielding depending
on available financing sources. Accordingly, if the plan is implemented, the
Company's interest rate spread may decline. There can be no assurances,
however, that management will reach an understanding with the OTS necessary to
implement its asset growth plan.
Accelerated Asset Resolution Plan
The Company's business strategy includes the reduction of risk in the
Company's multifamily portfolio. As a part 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.
The Accelerated Asset Resolution Pool originally consisted of 411 assets with
an aggregate gross book value of approximately $213.3 million with Accelerated
Asset Resolution Pool reserves of $45 million. As of September 30, 1996, the
Accelerated Asset Resolution Pool consisted of 203 assets with an aggregate
gross book value of approximately $85.2 million, comprised primarily of accruing
and nonaccruing multifamily real estate loans and REO properties. As of
September 30, 1996, the Company had resolved assets with an aggregate gross book
value of $128.1 million, and charged-off $18.2 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
10
<PAGE>
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.
Continued Reduction of Operating Expenses
During the first nine months of 1996 as compared to the same 1995 period, the
Company reduced operating expenses, excluding the SAIF special assessment of
$18.0 million, by $8.1 million or 13.7%, including reductions in personnel
expenses of $5.5 million or 20.7%, which reflects a reduction of 25.4% in the
nine month average number of full-time-equivalent employees (from 673 during
1995 to 502 during 1996).
RESULTS OF OPERATIONS
The Company reported a loss of $16.4 million before dividends on preferred
stock of subsidiary of $1.6 million, ($0.98 per common share after giving effect
to the dividends on preferred stock of subsidiary, computed on the basis of
18,242,715 weighted average common shares outstanding) for the quarter ended
September 30, 1996. Without the SAIF special assessment $18.0 million, the
Company would have reported earnings of $1.6 million for the quarter ended
September 30, 1996, before dividends on preferred stock of subsidiary. For the
nine months ended September 30, 1996, losses were $12.6 million before dividends
on preferred stock of subsidiary of $4.7 million ($0.95 per common share after
giving effect to the dividends on preferred stock of subsidiary, computed on the
basis of 18,242,549 weighted average common shares outstanding). Without the
SAIF special assessment, the Company would have reported earnings of $5.4
million for the nine months ended September 30, 1996, before dividends on
preferred stock of subsidiary. This compares to a loss of $10.6 million ($1.63
per common share; computed on the basis of 6,492,465 weighted average common
shares outstanding) for the third quarter of 1995 and a loss of $18.6 million
($2.86 per common share; computed on the basis of 6,492,465 weighted average
common shares outstanding) for the nine months ended September 30, 1995.
Results of operations for the quarter ended September 30, 1996, as compared to
the same period in 1995, were favorably impacted by: (a) increased net interest
income of $3.2 million due primarily to the impact of lower interest rates on
the Company's interest-bearing liabilities; (b) decreased provisions for
estimated loan losses of $4.9 million; (c) decreased operating expenses of $ 3.0
million excluding the SAIF special assessment of $18.0 million and (d) increased
income tax benefit of $1.2 million.
Results of operations for the nine months ended September 30, 1996, as
compared to the same period in 1995, were favorably affected by: (a) increased
net interest income of $11.9 million, primarily due to the impact of lower
interest rates on the Company's interest-bearing liabilities; (b) decreased
provisions for estimated loan losses of $12.2 million; (c) decreased operating
expenses of $8.1 million excluding the SAIF special assessment of $18.0 million
and (d) increased income tax benefit of $1.1 million.. These favorable
variances were partially offset by a reduction in noninterest income of $9.4
million, primarily due to: (a) decreased gains on sales of loans, investment
securities and mortgage-backed securities of $3.9 million; and (b) a gain on
sale of servicing of $4.5 million in the first and third quarters of 1995 with
no comparable amounts in 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").
For the quarter ended September 30, 1996, net interest income totaled $21.3
million, increasing by $3.2 million from $18.1 million for the comparable period
in 1995. For the nine months ended September 30, 1996, net interest income
totaled $64.8 million, increasing by $11.9 million from $52.9 million for the
comparable period in 1995.
11
<PAGE>
Net interest income is affected by (a) the average volume and repricing
characteristics of the Company's interest-earning assets and interest-bearing
liabilities, (b) the level and volatility of market interest rates, (c) the
level of nonaccruing loans ("NPLs") and (d) the interest rate spread between the
yields earned and the rates paid.
The following table presents the primary determinants of the Company's net
interest income for the quarter ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------------------------------------------------
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.................................. $2,866,162 $52,142 7.28% $3,125,633 $57,559 7.37%
MBS.................................... 89,335 1,617 7.24 34,807 582 6.69
Investment securities.................. 255,518 4,457 6.94 190,932 2,971 6.17
Investment in FHLB stock............... 51,308 804 6.23 48,681 588 4.79
---------- ------- ---------- -------
Total interest-earning assets........ 3,262,323 59,020 7.24 3,400,053 61,700 7.26
------- -------
Noninterest-earning assets.............. 56,713 86,448
---------- ----------
Total assets......................... $3,319,036 $3,486,501
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits....................... $ 293,778 791 1.07 $ 301,590 701 0.92
Savings deposits...................... 130,985 950 2.88 156,802 1,043 2.64
Time deposits......................... 2,102,184 28,067 5.30 2,239,372 31,769 5.63
---------- ------- ---------- -------
Total deposits....................... 2,526,947 29,808 4.68 2,697,764 33,513 4.93
---------- -------
Borrowings............................. 514,817 7,967 6.14 609,275 10,105 6.58
---------- ------- ---------- -------
Total interest-bearing liabilities.... 3,041,764 37,775 4.93 3,307,039 43,618 5.23
---------- ------- -------
Noninterest-bearing liabilities......... 52,893 31,970
Stockholders' equity.................... 224,379 147,492
---------- ----------
Total liabilities and equity............ $3,319,036 $3,486,501
========== ==========
Net interest income; interest rate
spread................................. $21,245 2.31% $18,082 2.03%
======= ===== ======= =====
Net earning balance/net yield on
interest-earning assets ("net interest
margin")............................... $ 220,559 2.64% $ 93,014 2.17%
========== ===== ========== =====
Average nonaccruing loan balance
included in average loan balance.... $ 55,318 $ 75,666
========== ==========
Net delinquent interest reserve removed
from interest income................ $ 1,178 $ 1,526
======= =======
Reduction in net yield on
interest-earning assets due to
delinquent interest (in basis points).. 14 18
===== =====
</TABLE>
12
<PAGE>
The following table presents the primary determinants of the Company's net
interest income for the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
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.................................. $2,934,439 $162,418 7.38% $3,238,980 $170,518 7.02%
MBS.................................... 54,136 2,877 7.09 63,504 3,046 6.40
Investment securities.................. 211,158 11,156 7.06 198,875 9,463 6.36
Investment in FHLB stock............... 50,604 2,179 5.75 48,080 1,764 4.91
---------- -------- ---------- --------
Total interest-earning assets........ 3,250,337 178,630 7.33 3,549,439 184,791 6.94
-------- --------
Noninterest-earning assets.............. 59,812 90,791
---------- ----------
Total assets......................... $3,310,149 $3,640,230
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits....................... $ 299,661 2,307 1.03 $ 304,556 2,019 0.89
Savings deposits...................... 142,715 2,767 2.58 170,379 3,419 2.68
Time deposits......................... 2,109,293 85,556 5.40 2,219,523 89,358 5.38
---------- -------- ---------- --------
Total deposits....................... 2,551,669 90,630 4.73 2,694,458 94,796 4.70
---------- --------
Borrowings............................. 489,701 23,151 6.30 762,717 37,088 6.50
---------- -------- ---------- --------
Total interest-bearing liabilities.... 3,041,370 113,781 4.98 3,457,175 131,884 5.10
---------- -------- --------
Noninterest-bearing liabilities......... 42,400 30,414
Stockholders' equity.................... 226,379 152,641
---------- ----------
Total liabilities and equity............ $3,310,149 $3,640,230
========== ==========
Net interest income; interest rate $ 64,849 2.35% $ 52,907 1.84%
spread................................. ======== ===== ======== =====
Net earning balance/net yield on
interest-earning assets ("net interest
margin")............................... $ 208,967 2.67% $ 92,264 1.97%
========== ===== ========== =====
Average nonaccruing loan balance
included in average loan balance.... $ 62,744 $ 79,245
========== ==========
Net delinquent interest reserve removed
from interest income................ $ 4,496 $ 4,536
======== ========
Reduction in net yield on
interest-earning assets due to
delinquent interest (in basis points).. 18 17
===== =====
</TABLE>
13
<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>
QUARTER ENDED SEPTEMBER 30, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO SEPTEMBER 30, 1995 COMPARED TO SEPTEMBER 30, 1995
FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE)
------------------------------------ ------------------------------------
VOLUME RATE NET VOLUME RATE NET
----------- --------- ---------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans................................ $(4,723) $ (694) $ (5,417) $ (16,559) $ 8,459 $(8,100)
Mortgage-backed securities........... 983 52 1,035 (478) 309 (169)
Investment securities................ 1,085 401 1,486 609 1,084 1,693
Investment in FHLB stock............. 33 183 216 97 318 415
------- ------ -------- --------- ------- --------
Change in total interest income..... (2,622) (58) (2,680) (16,331) 10,170 (6,161)
------- ------ -------- --------- ------- --------
Interest expense:
Deposits:
Demand deposits..................... 19 (109) (90) 33 (321) (288)
Savings deposits.................... 181 (88) 93 530 122 652
Time deposits....................... 1,900 1,802 3,702 3,991 (189) 3,802
------- ------ -------- --------- ------- --------
Total deposits.................... 2,100 1,605 3,705 4,554 (388) 4,166
Borrowings........................... 1,952 186 2,138 11,701 2,236 13,937
------- ------ -------- --------- ------- --------
Change in total interest expense.... 4,052 1,791 5,843 16,255 1,848 18,103
------- ------ -------- --------- ------- --------
Increase (decrease) in net interest
income............................... $ 1,430 $1,733 $ 3,163 $ (76) $12,018 $ 11,942
======= ====== ======== ========= ======= ========
</TABLE>
The $3.2 million increase in net interest income between the third quarter
1996 and the third quarter 1995 was primarily the result of decreased rates and
level of average interest-bearing liabilities. This was partially offset by a
decline in the rates and level of average interest-earning assets. The $11.9
million increase in net interest income between the nine months ended September
30, 1996 and the comparable period in 1995 was primarily due to increased rates
on average interest-earning assets combined with a decline in the rates and
level of average interest-bearing liabilities. This was partially offset by a
decline in the level of average interest-earning assets.
The rates on interest-earning assets and interest-bearing liabilities of the
Company 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 Company's loans are tied. However, due to reporting and contractual
look-back periods contained in the Company's loan documents, the 93% of the
Company'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 Company's liabilities reprice in the same period as
the cost of funds of institutions which comprise the FHLB Eleventh District. In
the Company'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 Company'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 fall in the third quarter 1996, the Company's liabilities continued
to reprice at lower rates throughout the quarter.
14
<PAGE>
ASSET/LIABILITY MANAGEMENT
To reduce fluctuations in net interest income, the Company maintains a loan
portfolio with a yield that generally fluctuates in step with the cost of its
liabilities. The Company has traditionally accomplished this by originating and
purchasing primarily ARM loans for its portfolio. ARM loans comprised 97% of
the total loan portfolio at September 30, 1996. All else being equal, to the
extent that the composition of the Company's liabilities parallels the
composition of COFI, changes in the Company'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 Company's net interest margin.
Subsequent increases in rates have caused a reduction in net interest income.
If interest rates increase again, the Company's net interest income may again be
negatively impacted.
The Company 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 Company 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 third quarter of 1996, the Bank entered into an investment advisory
agreement with an investment advisor, for a period of one year. Pursuant to
this agreement, the advisor will recommend investments and execute investment
purchases in accordance with the Bank's investment strategy. As part of its
services, the advisor will make recommendations subject to prior approval and
direction of the Bank. Under this agreement, outstanding forward commitments to
purchase MBS to be announced ("TBA") ARMs totaled $26.3 million, with a fair
value gain of $0.1 million at September 30, 1996. Also outstanding at September
30, 1996 are the following instruments which are hedging the forward
commitments:
<TABLE>
<CAPTION>
MATURITY/ FAIR
INSTRUMENT UNAMORTIZED NOTIONAL EXERCISE CURRENT CAP VALUE
PREMIUM AMOUNT DATE INDEX RATE/STRIKE LOSS
- --------------------------------- ----------- -------- --------- -------- ------------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Cap................ $924 $21,000 Aug 2003 5.63% 7.00% $23
Put option on Treasury Futures... 23 4,000 Feb 1997 107 102 7
---- ------- ---
$947 $25,000 $30
==== ======= ===
</TABLE>
15
<PAGE>
The following table sets out the maturity and rate sensitivity of the
Company's interest-earning assets and interest-bearing liabilities as of
September 30, 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 SEPTEMBER 30, 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............................... $ 13,679 $ -- $ -- $ -- $ -- $ 13,679
Investment securities (1).......... 53,792 -- 178,887 -- 41,917 274,596
MBS................................ 28,320 -- -- 6,743 106,787 141,850
Loans receivable:
ARMs and other adjustables........ 2,329,215 281,317 134,812 1,831 112 2,747,287
Fixed rate loans.................. 480 3,133 6,420 14,225 51,741 75,999
---------- ------------ -------- ------- -------- ----------
Total gross loans receivable.... 2,329,695 284,450 141,232 16,056 51,853 2,823,286
---------- ------------ -------- ------- -------- ----------
Total.......................... 2,425,486 284,450 320,119 22,799 200,557 $3,253,411
---------- ------------ -------- ------- -------- ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts... 273,105 -- -- -- -- $ 273,105
Money market accounts........... 69,443 -- -- -- -- 69,443
Fixed maturity deposits:
Retail customers............... 433,766 1,542,753 110,464 414 560 2,087,957
Wholesale customers........... 2,368 2,570 8,387 -- -- 13,325
---------- ------------ -------- ------- -------- ----------
Total deposits............... 778,682 1,545,323 118,851 414 560 2,443,830
---------- ------------ -------- ------- -------- ----------
Borrowings:
FHLB advances................... 319,028 -- 20,000 -- -- 339,028
Other........................... 86,000 109,000 -- -- -- 195,000
---------- ------------ -------- ------- -------- ----------
Total borrowings............... 405,028 109,000 20,000 -- -- 534,028
---------- ------------ -------- ------- -------- ----------
Total........................ 1,183,710 1,654,323 138,851 414 560 $2,977,858
---------- ------------ -------- ------- -------- ==========
REPRICING GAP...................... $1,241,776 $ (1,369,873) $181,268 $22,385 $199,997
========== ============ ======== ======= ========
GAP TO TOTAL ASSETS................ 37.37% (41.22)% 5.45% 0.67% 6.02%
========== ============ ======== ======= ========
CUMULATIVE GAP TO TOTAL ASSETS..... 37.37% (3.85)% 1.60% 2.27% 8.29%
========== ============ ======== ======= ========
</TABLE>
- ------------
(1) Investment securities include FHLB stock of $51.5 million.
Analysis of the Gap provides only a static view of the Company's interest rate
sensitivity at a specific point in time. The actual impact of interest rate
movements on the Company'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.
The Company's interest rate risk is reviewed on an ongoing basis. At June 30,
1996, the latest date for which information is available, the Company's interest
rate sensitivity measure was in the 4th percentile (only 28% of institutions
were less sensitive) of all institutions supervised by the OTS, as measured by
the OTS' interest rate risk model. Due to the Company's level of interest rate
risk, the Bank would not have been required to include an interest rate risk
component in its risk-based capital had the new regulation regarding such
inclusion been in effect at September 30, 1996. See "-- Regulatory Capital
Compliance."
16
<PAGE>
ASSET QUALITY
The Company'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 September 30, 1996, 19% of the Company'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 December 31, 1995, 20% of the Company's real estate
loan portfolio consisted of California single family residences while another
11% and 61% consisted of California multifamily dwellings of 2 to 4 units and 5
or more units, respectively.
The performance of the Company'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.
California has been hit particularly hard by adverse economic conditions and
Southern California has experienced the brunt of the economic downturn in the
state. Though the Southern California economy continues to be characterized by
higher unemployment than the national and state averages and real estate values
that, in some cases, continue to decline, there are economic indicators that
imply that the recovery is beginning to improve. There can be no assurances
that these improved economic indicators will have a material impact on the
Bank's portfolio in the near future as many factors key to recovery may be
impacted adversely by the Federal Reserve Board'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 Company's asset quality, earnings performance and capital levels.
The Bank's internal asset review process reviews the quality and
recoverability of each of those assets which exhibits credit risk to the Bank
based on delinquency and other criteria in order to establish adequate specific
valuation allowances and general valuation allowances. The Bank utilizes
several analytical tools in determining the adequacy of its GVA. The Bank
calculates an estimated range of possible loss by applying these analytics in
conjunction with the application of judgment and knowledge of particular
credits, economic trends, industry experience and other relevant factors to
estimate the appropriate level of the GVA. Should any of the aforementioned
factors vary materially in the near term the Company could experience the need
to increase its allowance for loan losses which could result in a higher level
of provisions for loan losses.
17
<PAGE>
During the third quarter of 1996, total delinquent loans decreased $7.5 million,
or 10.1%, from June 30, 1996. 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>
SEPTEMBER 30, JUNE 30, DECEMBER 31,
1996 1996 1995
-------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Delinquencies by number of days:
30 to 59 days......................... 0.82% 0.82% 0.43%
60 to 89 days......................... 0.30 0.28 0.24
90 days and over...................... 1.30 1.52 1.74
------- ------- -------
Loan delinquencies to net loan portfolio 2.42% 2.62% 2.41%
======= ======= =======
Delinquencies by property type:
Single family:
30 to 59 days......................... $ 4,297 $10,099(1) $ 4,283
60 to 89 days......................... 2,928 2,052 924
90 days and over...................... 7,246 6,306 7,226
------- ------- -------
14,471 18,457 12,433
------- ------- -------
Percent to applicable loan portfolio. 2.74% 3.38% 2.10%
Multifamily (2 to 4 units):
30 to 59 days......................... 2,603 2,169 1,748
60 to 89 days......................... 631 1,508 282
90 days and over...................... 4,897 4,453 6,671
------- ------- -------
8,131 8,130 8,701
------- ------- -------
Percent to applicable loan portfolio. 2.55% 2.50% 2.57%
Multifamily (5 to 36 units):
30 to 59 days......................... 13,937 8,978 5,434
60 to 89 days......................... 4,701 4,466 5,801
90 days and over...................... 19,201 24,989 14,312
------- ------- -------
37,839 38,433 25,547
------- ------- -------
Percent to applicable loan portfolio. 2.67% 2.65% 1.71%
Multifamily (37 units and over):
30 to 59 days......................... -- -- 304
60 to 89 days......................... -- -- --
90 days and over...................... 1,665 4,019 3,190
------- ------- -------
1,665 4,019 3,494
------- ------- -------
Percent to applicable loan portfolio. 0.54% 1.27% 1.07%
Commercial and Industrial:
30 to 59 days......................... 1,911 2,221 958
60 to 89 days......................... -- -- 213
90 days and over...................... 3.240 3,525 20,511(2)
------- ------- -------
5,151 5,746 21,682
------- ------- -------
Percent to applicable loan portfolio. 2.44% 2.67% 9.26%
Total loan delinquencies, net........... $67,257 $74,785 $71,857
======= ======= =======
Loan delinquencies to net loan portfolio 2.42% 2.62% 2.41%
======= ======= =======
</TABLE>
- --------------
(1) Management believes the increase at June 30, 1996 from December 31, 1995 in
the 30 to 59 days delinquent category was primarily the result of the sale
of servicing of the single family portfolio to an outside party which
resulted in a temporary disruption of the collection process.
(2) Includes two loans on one hotel property with a total balance of $15.9
million.
18
<PAGE>
The following table presents net delinquent loans at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1996 1995 (1) 1995 (1)
------------- -------- --------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of days delinquent:
30 to 59 days.............. $22,748 $23,467 $17,135 $ 12,727 $ 17,963
60 to 89 days.............. 8,260 8,026 9,552 7,220 8,379
90 days and over........... 36,249 43,292 40,111 51,910 54,313
------- ------- ------- -------- --------
Total delinquencies..... $67,257 $74,785 $66,798 $ 71,857 $ 80,655
======= ======= ======= ======== ========
</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 $94.1 million or 43% from December 31, 1995,
to $313.2 million at September 30, 1996. This increase was primarily due to an
increase of $101.1 million in performing classified loans during the first nine
months 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,
involved 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. For example, approximately 83% of the Bank's multifamily (5+ units)
and commercial/industrial loans have been reviewed utilizing the new loan
grading system. The increase in classified assets was partially offset by a
decrease in nonperforming assets ("NPAs") of $9.7 million during the first nine
months of 1996. The ratio of NPAs to total assets decreased from 2.16% at
December 31, 1995, to 1.86% at September 30, 1996. This decrease is primarily
due to reduced levels of nonaccruing loans ("NPLs") at September 30, 1996,
compared to December 31, 1995.
This level of classified assets continues to cause management concern and will
continue to receive specific attention. See "-- Accelerated Asset Resolution
Plan." 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>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1996 1995 (1) 1995 (1)
------------- ---------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NPAs by Type:
NPLs................................... $ 36,480 $ 43,292 $ 40,111 $ 51,910 $ 55,114
REO, net of REO general valuation
allowance ("GVA")..................... 25,216 20,519 23,533 19,521 37,550
-------- -------- -------- -------- --------
Total NPAs............................ $ 61,696 $ 63,811 $ 63,644 $ 71,431 $ 92,664
======== ======== ======== ======== ========
NPAs by Composition:
Single family residences............... $ 10,968 $ 9,108 $ 9,461 $ 10,178 $ 12,396
Multifamily 2 to 4 units............... 8,974 7,750 10,197 9,269 11,266
Multifamily 5 units and over........... 35,040 37,730 34,202 25,923 36,956
Commercial and other................... 7,714 9,923 10,184 28,361 32,046
REO GVA................................ (1,000) (700) (400) (2,300) --
-------- -------- -------- -------- --------
Total NPAs............................ 61,696 63,811 63,644 71,431 92,664
Total troubled debt restructurings 49,575 57,079 53,745 32,691 47,340
("TDRs").............................. -------- -------- -------- -------- --------
Total TDRs and NPAs................... $111,271 $120,890 $117,389 $104,122 $140,004
======== ======== ======== ======== ========
Classified Assets:
NPAs................................... $ 61,696 $ 63,811 $ 63,644 $ 71,431 $ 92,664
Performing classified loans............ 248,967 251,847 222,279 147,646 88,337
Other classified assets................ 2,503 3,100 2,979 -- --
-------- -------- -------- -------- --------
Total classified assets............... $313,166 $318,758 $288,902 $219,077 $181,001
======== ======== ======== ======== ========
Classified Asset Ratios:
NPLs to total assets................... 1.10% 1.31% 1.22% 1.57% 1.63%
NPAs to total assets................... 1.86% 1.94% 1.94% 2.16% 2.74%
TDRs to total assets................... 1.49% 1.73% 1.64% 0.99% 1.40%
NPAs and TDRs to total assets.......... 3.35% 3.67% 3.58% 3.16% 4.14%
Classified assets to total assets...... 9.42% 9.67% 8.81% 6.64% 5.35%
REO to NPAs............................ 40.87% 32.16% 36.98% 27.33% 40.52%
NPLs to NPAs........................... 59.13% 67.84% 63.02% 72.67% 59.48%
</TABLE>
- --------------
1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
19
<PAGE>
The following table presents classified asset by property type at the dates
indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1996 1995 (1) 1995 (1)
------------- ---------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Performing classified loans:
Single family.......................... $ 10,054 $ 8,098 $ 6,638 $ 4,368 $ 2,730
Multifamily:
2 to 4 units.......................... 9,374 10,227 11,173 8,297 7,962
5 to 36 units......................... 146,050 148,073 115,857 85,581 45,464
37 units and over..................... 42,861 43,564 48,656 39,301 25,962
-------- -------- -------- -------- --------
Total multifamily properties......... 198,285 201,864 175,686 133,179 79,388
Commercial and other................... 40,628 41,885 39,955 10,099 6,219
-------- -------- -------- -------- --------
Total performing classified loans..... 248,967 251,847 222,279 147,646 88,337
-------- -------- -------- -------- --------
Nonperforming classified loans:
Single family.......................... 7,478 6,306 5,897 7,226 8,966
Multifamily:
2 to 4 units.......................... 4,897 4,453 4,950 6,671 5,414
5 to 36 units......................... 19,200 24,989 20,699 14,312 16,029
37 units and over..................... 1,665 4,019 4,720 3,190 --
-------- -------- -------- -------- --------
Total multifamily properties......... 25,762 33,461 30,369 24,173 21,443
Commercial and other................... 3,240 3,525 3,845 20,511 24,705
-------- -------- -------- -------- --------
Total nonperforming classified loans.. 36,480 43,292 40,111 51,910 55,114
-------- -------- -------- -------- --------
Total classified loans................ 285,447 295,139 262,390 199,556 143,451
-------- -------- -------- -------- --------
Real estate owned:
Single family.......................... 3,548 2,802 3,564 2,952 3,430
Multifamily:
2 to 4 units.......................... 4,018 3,297 5,246 2,598 5,851
5 to 36 units......................... 12,331 7,457 7,345 8,421 16,496
37 units and over..................... 1,844 1,265 1,439 -- 4,432
-------- -------- -------- -------- --------
Total multifamily properties......... 18,193 12,019 14,030 11,019 26,779
Commercial and other................... 4,475 6,398 6,339 7,850 7,341
-------- -------- -------- -------- --------
Net REO before REO GVA................ 26,216 21,219 23,933 21,821 37,550
REO GVA................................ (1,000) (700) (400) (2,300) --
-------- -------- -------- -------- --------
Total real estate owned............... 25,216 20,519 23,533 19,521 37,550
-------- -------- -------- -------- --------
Other classified assets................. 2,503 3,100 2,979 -- --
-------- -------- -------- -------- --------
Total classified assets............... $313,166 $318,758 $288,902 $219,077 $181,001
======== ======== ======== ======== ========
</TABLE>
- ---------------
1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
Direct costs of foreclosed real estate operations totaled $1.4 million and
$1.3 million for the three months ended September 30, 1996, and 1995,
respectively, and $4.4 million and $4.3 million for the nine months ended
September 30, 1996 and 1995, respectively. 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 QUARTER AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -------------------------
1996 1995 1996 1995
--------- --------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REO net book value...................... $25,216 $37,550 $25,216 $37,550
Increase in REO for the period.......... $ 4,697 $ 9,742 $ 5,695 $23,435
Number of real properties owned......... 152 162 152 162
Increase in number of properties owned
for the period......................... 32 34 43 98
Number of properties foreclosed for the
period................................. 60 86 182 215
Gross book value of properties
foreclosed............................. $20,875 $32,319 $57,258 $74,817
Average gross book value of properties
foreclosed............................. $ 348 $ 376 $ 315 $ 348
</TABLE>
20
<PAGE>
The following table summarizes the Company's reserves, writedowns and certain
coverage ratios at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans:
GVA................................... $ 29,281 $ 48,921 $35,000
Specific reserves...................... 33,551(1) 40,514 24,759
---------- ---------- -------
Total allowance for estimated losses. $ 62,832 $ 89,435(2) $59,759
========== ========== =======
Writedowns (3)......................... $ 216 $ 316 $ 316
========== ========== =======
Total allowance and loan writedowns to
gross loans........................... 2.23% 2.96% 1.94%
Total loan allowance to gross loans (3) 2.22% 2.95% 1.93%
Loan GVA to loans (4).................. 1.06% 1.64% 1.14%
Loan GVA to NPLs....................... 80.27% 94.24% 63.50%
NPLs to total loans.................... 1.33% 1.77% 1.82%
GVA and SVA to gross classified loans.. 19.08% 36.70% 35.46%
NPLs to classified loans............... 12.67% 26.01% 38.42%
Real Estate Owned:
REO GVA................................ $ 1,000 $ 2,300 $ --
Specific reserves...................... 1,975 1,192 1,065
---------- ---------- -------
Total allowance for estimated losses. $ 2,975 $ 3,492 $ 1,065
========== ========== =======
Writedowns (3)......................... $ 15,242 $ 17,584 $26,214
========== ========== =======
Total REO allowance and REO writedowns
to gross REO.......................... 41.94% 51.92% 42.08%
Total REO allowance to gross REO (5)... 10.55% 15.17% 2.76%
REO GVA to REO (4)..................... 3.81% 10.54% --%
Total Loans and REO:
GVA.................................... $ 30,281 $ 51,221 $35,000
Specific reserves...................... 35,526 41,706 25,824
---------- ---------- -------
Total allowance for estimated losses. $ 65,807 $ 92,927 $60,824
========== ========== =======
Writedowns (3)......................... $ 15,458 $ 17,900 $26,530
========== ========== =======
Total allowance and writedowns to
gross loans and REO................... 2.83% 3.60% 2.77%
Total allowance to gross loans and REO
(4)................................... 2.30% 3.04% 1.94%
Total GVA to loans and REO............. 1.08% 1.70% 1.13%
Total GVA to NPAs...................... 48.30% 69.47% 37.77%
</TABLE>
- ---------------
(1) Includes specific reserves on non-mortgage loans totaling $0.1 million.
(2) Increase in the allowance for estimated loan losses from September 30, 1995
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 GVA, respectively, but are net of specific
reserves and writedowns.
(5) Net of writedowns.
21
<PAGE>
The following schedules summarize the activity in the Company's allowances for
estimated loan and real estate losses:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1996(1) 1995
-------------------------------------- --------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance on July 1,......... $ 73,722 $2,787(2) $ 76,509 $ 62,955 $ 832 $ 63,787
Provision for losses...... 3,900 731 4,631 8,773 1,229 10,002
Charge-offs............... (15,199) (543) (15,742) (12,418) (996) (13,414)
Recoveries and other...... 409 -- 409 449 -- 449
-------- ------ -------- -------- ------ --------
Balance on September 30,... $ 62,832 $2,975 $ 65,807 $ 59,759 $1,065 $ 60,824
======== ====== ======== ======== ====== ========
</TABLE>
- ---------------
(1) Includes all activity related to the Accelerated Asset Resolution Plan
assets.
(2) Beginning balance in allowance for estimated real estate losses has been
restated to reclassify the allocations from GVA to REO reserves as charge-offs.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1996(1) 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...... 11,705 1,978 13,683 23,924 2,773 26,697
Charge-offs............... (40,209) (2,495) (42,704) (33,814) (4,026) (37,840)
Recoveries and other...... 1,901 -- 1,901 2,447 -- 2,447
-------- ------- -------- -------- ------- --------
Balance on September 30,... $ 62,832 $ 2,975 $ 65,807 $ 59,759 $ 1,065 $ 60,824
======== ======= ======== ======== ======= ========
</TABLE>
- ----------------
(1) Includes all activity related to the Accelerated Asset Resolution Plan
assets.
The following table details the activity affecting specific loss reserves for
the periods indicated, including activity on assets included in the Accelerated
Asset Resolution Plan:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
-------------------------------------- --------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period....... $ 41,669 $2,087(1) $ 43,756(1) $ 40,514 $ 1,192 $ 41,706
Allocations from GVA to
specific reserves.................. 7,081 431 7,512 33,246 3,278 36,524
Charge-offs......................... (15,199) (543) (15,742) (40,209) (2,495) (42,704)
-------- ----- -------- -------- ------- --------
Balance at end of period indicated... $ 33,551 1,975 $ 35,526 $ 33,551 $ 1,975 $ 35,526
======== ===== ======== ======== ======= ========
</TABLE>
- ----------------
(1) Beginning balance in allowance for estimated real estate losses has been
restated to properly reflect allocations from GVA to REO reserves as charge
offs.
22
<PAGE>
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
Company 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 Company on an ongoing basis.
Net noninterest income decreased by $0.1 million from net noninterest income
of $0.6 million in the third quarter 1995 to net noninterest income of $0.5
million in the third quarter 1996. For the nine months ended September 30,
1996, net noninterest income decreased by $9.4 million from net noninterest
income of $11.1 million in the nine months ended September 30, 1995, to net
noninterest income of $1.7 million in the same period of 1996. The major
components of this decrease are: (a) other noninterest income (expense)
decreased by $4.4 million as a result of a net gain of $4.5 million realized
from the sale of $495.5 million in rights to service loans for others, with no
comparable amounts in 1996; (b) loan service fees decreased by $1.4 million in
the first nine months of 1996 from the 1995 nine month period primarily as a
result of the sale of the rights to service loans in the first quarter of 1995
and the second quarter of 1996; (c) net gains on loan sales decreased in the
first nine months of 1996 by $0.7 million from first nine months of 1995; (d)
net gains on sales of mortgage-backed securities decreased in the first nine
months of 1996 by $0.8 million from the 1995 nine month period and (e) net gains
on securities activities in the first nine months of 1996 decreased by $2.6
million from the 1995 nine month period. The increased sales activity in loans,
mortgage-backed securities and investment securities in 1995 was primarily for
regulatory capital maintenance purposes. This was partially offset by decreased
real estate provisions and costs of $0.6 million in 1996 as a result of
decreased levels of REO properties.
OPERATING EXPENSES
Operating expenses (excluding the SAIF special assessment of $18.0 million)
decreased by $3.0 million to $17.4 million for the third quarter 1996 compared
to $20.5 million for the third quarter 1995. The change was primarily due to
(a) a $1.3 million decrease in personnel and benefit expense due to a decline of
157 or 25.1% in the three month average number of full-time equivalent
employees; (b) a decrease of $0.7 million in occupancy costs; (c) a decrease of
$0.5 million in professional services and (d) a decrease of $0.5 million in
office-related expenses and other costs.
Operating expenses (excluding the SAIF special assessment of $18.0 million)
decreased by $8.1 million to $50.6 million for the nine months ended September
30, 1996 compared to $58.7 million for the same nine months of 1995. The change
was primarily due to (a) a $5.5 million decrease in personnel and benefit
expense due to a decline of 171 or 25.4% in the nine month average number of
full-time equivalent employees; (b) a decrease of $1.4 million in occupancy
costs; (c) a decrease of $0.4 million of FDIC insurance costs excluding the SAIF
special assessment of $18.0 million and (d) a decrease of $1.0 million in
office-related expenses and other costs. These favorable variances were
partially offset by an increase of $0.2 million in professional services.
Decreased operating expenses, excluding the SAIF special assessment of $18.0
million, resulted in a decrease in the annualized operating expense ratio to
2.04% for the nine months ended September 30, 1996 from 2.15% for the same
period in 1995, notwithstanding the decrease in total average asset size of the
Company (from $3.6 billion for the nine months ended September 30, 1995 to $3.3
billion for the nine months ended September 30, 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 Company 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 as
it indicates that less expenses were incurred to generate a given level of
revenue.
23
<PAGE>
The efficiency ratio improved to 74.85% for the third quarter 1996 from 92.28%
for the third quarter 1995. The efficiency ratio also improved between the nine
months ended September 30, 1995 and September 30, 1996 from 91.09% to 70.05%.
This decrease was due to increased net interest income and decreased operating
expense (excluding the SAIF special assessment of $18.0 million), which were
partially offset by decreased net noninterest income (expense).
INCOME TAXES
The Company's combined federal and state statutory tax rate is approximately
42.4% of earnings before income taxes. The effective tax rates of 6.8% and 8.0%
on losses before income taxes for the quarter and nine months ended September
30, 1996, respectively, reflect the federal income tax benefit attributable to
the third quarter filing of a loss carryback claim under Internal Revenue Code
("IRC") Section 172(f), as discussed in the following paragraph. No income tax
provision is reflected for the quarter ended September 30, 1995. The income tax
provision for the nine months ended September 30, 1995, reflects only the state
minimum corporation taxes.
In the quarter ended September 30, 1996, various federal Form 1120Xs "Amended
U.S. Corporation Income Tax Return" were filed for years 1986 through 1989,
1991, 1992 and 1994 to reflect the 10-year loss carryback under IRC Section
172(f) for qualifying deductions through August 4, 1994. These returns were
filed jointly with the Bank's former holding company, Citadel Holding
Corporation. The amended returns, if accepted in total, would result in a net
refund of $19.4 million to Fidelity. IRC Section 172(f) is an area of the tax
law without significant legal precedent. There may be opposition by the IRS as
to Fidelity's ability to carryback such losses. Therefore, no assurances can be
made as to Fidelity's entitlement to such claim. Fidelity is recording $1.1
million of federal income tax benefit with respect to these amended tax returns.
Effective for taxable years beginning after 1995, recently enacted legislation
has repealed for federal purposes the reserve method of accounting for bad debts
for thrift institutions. While thrifts qualifying as "small banks" may continue
to use the experience method, Fidelity being deemed a "large bank," is required
to use the specific charge-off method. In addition, this enacted legislation
contains certain income recapture provisions which are discussed below.
Thrift institutions which are deemed a "large bank," are required to take into
income ratably over 6 years, beginning with the first taxable year beginning
after 1995, the institution's "applicable excess reserves." The applicable
excess reserves are the excess of (1) the balance of the institution's reserves
for losses on loans other than supplemental reserves at the close of its last
taxable year beginning before January 1, 1996, over (2) the adjusted balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. Fidelity's applicable excess reserves at December 31, 1995 are $14.6
million. This amount will be recognized as taxable income over six years at
the rate of $2.4 million per year starting with the taxable year ended December
31, 1996.
The adjusted pre-1988 total reserve balance of $35.2 million as of December
31, 1995, will be recaptured into taxable income in the event Fidelity (1)
ceases to be a "bank" or "thrift," or (2) makes distributions to shareholders in
excess of post-1951 earnings and profits, redemptions, or liquidations. Based
on current estimates, Fidelity will have no post-1951 earnings and profits at
December 31, 1996. As a result, Fidelity's $6.2 million distribution with
respect to its preferred stock will trigger reserve recapture into taxable
income for 1996. Based on current estimates, there is no current period income
tax impact.
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 and
tax credit carryforwards generated prior to these events will be limited.
24
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The 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>
The following table summarizes the capital ratios required by FDICIA for an
institution to be considered well capitalized and the Bank's regulatory capital
at September 30, 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 %
----------- ------- ----------- ------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Fidelity's regulatory capital... $ 207,200 6.24% $ 207,500 6.25% $ 207,500 10.45% $ 232,200 11.70%
Well capitalized requirement.... 99,600 3.00 166,000 5.00 119,100 6.00 198,500 10.00
---------- ----- ---------- ----- ---------- ------ ---------- ------
Excess capital.................. 107,600 3.24% $ 41,500 1.25% $ 88,400 4.45% $ 33,700 1.70%
========== ===== ========== ===== ========== ====== ========== ======
Adjusted assets (1)............ $3,319,400 $3,319,700 $1,984,900 $1,984,900
========== ========== ========== ==========
</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.
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 September
30, 1996, the latest date for which this information is available, 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.
25
<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 the Bank 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)............. $ 206,700 $ 206,700 $ 206,700
Unrealized losses on securities...... 1,000 1,000 1,000
Adjustments
Intangible assets.................. (300) -- --
Nonqualifying mortgage servicing
rights............................ (100) (100) (100)
Nonincludable subsidiaries......... (100) (100) (100)
General valuation reserves......... -- -- 24,900
Equity investments................. -- -- (200)
---------- ---------- ----------
Regulatory capital (2)............... 207,200 6.24% 207,500 6.25% 232,200 11.70%
Required minimum..................... 49,800 1.50 99,600 3.00 158,800 8.00
---------- ----- ---------- ---- ---------- -----
Excess capital....................... $ 157,400 4.74% $ 107,900 3.25% $ 73,400 3.70%
- ------------------------------------- ========== ===== ========== ==== ========== =====
Adjusted assets (3).................. $3,319,400 $3,319,700 $1,984,900
========== ========== ==========
</TABLE>
- ---------------
(1) The Bank's total stockholders' equity, in accordance with generally accepted
accounting principles, was 6.23% of its total assets at September 30, 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 loans classified as held for sale in the nine
months ended September 30, 1996 compared to $2.0 million for the nine months
ended September 30, 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 the Company's sales of loans has fluctuated
significantly and no estimate of future sales can be made at this time. At
September 30, 1996, the Company 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 and second quarters of 1995, the Bank securitized $46.4
million and $66.4 million, respectively, 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 Company increased its FHLB advances by $46.3 million for
the nine months ended September 30, 1996. This compares to net repayments of
$40.0 million for the nine months ended September 30, 1995.
Commercial paper: Commercial paper outstanding was increased by $45.0 million
for the nine months ended September 30, 1996 and reduced by $247.0 million for
the nine months ended September 30, 1995.
26
<PAGE>
Loan payments and payoffs: Loan principal payments, including prepayments and
payoffs, provided $189.8 million for the nine months ended September 30, 1996
compared to $138.9 million for the same period in 1995. The Company expects
that loan payments and prepayments will remain a significant funding source.
Sales of securities: The sale of investment securities and MBS provided $182.9
million for the nine months ended September 30, 1996 compared to $264.4 million
in sales during the same period in 1995. The Company held $326.1 million in its
available for sale portfolio as of September 30, 1996, compared to $126.0
million at December 31, 1995, and $139.8 million at September 30, 1995.
Undrawn sources: The Company maintains other sources of liquidity to draw
upon, which at September 30, 1996 include (a) a line of credit with the FHLB
with $22.8 million available (assuming all of the $500.0 million commercial
paper capacity is used); (b) unused commercial paper facility capacity of
$405.0 million; (c) $223.6 million in unpledged securities available to be
placed in reverse repurchase agreements or sold; and (d) $668.6 million of
unpledged loans, some of which would be available to collateralize additional
FHLB or private borrowings, or be securitized.
Deposits: At September 30, 1996, the Company had deposits of $2.5 billion.
The following table presents the distribution of the Company's deposit accounts:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
----------------------- --------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market savings accounts........... $ 69,443 2.8% $ 93,901 3.6%
Checking accounts....................... 290,438 11.5 309,065 11.8
Passbook accounts....................... 55,606 2.2 62,934 2.4
---------- ------ ---------- ------
Total transaction accounts............ 415,487 16.5 465,900 17.8
---------- ------ ---------- ------
Certificates of Deposit $100,000 and 537,679 21.4 528,320 20.3
over...................................
Certificates of deposit less than 1,563,603 62.1 1,606,649 61.9
$100,000............................... ---------- ------ ---------- ------
Total certificates of deposit......... 2,101,282 83.5 2,134,969 82.2
---------- ------ ---------- ------
Total deposits....................... $2,516,769 100.0% $2,600,869 100.0%
========== ====== ========== ======
</TABLE>
Repurchase Agreements: From time to time the Company 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 Company 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. There were no repurchase agreements outstanding at
September 30, 1996 and 1995. In the nine months ended September 30, 1996 and
1995, the Company borrowed and repaid funds from repurchase agreements of $171.7
million and $46.5 million, respectively.
Loan Fundings: The Company funded $1.4 million of gross loans (excluding the
Company's refinancings) in the nine months ended September 30, 1996 compared to
$17.2 million in the same period of 1995. The closing of the Company'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 nine months of 1996.
Contingent or potential uses of funds: The Company had no unfunded loans at
September 30, 1996 and 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 5.34% and 5.39% for the months ended
September 30, 1996 and 1995, respectively.
Holding Company Liquidity: Bank Plus has limited cash reserves and no
material potential cash producing operations or assets other than its
investments in Fidelity and Gateway. Both Gateway's and Fidelity's ability to
pay dividends may be restricted by certain regulatory capital rules. As part of
its compensation agreement with Richard M. Greenwood, the Company's President
and Chief Executive Officer, Bank Plus made a loan in the
27
<PAGE>
amount of $265,000 to Mr. Greenwood in July 1996 to refinance an existing loan
made by the Bank's former holding company, Citadel Holding Corporation. The loan
is interest free prior to maturity, and is payable upon demand, with interest
thereon at the federal discount rate then in effect plus 4 percent.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank was 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 ("Harbor") 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. The amended complaint did not include J. P. Morgan
Securities, Inc. and Deloitte & Touche as defendants and contained some factual
and legal contentions which were different from those set forth originally. On
May 21, 1996, the court granted the Bank's motion to dismiss the first amended
complaint, but granted leave to amend. Following the filing of a second amended
complaint, the Bank filed a motion to dismiss. At a hearing on July 22, 1996,
the court ruled that the case should be dismissed with prejudice and a formal
order to that effect was submitted to the court for execution. Harbor lodged
certain objections to the proposed order, including objections that the state
law claims in the second amended complaint should not be dismissed with
prejudice. The court's Order of Dismissal was entered on August 5, 1996 and
provided that all claims asserted in the second amended complaint under federal
law were dismissed with prejudice and those under state law were dismissed
without prejudice to their renewal in state court pursuant to 28 U.S.C.
(S)1367(b)(3). Harbor has filed a Notice of Appeal to the Order of Dismissal
and on August 30, 1996 filed an alleged class action complaint in state court
containing allegations similar to those raised in the federal court action as
well as claims for unfair business practices.
Both the original complaint filed by Harbor and the amended complaints in the
federal court action and the complaint in the state court action raise certain
issues previously pleaded in a wrongful termination and defamation action
brought by William Strocco ("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 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 or were
misrepresented to potential investors and to the OTS. Mr. Strocco also seeks
damages for defamation and interference with contractual relationship. In July
1996, the Los Angeles Superior Court granted Citadel's motion for summary
judgment to dismiss it as a defendant in the Strocco litigation. The Bank's
motion for summary adjudication of issues was denied. The Strocco complaint
seeks damages, including punitive damages, in an unspecified amount. The Bank
believes that Mr. Strocco's 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. In one case the Bank won a summary
judgement in Federal District Court. This judgment was appealed. On July 25,
1996, the Ninth Circuit Court of Appeals filed its opinion which affirmed in
part, reversed in part and remanded back to the Federal District Court for
further hearing. In three
28
<PAGE>
Los Angeles Superior Court cases, judgment in favor of the Bank was recently
entered. Plaintiff has appealed in all three cases. Two other cases 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 primarily 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 the normal course of business, the Company and certain of its subsidiaries
have a number of other lawsuits and claims pending. An adverse outcome with
respect to the foregoing claims could have a material adverse effect on the
Company's financial condition, results of operations and the Bank's regulatory
capital. The Company'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 Company.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
29
<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. (incorporated by
reference to Exhibit 2.1 to the Form
8-B of Bank Plus filed with the SEC on
April 22, 1996 (the "Form 8-B")).
3.1 Certificate of Incorporation of Bank *
Plus Corporation (incorporated by
reference to Exhibit 3.1 to the Form
8-B).
3.2 Bylaws of Bank Plus Corporation *
(incorporated by reference to Exhibit
3.2 to the Form 8-B).
4.1 Specimen of Common Stock Certificate *
(incorporated by reference to Exhibit
4.1 to the Form 8-B).
4.2 Form of Indenture relating to senior *
notes of Fidelity (incorporated by
reference to Exhibit 4.2 of the Form
8-B).
10.1 Settlement Agreement between Fidelity, *
Citadel and certain lenders, dated as
of June 3, 1994 (the "Letter
Agreement") (incorporated by reference
to Exhibit 10.1 to the Form 8-B).
10.2 Amendment No. 1 to Letter Agreement, *
dated as of June 20, 1994 (incorporated
by reference to Exhibit 10.2 to the
Form 8-B).
10.3 Amendment No. 2 to Letter Agreement, *
dated as of July 28, 1994 (incorporated
by reference to Exhibit 10.3 to the
Form 8-B).
10.4 Amendment No. 3 to Letter Agreement, *
dated as of August 3, 1994
(incorporated by reference to Exhibit
10.4 to the Form 8-B).
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
8-B).
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
8-B).
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 8-B).
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 8-B).
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 8-B).
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
8-B).
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 8-B).
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 8-B).
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 8-B).
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 8-B).
</TABLE>
30
<PAGE>
<TABLE>
<C> <S> <C>
10.15 Guaranty Agreement, dated August 3, *
1994, by Citadel in favor of Fidelity
(incorporated by reference to Exhibit
10.15 to the Form 8-B).
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
8-B).
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 8-B).
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 Form
8-B).
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 8-B).
10.20 Side letter, dated August 3, 1994, *
between Fidelity and CRI (incorporated
by reference to Exhibit 10.20 to the
Form 8-B).
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 8-B).
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 8-B).
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 8-B).
10.24 1996 Stock Option Plan (incorporated by *
reference to Exhibit 10.24 to Form 8-B.
10.25 Retirement Plan for Non-Employee *
Directors (incorporated by reference to
Exhibit 10.25 to the Form 8-B).
10.26 Form of Severance Agreement between the *
Bank and each of Messrs. Johnson and
Sanders (incorporated by reference to
Exhibit 10.26 to the Form 8-B).
10.27 Form of Severance Agreement between the *
Bank and each of Messrs. Osborne and
Greenwood (incorporated by reference to
Exhibit 10.27 to the Form 8-B).
10.28 Form of Severance Agreement between the
Bank and each of Messrs. Condon, Evans,
Mason, Stutz & Taylor (incorporated by
reference to Exhibit 10.28 to the Form
8-B).
10.29 Form of Severance Agreement between the *
Bank and each of Messrs. Michel and
Renstrom (incorporated by reference to
Exhibit 10.29 to the Form 8-B).
10.30 Form of Incentive Stock Option *
Agreement between the Bank and certain
officers (incorporated by reference to
Exhibit 10.30 to the Form 8-B).
10.31 Form of Amendment to incentive Stock
Option Agreement between the Bank and
certain officers (incorporated by
reference Exhibit 10.31 to the Form
8-B).
10.32 Form of Non-Employee Director Stock *
Option Agreement between the Bank and
certain directors (incorporated by
reference to Exhibit 10.32 to the
Form 8-B).
10.33 Form of Amendment to Non-Employee
Director Stock Option Agreement between
the Bank and certain directors
(incorporated by reference to Exhibit
10.33 to the Form 8-B).
10.34 Loan and REO Purchase Agreement, dated *
as of December 15, 1994 between
Fidelity and Berkeley Federal Bank &
Trust FSB (incorporated by reference to
Exhibit 10.34 to the Form 8-B).
10.35 Standard Office Lease-Net, dated July *
15, 1994, between the Bank and 14455
Ventura Blvd., Inc. (incorporated by
reference to Exhibit 10.35 to the
Form 8-B).
10.36 Standard Office Lease - Modified Gross,
dated July 15, 1994, between the Bank
and Citadel Realty, Inc. (incorporated
by reference to Exhibit 10.36 to the
Form 8-B).
</TABLE>
31
<PAGE>
<TABLE>
<C> <S> <C>
10.37 Loan Servicing Purchase and Sale *
Agreement dated March 31, 1995 between
the Bank and Western Financial Savings
Bank, FSB (incorporated by reference to
Exhibit 10.37 to the Form 8-B
10.38 Supervisory Agreement dated June 28, *
1995, between Fidelity and the OTS
(incorporated by reference to Exhibit
10.38 to the Form 8-B
10.39 Form of Indemnity Agreement between the *
Bank and its directors and senior
officers (incorporated by reference to
Exhibit 10.39 to the Form 8-B).
10.40 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 10.40 to the Form 8-B.
10.41 Loan Servicing Purchase and Sale *
Agreement dated May 15, 1996 between
Fidelity and Western Financial Savings
Bank (incorporated by reference to
Exhibit 10.37 to the quarterly report
on Form 10-Q for the quarterly period
ended June 30, 1996).
10.42 First Amendment to Standard Office
Lease - Modified Gross, dated as of May
15, 1995 between the Bank and Citadel
Realty, Inc.
10.43 Second Amendment to Standard Office
Lease - Modified Gross, dated as of
October 1, 1996, between the Bank and
Citadel Realty, Inc.
10.44 Form of Indemnity Agreement between
Bank Plus and its directors and senior
officers.
27. Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
A current report of Form 8-K was filed with the Securities and Exchange
Commission on October 22, 1996 attaching the Annual Report on Form 10-K of the
Bank for the fiscal year ended December 31, 1995 in anticipation of
incorporating such Form 10-K by reference into a Registration Statement on Form
S-8 to be filed by the Company.
* Previously filed.
32
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BANK PLUS CORPORATION
Registrant
Date: November 6, 1996 /s/ Richard M. Greenwood
--------------------------------------
Richard M. Greenwood
President and Chief Executive Officer;
Vice Chairman of the Board
Date: November 6, 1996 /s/ William L. Sanders
--------------------------------------
William L. Sanders
Executive Vice President and
Chief Financial Officer
33
<PAGE>
FIRST AMENDMENT TO STANDARD OFFICE LEASE
(MODIFIED GROSS)
This First Amendment to Standard Office Lease (Modified Gross) is entered
into as of this 15th day of May 1995 by and between CITADEL REALTY, INC., a
Delaware corporation ("Lessor") and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS
BANK, a federally chartered savings association ("Lessee").
RECITALS
A. Lessor and Lessee are parties to a Standard Office Lease (Modified
Gross) dated for reference purposes only July 15, 1994 (the "Lease") relating to
certain portions of the real property commonly described as 600 North Brand
Boulevard, Glendale, California, all as more particularly described in the Lease
(the "Premises").
B. Lessee, as lender, and Lessor, as borrower, are considering the
consummation of a lending transaction pursuant to which Lessee, as lender (in
such capacity, "Lender") would lend to Lessor, as borrower (in such capacity,
"Borrower") the sum of $5,338,500 (the "Loan") and Borrower would execute, among
other documents and instruments, a Promissory Note Secured by Deed of Trust in
favor of Lender (the "Note") and would further execute a Deed of Trust
encumbering certain real property, including that real property in which the
Premises are located (the "Deed of Trust"). The Note, Deed of Trust and any
other documents evidencing or securing the Loan are referred to as the "Loan
Documents."
C. In order to induce the Lender to make the Loan, Lessor has agreed to
amend the Lease as set forth below.
AGREEMENT
On the basis of the foregoing recitals, the parties agree as follows:
1. Paragraph 1.6 of the Lease shall be amended to delete the word "first"
and insert in lieu thereof the word "fourteenth."
2. A new paragraph 4.9 shall be added to the Lease, to read in its
entirety as follows:
4.9 (a) Notwithstanding anything to the contrary in the Lease, if on
the day any payment of monthly Base Rent is due from Lessee to Lessor under
the Lease (a "Lease Payment Date"), Borrower has failed to pay in full an
amount due under the Note, the Deed of Trust or any other Loan Document
(the "Delinquent Amount"), then the original Lessee shall have the right to
suspend ("Suspension Right") payment of the then monthly Base Rent (and no
other amounts) to the extent of such Delinquent Amount, (the amount so
suspended, the "Suspension Amount") provided that (i) Lessee is not in
breach or default under the Lease, and (ii) Lessee pays to Lessor the
amount, if any, by which the then monthly Base Rent exceeds the Suspension
Amount. The
<PAGE>
Delinquent Amount shall be based upon the amount of payments due under the
Note, Deed of Trust or other Loan Documents, without giving effect to the
acceleration of principal and interest under the Note, except if the Note
has matured by its own terms. The Suspension Amount shall be computed by
Lessee; provided however that in the event of manifest error in the
computation of the Suspension Amount which results in overstatement of such
amount, Lessee shall pay to Lessor interest at the rate provided in Section
3.1 of the Note on the amount incorrectly suspended from the date of such
suspension to the date such amount is paid to Lessor.
(b) Lessee may, in its discretion, but shall have no obligation
to, apply any Suspension Amount to the reduction of any amount owing under
the Loan Documents. Lessee may, in its discretion, request waivers and
other documentation which Lessee and its counsel determines to be
appropriate, as a condition to application of such amounts. Lessee shall
notify Lessor in the event, after any exercise of its Suspension Right,
Lessee, in its discretion, determines not to apply any Suspension Amount to
reduction of any amount owing under the Loan Documents.
(c) Lessee shall, within five business days after the date all the
Delinquent Amounts have been paid, pay to Lessor any and all Suspension
Amounts (except to the extent such payment has been applied pursuant to
subparagraph (b) above). Prior to such payment of the Delinquent Amounts
and the expiration of such five-business-day period, Lessor shall not be
entitled to exercise any right or remedy available to Lessor for nonpayment
of the Suspension Amount including without limitation, application of the
Security Deposit; provided, however, Lessor shall have the right to pursue
all of Lessor's rights and remedies for any breach or default by Lessee
other than payment of the Suspension Amount.
3. The first sentence of paragraph (c) of Section 13.1 is amended to read
as follows:
"The failure by Lessee (i) to make any payment of Base Rent as and when
due (giving effect, where applicable, to the provisions of Section 4.9),
where such failure shall continue for a period of ten (10) days after the
due date thereof, or (ii) to make any payment required to be made by Lessee
hereunder (other than payment of Base Rent), as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee."
4. Sections 1 through 3 of this Amendment shall terminate and be of no
further force and effect upon the occurrence of the earlier of any of the
following: (i) the original Lessee is released of liability under the Lease,
(ii) payment in full of all of the amounts due under the Note and other Loan
Documents.
5. The first sentence of Section 39.6 of the Lease shall be amended to
state as follows:
<PAGE>
Fidelity Federal Bank, a Federal Savings Bank, as Lessee, shall have an
Option to purchase the Office Building Project upon expiration of the initial
term of the Lease at fair market value, provided that Citadel Realty, Inc. as
Lessor or any direct or indirect subsidiary of Citadel Realty, Inc. or Citadel
Holding Corporation (all such persons or entities shall be collectively referred
to as "Lessor" for purposes of this Section 39.6 and Section 1.14 only) then
owns the Office Building Project, by delivering written notice of exercise of
the Option (the "option notice") to Citadel Realty, Inc., as Lessor, at least
six (6) months, but no more than nine (9) months before the expiration of the
initial term of the Lease."
6. Except as modified in this Amendment, the terms of the Lease remain in
full force and effect.
IN WITNESS WHEREOF, we hereunto set our hands of the date first above
written.
CITADEL REALTY, INC.
By:
--------------------------------
FIDELITY FEDERAL BANK, A
FEDERAL SAVINGS BANK
By:
--------------------------------
<PAGE>
SECOND AMENDMENT TO STANDARD OFFICE LEASE
(MODIFIED GROSS)
This Second Amendment to Standard Office Lease (Modified Gross) is entered
into as of this 1st day of October, 1996 by and between CITADEL REALTY, INC., a
Delaware corporation ("Lessor") and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS
BANK, a federally chartered savings association ("Lessee").
RECITALS
A. Lessor and Lessee are parties to a Standard Office Lease (Modified
Gross) dated for reference purposes on July 15, 1994 (the "Lease") relating to
certain portions of the real property commonly described as 600 North Brand
Boulevard, Glendale, California (the "Building"), all as more particularly
described in the Lease (the "Premises").
B. Lessor and Lessee are also parties to a First Amendment to Standard
Office Lease (Modified Gross) ("First Amendment") dated for reference purposes
only May 15, 1995, relating to certain amendments to the Lease executed in
connection with certain Loan Documents entered into by and between Lessor and
Lessee.
C. Lessor has received a proposal from The Walt Disney Company and/or its
affiliates ("Disney") to lease floors two through six of the Building.
D. Contingent upon the execution of a lease between Lessor and Disney for
floors two through six of the Building (the "Disney Lease"), Lessor and Lessee
have agreed to modify the Lease to provide that Lessee relinquish and surrender
that portion of the original premises which relate to office accommodations
(floors four to six inclusive) (the "Office Floors").
E. This Second Amendment is intended to become effective on the date of
execution of the Disney Lease (the "Disney Lease Date").
AGREEMENT
On the basis of the foregoing recitals, the parties agree as follows:
1. Section 1.2 of the Lease is hereby deleted in full and replaced by the
following:
"1.2 PREMISES: The ground floor, consisting of approximately 11,688.70
BOMA rentable square feet (the "PREMISES"), as defined in paragraph 2 and
as shown on Exhibit "A" hereto."
2. Section 1.4 of the Lease shall be deleted in full and replaced by the
following:
"1.4 PERMITTED USE: Retail bank branch, subject to paragraph 6."
3. Section 1.6 of the Lease shall be deleted in full and replaced by the
following:
1
<PAGE>
"1.6 BASE RENT: $26,602 per month, payable on the first day
of each month, in advance, per paragraph 4.1."
4. Section 1.10 of the Lease is hereby deleted in full and replaced by the
following:
"1.10 LESSEE'S SHARE OF OPERATING EXPENSES: 12.75% (based on 91,669
total Building sq. ft.)."
5. Section 1.14 (Option to Purchase) of the Lease is hereby deleted in
full.
6. Section 2.2 of the Lease is hereby deleted in full and replaced by the
following:
"2.2 VEHICLE PARKING: So long as lessee is not in default, and
subject to the rules and regulations attached hereto as Exhibit C and as
established by Lessor from time to time, Lessee shall be entitled to use 25
spaces in the parking garage located at 600 N. Maryland Avenue and 15
spaces in the surface parking lot adjacent to the Building, with the right
to require the Lessor to mark as "reserved" the 15 spaces in the surface
parking lot; provided that nothing in this sentence shall alter Lessor's
rights to make changes to the Common Areas as set forth in paragraph 2.5.
The garage and the surface parking are shown on the site plan attached
hereto as Exhibit E. All of the above parking spaces are included in the
rental rate; provided, however, that Lessee shall pay any and all taxes or
surcharges applicable to such parking use which may be levied by any state
or local governmental agency from time to time. Further, Lessee shall have
the right to use, in conjunction with others, an additional 20 spaces
within the adjacent surface parking lot for visitor purposes. Landlord
reserves the right to monitor and control all such parking."
7. Section 2.2.2 of the Lease is hereby deleted in full.
8. Section 39.1 of the Lease is hereby deleted in full and replaced by the
following:
"39.1 DEFINITION: As used in this paragraph the word "Option" has the
following meaning: the right or option to extend the term of this Lease or
to renew this Lease."
9. Section 39.6 (Option to Purchase) of the Lease is hereby deleted in
full.
10. Section 5 of the First Amendment is hereby deleted in full.
11. The second, third and fourth pages of Exhibit A to the Lease (showing
the floor plans for the fourth, fifth and sixth floors of the Building) are
hereby deleted, leaving only the first page of Exhibit A (showing the floor plan
for the ground floor of the Building).
12. Except as modified hereby, the terms of the Lease and of the First
Amendment remain in full force and effect; provided, however, that to the extent
any provision of the Lease not modified hereby relates directly to the 4th, 5th
and 6th floors of the Building, such provisions shall be deemed amended and
adjusted so as to refer solely to the ground floor of the Building, defined by
this Second Amendment to be the entire
2
<PAGE>
Premises; and further provided, however, that the sections added as replacements
for sections in the original Lease which have been deleted are intended to speak
as of the date of the original Lease. By way of example, the Base Rent provided
for in Section 1.6 would have been the Base Rent for the ground floor as of the
date of the original Lease, July 15, 1994, and would, and is intended to be,
adjusted pursuant to the provisions of, among others, Section 1.7 and 4.8 such
that the Base Rent payable as of the date of this Second Amendment is the Base
Rent set forth in Section 1.6, as increased as provided elsewhere in the
original Lease. By way of further example, Section 1.9 (Security Deposit) is not
modified hereby, but any Security Deposit held by Lessor in excess of the
reduced rent payable by Lessee under this Second Amendment shall require Lessor
to refund to Lessee such excess.
13. This Second Amendment is effective as of the Disney Lease Date.
However, Lessee's obligations to continue to pay rent as provided in the
original Lease for the Office Floors shall continue until the earlier of a)
120 days from the Disney Lease Date and b) the date upon which Disney is
required to commence paying rent under the Disney Lease ("Disney Rent
Commencement Date"); provided, however, that upon the Disney Rent
Commencement Date, Lessor shall refund to Lessee all Base Rent paid by
Lessee with respect to the Office Floors for the period between August 1,
1996 and Disney Rent Commencement Date.
IN WITNESS WHEREOF, this Second Amendment to Lease is executed as of
the date first above written.
CITADEL REALTY, INC.
By:
-------------------------------
FIDELITY FEDERAL BANK, A
FEDERAL SAVINGS BANK
By:
-------------------------------
Executive Vice President
Chief Financial Officer
3
<PAGE>
INDEMNIFICATION AGREEMENT
-------------------------
AGREEMENT, effective as of _______________ between Bank Plus
Corporation, a Delaware corporation ("Bank Plus"), and _____________________
(the "Indemnitee").
WHEREAS, it is essential to Bank Plus to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director/officer of Bank Plus;
WHEREAS, Bank Plus and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, the Certificate of Incorporation (the "Certificate of
Incorporation") and the By-laws (the "By-laws") of Bank Plus require Bank Plus
to indemnify and advance expenses to its directors and certain of its officers
to the full extent permitted by law, and the Indemnitee has been serving and
continues to serve as director/officer of Bank Plus in part in reliance on the
Certificate of Incorporation and By-laws; and
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to Bank Plus in an effective manner and Indemnitee's reliance on the
Certificate of Incorporation and By-laws, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by the Certificate
of Incorporation and By-laws will be available to Indemnitee (regardless of,
among other things, any amendment to the Certificate of Incorporation or the By-
laws or any change in the composition of Bank Plus' Board of Directors or
acquisition transaction relating to Bank Plus), Bank Plus wishes to provide in
this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the fullest extent (whether partial or complete) permitted by law
and as set forth in this Agreement and, to the extent insurance is obtained, for
the continued coverage of Indemnitee under Bank Plus' directors' and officers'
liability insurance policies;
NOW, THEREFORE, in consideration of the premises and in order to
induce the Indemnitee to continue to serve Bank Plus directly or, at its
request, another enterprise, and intending to be legally bound hereby, the
parties hereto agree as follows:
<PAGE>
1. Certain Definitions:
-------------------
(a) Change in Control: shall be deemed to have occurred if (i) any
-----------------
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than (A) Bank Plus, (B) a trustee or other fiduciary holding securities
under an employee benefit plan of Bank Plus or (C) a corporation owned
directly or indirectly by the stockholders of Bank Plus in substantially
the same proportions as their ownership of stock of Bank Plus, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Bank Plus representing 20% or more
of the total voting power represented by Bank Plus' then outstanding Voting
Securities; (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of
Bank Plus and any new director whose election by the Board of Directors or
nomination for election by Bank Plus' stockholder was approved by a vote of
at least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority thereof; or (iii) the stockholders of Bank Plus approve a merger
or consolidation of Bank Plus with any other corporation, other than a
merger or consolidation which would result in the Voting Securities of Bank
Plus outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 80% of the total voting power represented by
the Voting Securities of Bank Plus or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of Bank
Plus approve a plan of complete liquidation of Bank Plus or an agreement
for the sale or disposition by Bank Plus of (in one transaction or a series
of transactions) all or substantially all of Bank Plus' assets.
(b) Claim: any threatened, pending or completed action, suit or
-----
proceeding, or any inquiry or investigation, whether instituted by Bank
Plus or any other party, that Indemnitee in good faith believes might lead
to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(c) Expenses: include attorneys' fees and all other costs, expenses
--------
and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating
to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the
-------------------
fact that Indemnitee is or was a director, officer, employee or agent of
Bank Plus, or is or was serving at the request of Bank Plus as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee
-2-
<PAGE>
benefit plan, trust or other enterprise, or by reason of anything done or
not done by Indemnitee in any such capacity.
(e) Independent Legal Counsel: an attorney or firm of attorneys,
-------------------------
selected in accordance with the provisions of Section 3, who shall not have
otherwise performed services for Bank Plus or Indemnitee within the last
five years (other than with respect to matters concerning the rights of
Indemnitee under this Agreement or of other indemnitees under similar
indemnity agreements).
(f) Reviewing Party: (i) the Board of Directors by a majority vote
---------------
of the directors who are not parties to the subject Claim, even though less
than a quorum, or (ii) if there are no such directors, or if such directors
so direct or this Agreement provides, by Independent Legal Counsel.
(g) Voting Securities: any securities of Bank Plus which vote
-----------------
generally in the election of directors.
2. Basic Indemnification Arrangement.
---------------------------------
(a) In the event Indemnitee was, is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part out of)
an Indemnifiable Event, Bank Plus shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later
than thirty days after written demand is presented to Bank Plus, against
any and all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments,
fines, penalties or amounts paid in settlement) of such Claim. If so
requested by Indemnitee, Bank Plus shall advance (within two business days
of such request) any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of Bank Plus
under Section 2(a) shall be subject to the condition that the Reviewing
Party shall not have determined (in a written opinion in any case in which
the Independent Legal Counsel referred to in Section 3 hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable
law and (ii) the obligation of Bank Plus to make an Expense Advance
pursuant to Section 2(a) shall be subject to the condition that, if, when
and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, Bank Plus shall
be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
Bank Plus) for all such amounts theretofore paid; provided, however, that
if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee
should be indemnified under applicable law, any determination
-3-
<PAGE>
made by the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse Bank Plus for any Expense Advance until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). If there has not
been a Change in Control, the Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of Bank
Plus' Board of Directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal
Counsel referred to in Section 3 hereof. If there has been no determination
by the Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and Bank Plus hereby consents to service of process and to appear
in any such proceeding. Any determination by the Reviewing Party otherwise
shall be conclusive and binding on each of Bank Plus and Indemnitee.
3. Change in Control. Bank Plus agrees that if there is a Change in
-----------------
Control of Bank Plus (other than a Change in Control which has been approved by
a majority of Bank Plus' Board of Directors who were directors immediately prior
to such Change in Control) then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnity payments and Expense Advances
under this Agreement or any other agreement or By-laws of Bank Plus now or
hereafter in effect relating to Claims for Indemnifiable Events, Bank Plus shall
seek legal advice only from Independent Legal Counsel selected by Indemnitee and
approved by Bank Plus (which approval shall not be unreasonably withheld). Such
counsel, among other things, shall render its written opinion to each of Bank
Plus and Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. Bank Plus agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant thereto.
4. Indemnification for Additional Expenses. Bank Plus shall indemnify
---------------------------------------
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by Bank Plus under this Agreement or any other
agreement or Bank Plus by-law now or hereafter in effect relating to Claims for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by Bank Plus, regardless of whether
-4-
<PAGE>
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any other
----------------------
provision of this Agreement to indemnification by Bank Plus for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof,
Bank Plus shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. Burden of Proof. In connection with any determination by the
---------------
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on Bank Plus to establish
that Indemnitee is not so entitled.
7. No Presumptions. For purposes of this Agreement, the termination of
---------------
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
8. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be
-------------------
in addition to any other rights Indemnitee may have under the Certificate of
Incorporation or the By-laws or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under Bank Plus' By-laws and this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by such change.
9. Liability Insurance. To the extent Bank Plus maintains an insurance
-------------------
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Bank
Plus director or officer.
-5-
<PAGE>
10. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of Bank Plus against Indemnitee
or Indemnitee's spouse, heirs, executors or personal or legal representatives
after the expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of Bank Plus shall be extinguished and
deemed released unless asserted by the timely filing of a legal action within
such two-year period; provided, however, that if any shorter period of
limitations is otherwise applicable to any such cause of action, such shorter
period shall govern.
11. Amendments, Etc. No supplement, modification or amendment of this
---------------
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. Subrogation. In the event of payment under this Agreement, Bank Plus
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable Bank Plus effectively to bring suit to
enforce such rights.
13. No Duplication of Payments. Bank Plus shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. Binding Effect, Etc. This Agreement shall be binding upon and inure
-------------------
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of Bank Plus), spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director or officer of Bank Plus.
15. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware applicable to
contracts
-6-
<PAGE>
made and to be performed in such state without giving effect to the principles
of conflicts of laws.
17. Counterparts. This Agreement may be executed in counterparts each of
------------
which shall be deemed an original and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BANK PLUS CORPORATION
By:________________________________
Name:
Title:
INDEMNITEE
___________________________________
Name:
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 50,899
<INT-BEARING-DEPOSITS> 0 6,534
<FED-FUNDS-SOLD> 0 15,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 326,133
<INVESTMENTS-CARRYING> 0 90,313
<INVESTMENTS-MARKET> 0 90,301
<LOANS> 0 2,805,917
<ALLOWANCE> 0 62,832
<TOTAL-ASSETS> 0 3,323,209
<DEPOSITS> 0 2,516,769
<SHORT-TERM> 0 514,028
<LIABILITIES-OTHER> 0 62,653
<LONG-TERM> 0 20,000
0 51,750
0 0
<COMMON> 0 182
<OTHER-SE> 0 157,827
<TOTAL-LIABILITIES-AND-EQUITY> 0 209,759
<INTEREST-LOAN> 52,142 162,418
<INTEREST-INVEST> 6,074 14,033
<INTEREST-OTHER> 804 2,179
<INTEREST-TOTAL> 59,020 178,630
<INTEREST-DEPOSIT> 29,808 90,630
<INTEREST-EXPENSE> 7,967 23,151
<INTEREST-INCOME-NET> 21,245 64,849
<LOAN-LOSSES> 3,900 11,710
<SECURITIES-GAINS> 610 762
<EXPENSE-OTHER> 37,557 74,992
<INCOME-PRETAX> (17,557) (13,711)
<INCOME-PRE-EXTRAORDINARY> (17,557) (13,711)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,371) (12,618)
<EPS-PRIMARY> (.98) (.95)
<EPS-DILUTED> (.98) (.95)
<YIELD-ACTUAL> 2.64 2.67
<LOANS-NON> 0 36,480
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 49,575
<LOANS-PROBLEM> 0 248,782
<ALLOWANCE-OPEN> 73,722 89,435
<CHARGE-OFFS> 15,199 40,209
<RECOVERIES> 409 1,901
<ALLOWANCE-CLOSE> 62,832 62,832
<ALLOWANCE-DOMESTIC> 62,832 62,832
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 29,281 29,281
</TABLE>
