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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
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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 April 29, 1998, Registrant had outstanding 19,367,203 shares of Common
Stock, par value $.01 per share.
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BANK PLUS CORPORATION
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 1998 and
December 31, 1997...................................................................... 1
Consolidated Statements of Operations for the three months ended March 31, 1998
and 1997............................................................................... 2
Consolidated Statements of Comprehensive Income for the three months ended
March 31, 1998 and 1997................................................................ 3
Consolidated Statements of Cash Flows for the three months ended March 31, 1998
and 1997............................................................................... 4
Notes to Consolidated Financial Statements................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 30
Item 2. Changes in Securities........................................................................ 31
Item 3. Defaults Upon Senior Securities.............................................................. 31
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 31
Item 5. Other Information............................................................................ 31
Item 6. Exhibits and Reports on Form 8-K............................................................. 32
a. Exhibits............................................................................ 32
b. Reports on Form 8-K................................................................. 34
</TABLE>
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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>
March 31, December 31,
1998 1997
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<S> <C> <C>
Assets:
Cash and cash equivalents................................................................. $ 351,204 $ 165,945
Investment securities available for sale, at fair value................................... 32,820 100,837
Investment securities held to maturity at amortized cost (market value of
$3,255 and $3,208 at March 31, 1998 and December 31, 1997, respectively)................ 3,238 3,189
Mortgage-backed securities held for trading, at fair value................................ 30,023 41,050
Mortgage-backed securities available for sale, at fair value.............................. 779,827 852,604
Loans receivable, net of allowances of $47,535 and $50,538 at March 31, 1998 and
December 31, 1997, respectively......................................................... 2,846,156 2,823,577
Interest receivable....................................................................... 23,380 24,114
Investment in Federal Home Loan Bank ("FHLB") stock....................................... 61,361 60,498
Real estate owned, net.................................................................... 10,481 12,293
Premises and equipment, net............................................................... 33,644 32,707
Other assets.............................................................................. 47,935 50,992
----------- -----------
$ 4,220,069 $ 4,167,806
=========== ===========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits................................................................................. $ 2,995,954 $ 2,891,801
FHLB advances............................................................................ 959,960 1,009,960
Senior notes............................................................................. 51,478 51,478
Other liabilities........................................................................ 26,873 32,950
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4,034,265 3,986,189
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Minority Interest: Preferred stock issued by consolidated subsidiary..................... 272 272
Stockholders' equity:
Common Stock:
Common stock, par value $.01 per share; 78,500,000 shares
authorized; 19,383,215 and 19,367,215 shares outstanding
at March 31, 1998 and December 31, 1997, respectively................................... 194 194
Paid-in capital.......................................................................... 274,612 274,432
Accumulated other comprehensive loss..................................................... (4,001) (4,467)
Accumulated deficit...................................................................... (85,273) (88,814)
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185,532 181,345
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$ 4,220,069 $ 4,167,806
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</TABLE>
See notes to consolidated financial statements.
1
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BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
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<S> <C> <C>
INTEREST INCOME:
Loans......................................................................... $ 54,005 $ 49,840
Mortgage-backed securities.................................................... 13,565 4,304
Investment securities and other............................................... 6,993 4,563
------------ ------------
Total interest income........................................................ 74,563 58,707
------------ ------------
Interest Expense:
Deposits...................................................................... 35,471 29,140
FHLB advances................................................................. 16,626 5,943
Other borrowings.............................................................. 1,569 3,267
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Total interest expense....................................................... 53,666 38,350
------------ ------------
Net Interest Income 20,897 20,357
Provision for estimated loan losses........................................... 2,000 4,251
------------ ------------
Net Interest Income after Provision for Estimated Loan Losses.................. 18,897 16,106
------------ ------------
Noninterest Income (Expense):
Loan fee income............................................................... 2,640 508
Gains on loan sales, net...................................................... 18 7
Fee income from sale of uninsured investment products......................... 1,453 1,513
Fee income on deposits and other income....................................... 794 750
Gains on sales of securities and trading activities, net...................... 278 1,221
Fee income on Americash....................................................... 1,094 --
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6,277 3,999
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Provision for estimated real estate losses.................................... (63) (742)
Direct costs of real estate operations, net................................... (771) (1,559)
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(834) (2,301)
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Total noninterest income..................................................... 5,443 1,698
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Operating Expense:
Personnel and benefits........................................................ 9,256 6,701
Occupancy..................................................................... 3,387 2,500
FDIC insurance................................................................ 642 494
Professional services......................................................... 3,605 2,620
Office-related expenses....................................................... 1,270 848
Other......................................................................... 2,002 1,173
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Total operating expense...................................................... 20,162 14,336
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Earnings Before Income Taxes and Minority Interest in Subsidiary............... 4,178 3,468
Income tax expense (benefit).................................................. 630 (2,300)
------------ ------------
Earnings before Minority Interest in Subsidiary................................ 3,548 5,768
Minority interest in subsidiary (dividends on subsidiary
preferred stock)............................................................. 7 1,553
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Earnings Available for Common Stockholders..................................... $ 3,541 $ 4,215
============ ============
Basic Earnings Per Common Share................................................ $0.18 $0.23
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Basic Weighted Average Common Shares Outstanding............................... 19,369,326 18,245,265
============ ============
Diluted Earnings Per Common Share.............................................. $0.18 $0.23
============ ============
Diluted Weighted Average Common Shares Outstanding............................. 19,817,279 18,656,085
============ ============
</TABLE>
See notes to consolidated financial statements
2
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BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
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EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS..................................... $ 3,541 $ 4,215
-------- --------
Other comprehensive income (loss), net of income taxes:
Unrealized gains (losses) on securities available for sale:
Investment securities available for sale..................................... (120) (1,512)
Mortgage-backed securities available for sale................................ 1,901 (2,322)
Derivative financial instruments............................................. (1,315) (45)
-------- --------
Other comprehensive income (loss)............................................. 466 (3,879)
-------- --------
Comprehensive Income........................................................... $ 4,007 $ 336
======== ========
</TABLE>
See notes to consolidated financial statements
3
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BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................................................. $ 3,541 $ 4,215
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Provisions for estimated loan and real estate losses........................ 2,063 4,993
Gains on sale of loans and securities....................................... (296) (1,228)
FHLB stock dividend......................................................... (875) (891)
Depreciation and amortization............................................... 1,585 870
Amortization of discounts and accretion of premiums
and deferred loan items, net.............................................. 1,910 (491)
Purchases of mortgage-backed securities ("MBS") held for trading.............. (19,842) (9,979)
Principal repayments of MBS held for trading.................................. 1,927 157
Proceeds from sales of MBS held for trading................................... 28,617 13,074
Interest receivable decrease.................................................. 734 631
Other assets decrease......................................................... 3,108 31,300
Deferred income tax expense (benefit)......................................... 520 (2,404)
Interest payable (decrease) increase.......................................... (4,097) 4,621
Other liabilities and deferred income (decrease) increase..................... (125) 1,292
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Net cash provided by operating activities................................. 18,770 46,160
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CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investment securities available for sale........................ 10,000 --
Proceeds from sales of investment securities available for sale............... 57,805 --
Purchases of MBS available for sale........................................... -- (66,547)
Principal repayments of MBS available for sale................................ 51,911 5,622
Proceeds from sales of MBS available for sale................................. 20,888 43,695
Principal repayments of MBS held to maturity.................................. -- 770
Realized loss on hedging of MBS available for sale............................ (3,704) --
Loans receivable, net (increase) decrease..................................... (32,878) 34,727
Proceeds from sales of real estate, net...................................... 10,177 11,331
Premises and equipment additions, net......................................... (2,043) (371)
---------- ----------
Net cash provided by (used in) investing activities....................... 112,156 29,227
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings, net increase............................ 67,165 6,336
Certificate accounts, net increase............................................ 36,988 14,722
Proceeds from FHLB advances................................................... 180,000 50,000
Repayments of FHLB advances................................................... (230,000) (112,700)
Stock options exercised....................................................... 180 --
---------- ----------
Net cash provided by (used in) financing activities.......................... 54,333 (41,642)
---------- ----------
Net increase in cash and cash equivalents................................. 185,259 33,745
Cash and cash equivalents at the beginning of the period..................... 165,945 70,126
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................... $ 351,204 $ 103,871
========== ==========
(Continued on following page)
</TABLE>
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BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits, advances and other borrowings.......................... $ (57,395) $ (33,147)
Income tax payment........................................................... (10) --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to real estate acquired through foreclosure......................... 8,428 12,666
Loans originated to finance sale of real estate owned......................... -- 1,616
</TABLE>
See notes to consolidated financial statements.
5
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BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
In the opinion of Bank Plus Corporation ("Bank Plus") and Bank Plus
together with its subsidiaries (the "Company"), the accompanying unaudited
consolidated financial statements, prepared from the Company's books and
records, contain all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of the Company's financial condition as of
March 31, 1998 and December 31, 1997, and the results of operations and
statements of cash flows for the three months ended March 31, 1998 and 1997.
Bank Plus is the holding company for Fidelity Federal Bank, a Federal
Savings Bank, and its subsidiaries (the "Bank" or "Fidelity"), Gateway
Investment Services, Inc. ("Gateway") and Bank Plus Credit Services Corporation
("BPCS"). The Company's headquarters are in Los Angeles, California. The Company
offers a broad range of consumer financial services, including demand and term
deposits, uninsured investment products, and loans to consumers, through 38
full-service branches, 37 of which are located in Southern California,
principally in Los Angeles and Orange counties, and one of which is located in
Bloomington, Minnesota. All significant intercompany transactions and balances
have been eliminated. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the 1998 presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and include all
information and footnotes required for interim financial statement presentation.
The financial information provided herein, including the information under the
heading Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" ("MD&A"), is written with the presumption that the users
of the interim financial statements have read, or have access to, the most
recent Annual Report on Form 10-K which contains the latest available audited
consolidated financial statements and notes thereto, as of December 31, 1997,
together with the MD&A as of such date.
2. REPORTING COMPREHENSIVE INCOME
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130 which establishes standards for
reporting and the displaying of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Comprehensive income is defined as "the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-stockholder sources." It includes all changes in equity
during a period except those resulting from investments by stockholders' and
distribution to stockholders'.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
3. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various financial instruments in the normal course of
its business. By their nature all such instruments involve risk, and the maximum
potential loss may exceed the value at which such instruments are carried.
The Company has employed interest rate swaps, caps and floors in the
management of interest rate risk. Gains or losses on early terminations of
swaps, caps or floors are included in the carrying amount of the related asset
or liability and amortized as yield adjustments over the remaining terms of the
terminated instruments. The premiums paid for interest rate caps and floors are
capitalized and amortized over the life of the contracts using
6
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BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998
the straight line method. Options on treasury futures, interest rate caps and
swaps and forward commitments to purchase or sell MBSs entered into for trading
purposes are carried at fair value. Realized and unrealized changes in fair
values are recognized in earnings in the period in which the changes occur.
Treasury futures used to hedge the fluctuations in fair values of available for
sale securities are carried at fair value, with realized and unrealized changes
in fair value recognized in a separate component of stockholders' equity.
Realized gains and losses on termination of such hedge instruments are amortized
into interest income or expense over the expected remaining life of the hedged
asset or liability. Management monitors the correlation of the changes in fair
values between the hedge instruments and the securities being hedged to ensure
high correlation. If the criteria for hedge accounting is not met, the fair
value adjustments of the derivative instruments are reported in current
earnings.
4. EARNINGS PER SHARE
Earnings per share ("EPS") is calculated on both a basic and diluted basis.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted from issuance of common stock that then shared in
earnings. The dilutive potential common shares as of March 31, 1998 and 1997 are
447,953 and 410,820, respectively, relating to incremental shares from assumed
conversions of stock options and deferred stock grants.
5. LOAN FEE INCOME
The Company charges fees for originating loans. Mortgage loan origination
fees, net of certain direct costs of originating the mortgage loan, are
recognized as an adjustment of the mortgage loan yield over the estimated life
of the mortgage loan by the interest method. When a mortgage loan is sold,
unamortized net mortgage loan origination fees and direct costs are recognized
in earnings with the related gain or loss on sale. Other mortgage loan fees and
charges representing service costs for the prepayment of mortgage loans, for
delinquent payments or for miscellaneous mortgage loan services are recognized
when collected. Mortgage loan commitment fees received are deferred to the
extent they exceed direct underwriting costs.
Credit card origination and annual fees are netted against direct
origination cost and amortized over twelve months and recognized as fee income.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Form 10-Q,
including without limitation statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the continuing impact of California's economic recession on collateral values
and the ability of certain borrowers to repay their obligations to Fidelity; the
potential risk associated with the Bank's level of nonperforming assets and
other assets with increased risk; changes in or amendments to regulatory
authorities' capital requirements or other regulations applicable to Fidelity;
fluctuations in interest rates; increased levels of competition for loans and
deposits; start-up risks associated with new business lines, including affinity
card programs and credit processing activities; and other factors referred to in
this Form 10-Q. Given these uncertainties, undue reliance should not be placed
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements included herein to reflect future events
or developments.
OVERVIEW
Bank Plus Corporation ("Bank Plus"), through its wholly-owned subsidiaries,
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries ("Fidelity"
or the "Bank"), Gateway Investment Services, Inc., ("Gateway") and Bank Plus
Credit Services Corporation ("BPCS") (collectively, the "Company"), offers a
broad range of consumer financial services, including demand and term deposits,
loans to consumers, uninsured investment products and credit processing
services. Fidelity operates through 38 full-service branches, 37 of which are
located in southern California, principally in Los Angeles and Orange counties,
and one of which is located in Bloomington, Minnesota. The Bank makes available
to its customers residential mortgages and consumer loans, which the Bank does
not underwrite or fund, by referral to certain established providers of mortgage
and consumer loan products with which the Bank has negotiated strategic
alliances. In addition, through Gateway, a National Association of Securities
Dealers, Inc. ("NASD") registered broker/dealer, the Bank provides customers
with uninsured investment products, including mutual funds and annuities.
CREDIT CARDS
Fidelity has formed a plan to develop credit card issuance programs with
affinity partners. The affinity card program involves the solicitation of
prospective individual customers from identifiable groups with a common interest
or affiliation. These programs will include unsecured credit cards and credit
cards secured by real estate or by cash deposits. Fidelity will serve as issuer
and owner of the credit card accounts and will develop the card portfolio from
prospects provided by the affinity partner. Fidelity retains the right to market
other products to the card members and expects to offer multiple financial
products related to significant life events of the typical household, such as
home purchase, insurance and retirement planning. Generally, there are two types
of affinity programs: credit enhancement programs and shared risk programs. In
both programs, the Bank is responsible for the risk management associated with
the extensions of credit. The Bank develops and implements the underwriting
standards as well as the supporting risk management support systems.
Underwriting is primarily based on industry-accepted Fair Isaac Company ("FICO")
credit scoring methodology. The Bank establishes reserve requirement levels
based on the loss expectation by credit tranche, and reserves are adjusted at
least monthly based on actual volumes outstanding in the programs.
Under the credit enhancement programs, the affinity partners have the right to
purchase outstanding card receivables at par and, in exchange, provide credit
enhancements to guarantee full repayment of the Bank's
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outstanding receivables in the event of cardholder defaults. The credit
enhancements include funding by the affinity counter party of a reserve account
or pledging of collateral as receivables are funded by the Bank. As a result of
the credit enhancements provided under these affinity programs, the Bank does
not record any loan loss provisions associated with the outstanding balances.
The Bank has committed to fund up to an aggregate outstanding balance of $425
million under the credit enhancement programs. At March 31, 1998, outstanding
credit cards and balances associated with the credit enhancement programs were
approximately 46,000 and $79.1 million, respectively.
Under the shared risk programs, the Bank and the affinity counter party share
the net earnings or loss of the program based on contracted percentages. The net
earnings or loss is determined after consideration of all direct revenues and
expenses, including loan loss provisions and the Bank's cost of funding card
balances, plus an appropriate interest rate spread. In January 1998, the Bank
began issuing cards under a shared risk program with an affinity counter-party
which has an affiliation with approximately 17 million members. The Bank offers
cards with limits ranging from $300 to $5,000 to the full credit spectrum of
borrowers. At March 31, 1998, outstanding credit cards and balances associated
with the shared risk program were approximately 80,000 and $34.1 million,
respectively.
The shared risk programs are expected to significantly increase the Bank's
loan loss provisions and allowance for estimated loan loss in 1998. Credit card
industry averages for net charge-off ratios can range from 5% to 7%, which is
significantly higher than the Bank's charge-off ratio in 1997 for single family
and multifamily mortgage loans of 1.2%.
Fidelity is evaluating other affinity credit card transactions with several
potential strategic allies. These transactions, if consummated, would involve
the issuance of substantial numbers of credit cards, and both the risks and
benefits associated with these programs would be shared with Fidelity's
strategic allies. No assurances can be given as to whether any of these
transactions will be consummated or, if consummated, as to the ultimate success
of any of these transactions.
The Bank currently outsources card processing and customer service to third
party providers. However, the Company is establishing a credit processing center
to handle card-related services internally. The credit processing center
operates as a subsidiary of Bank Plus under the name of Bank Plus Credit
Services Corporation (BPCS). Recently BPCS began handling collections and fraud
investigation for the shared risk card programs with plans to bring in customer
service in the near future. The Company believes that customer satisfaction and
the Company's responsiveness and availability are key factors that will enhance
and extend the Company's relationship with its card customers, and that its
ability to achieve customer satisfaction is significantly enhanced by developing
and maintaining a credit processing center internally. The Company has recently
employed senior and middle management with significant credit card operations
experience to start up and operate the credit processing center, as such
experience was not previously resident in the Company. The establishment of this
processing center requires funding of significant start-up costs, and no
assurances can be given that these costs will be recovered. In April 1998
Fidelity made a cash dividend of $3.0 million to Bank Plus which may be used by
Bank Plus to support the start-up cost of BPCS.
RETAIL FINANCIAL SERVICES
In June 1997, Fidelity entered into an arrangement with Americash L.L.C.
("Americash") in which Fidelity acts as cash services provider for Americash's
newly established and rapidly expanding network of cash-dispensing automatic
teller machines. Fidelity has agreed to provide cash for Americash ATMs
throughout the United States, and is entitled to fees based on the volume of
cash withdrawal transactions. If the transaction volume is below certain agreed
upon minimums, the fees to which Fidelity is entitled are calculated using a
formula designed to ensure Fidelity a minimum return for the use of its cash.
The average cash balance in use for the Americash program during the first
quarter of 1998 was $59.4 million, and the program generated fees, which are
reported as noninterest income, of $1.1 million during the same period.
During 1997 and the first quarter of 1998, the average transaction volume for
the Americash ATM network was insufficient to generate transaction fees above
the minimum threshold provided for in the agreement between
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Americash and Fidelity. Therefore, Fidelity's fees during those periods were
calculated using the minimum return formula described above. At the request of
Americash, Fidelity has agreed to defer collection of a portion of those accrued
fees in order to assist Americash with its cash flow needs during the initial
rollout period. As a result of this deferral of fees, accounts receivable from
Americash of $1.0 million and $1.8 million were outstanding at December 31, 1997
and March 31, 1998, respectively. This fee-deferral arrangement is temporary,
and management anticipates that Americash will secure other sources of financing
for its capital requirements. Until such alternative financing is obtained,
management believes the Bank has adequate remedies under its agreement with
Americash to ensure full and prompt collection of the fee receivable referred to
above.
RESULTS OF OPERATIONS
The Company reported net earnings available to common stockholders of $3.5
million ($0.18 per basic common share; computed on the basis of 19,369,326 basic
weighted average common shares outstanding and $0.18 per diluted common share;
computed on the basis of 19,817,279 diluted weighted average common shares
outstanding) for the three months ended March 31, 1998. This compares to net
earnings available to common stockholders of $4.2 million ($0.23 per basic
common share; computed on the basis of 18,245,265 basic weighted average common
shares outstanding and $0.23 per diluted common share; computed on the basis of
18,656,085 diluted weighted average common shares outstanding) for the three
months ended March 31, 1997.
Net earnings for the three months ended March 31, 1998, as compared to the
same period in 1997, reflect: (a) increased net interest income of $0.5 million
primarily due to increased average volume of interest-earning assets offset by
lower rates on interest-earning assets and higher rates and volume on interest-
bearing liabilities, (b) decreased provisions for estimated loan losses of $2.3
million due to improved asset quality, and (c) increased noninterest income of
$3.7 million due primarily to increased loan fee and fee income on Americash,
partially offset by lower gains on sales of mortgage-backed securities ("MBS"),
and (d) decreased minority interest in subsidiary (dividend on subsidiary
preferred stock) of $1.5 million primarily due to the exchange to 12% Senior
Notes due July 18, 2007 (the "Senior Notes") in the third quarter of 1997. These
favorable changes were partially offset by (a) increased operating expenses of
$5.8 million primarily due to the Hancock Savings Bank, FSB ("Hancock")
acquisition and implementation of the business strategy described in the
Company's December 31, 1997 Annual Report on Form 10-K under Item 1.
"BusinessBusiness Strategy", and (b) decreased income tax benefit of $2.9
million (see "--Income Taxes").
ASSET/LIABILITY MANAGEMENT
Net interest income is the difference between interest earned on the Company's
loans, MBSs and investment securities ("interest-earning assets") and interest
paid on its deposits and borrowings ("interest-bearing liabilities"). Net
interest income is affected by the interest rate spread, which is the difference
between the rates earned on the Company's interest-earning assets and rates paid
on its interest-bearing liabilities, as well as the relative amounts of its
interest-earning assets and interest-bearing liabilities. The Company's average
interest rate spread for the three months ended March 31, 1998 and 1997 was
1.87% and 2.13%, respectively.
The objective of interest rate risk management is to maximize the net income
of the Company while controlling interest rate risk exposure. Banks and savings
institutions are subject to interest rate risk when assets and liabilities
mature or reprice at different times (duration risk), against different indices
(basis risk) or for different terms (yield curve risk). The decision to control
or accept interest rate risk can only be made with an understanding of the
probability of various scenarios occurring. Having liabilities that reprice more
quickly than assets is beneficial when interest rates fall, but may be
detrimental when interest rates rise.
The Company manages interest rate risk by, among other things, maintaining a
portfolio consisting primarily of ARM loans. ARM loans comprised 93%, of the
total loan portfolio at March 31, 1998 and 97% at March 31, 1997. The percentage
of monthly adjustable ARMs to total loans was approximately 70% and 76% at March
31, 1998 and 1997, respectively. Interest sensitive assets provide the Company
with a degree of long-term protection from rising interest rates. At March 31,
1998, approximately 92% of Fidelity's total loan portfolio consisted of loans
which mature or reprice within one year, compared to approximately 93% at March
31, 1997. Fidelity has
10
<PAGE>
in recent periods been negatively impacted by the fact that increases in the
interest rates accruing on Fidelity's ARMs lagged the increases in interest
rates accruing on its deposits due to reporting delays and contractual look-back
periods contained in the Bank's loan documents. At March 31, 1998, 85% of the
Bank's loans, which are indexed to Eleventh District Cost of Funds ("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 generally in line with the cost of funds of institutions which comprise
the Federal Home Loan Bank (the "FHLB") Eleventh District. In the Company's
case, the lag between the repricing of its liabilities and its ARM loans indexed
to COFI is approximately four months. Thus, in a rising rate environment 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.
The Company utilizes various financial instruments in the normal course of its
business. By their nature all such instruments involve risk, and the maximum
potential loss may exceed the value at which such instruments are carried. As is
customary for these types of instruments, the Company usually does not require
collateral or other security from other parties to these instruments. The
Company manages its credit exposure to counterparties through credit approvals,
credit limits and other monitoring procedures. The Company's Credit Policy
Committee makes recommendations regarding counterparties and credit limits which
are subject to approval by the Board of Directors.
The Company may employ interest rate swaps, caps and floors in the management
of interest rate risk. An interest rate swap agreement is a financial
transaction where two counterparties agree to exchange different streams of
payments over time. An interest rate swap involves no exchange of principal
either at inception or upon maturity; rather, it involves the periodic exchange
of interest payments arising from an underlying notional principal amount.
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.
11
<PAGE>
The following table sets out the maturity and rate sensitivity of the
interest-earning assets and interest-bearing liabilities as of March 31, 1998.
"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 as adjusted for interest-rate swaps and other financial
instruments as applicable, and based on certain assumptions, including those
stated in the notes to the table.
MATURITY AND RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
MATURITY OR REPRICING
------------------------------------------------------
<S> <C> <C> <C>
WITHIN 3 4-12 1-5
Months Months Years
----------- -------------- --------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Cash............................................ $ 243,947 $ 297 $ --
Investment securities (1) (2)................... 61,361 10,179 25,879
MBS (1)......................................... 86,916 1,363 --
Loans receivable:
ARMs and other adjustables (3)................. 2,346,372 321,921 28,563
Fixed rate loans............................... 8,557 726 4,588
---------- ------------ ------------
Total gross loans receivable................. 2,354,929 322,647 33,151
---------- ------------ ------------
Total....................................... 2,747,153 334,486 59,030
---------- ------------ ------------
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts (4)............ 417,903 -- --
Money market accounts (4).................... 56,234 -- --
Fixed maturity deposits:
Retail customers............................ 12,272 1,545,167 951,668
Wholesale customers........................ -- 814 8,112
---------- ------------ ------------
Total deposits............................ 486,409 1,545,981 959,780
---------- ------------ ------------
Borrowings:
FHLB advances (3)............................ 224,960 100,000 535,000
Other........................................ -- -- --
---------- ------------ ------------
Total borrowings............................ 224,960 100,000 535,000
---------- ------------ ------------
Total..................................... 711,369 1,645,981 1,494,780
---------- ------------ ------------
IMPACT OF HEDGING............................... 5,000 -- (5,000)
---------- ------------ ------------
REPRICING GAP................................... $2,040,784 $ (1,311,495) $ (1,440,750)
========== ============ ============
GAP TO TOTAL ASSETS............................. 48.36% (31.08)% (34.14)%
CUMULATIVE GAP TO TOTAL ASSETS.................. 48.36% 17.28% (16.86)%
<CAPTION>
AS OF MARCH 31, 1998
MATURITY OR REPRICING
---------------------------------------------
6-10 Over 10
Years Years TOTAL
----------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Cash............................................ $ -- $ -- $ 244,244
Investment securities (1) (2)................... -- -- 97,419
MBS (1)......................................... -- 721,571 809,850
Loans receivable:
ARMs and other adjustables (3)................. 3,055 -- 2,699,911
Fixed rate loans............................... 14,885 179,333 208,089
---------- ---------- ----------
Total gross loans receivable................. 17,940 179,333 2,908,000
---------- ---------- ----------
Total....................................... 17,940 900,904 $4,059,513
---------- ---------- -----------
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts (4)............ -- -- $ 417,903
Money market accounts (4).................... -- -- 56,234
Fixed maturity deposits:
Retail customers............................ 2,427 1,257 2,512,791
Wholesale customers........................ 100 -- 9,026
-------- -------- ----------
Total deposits............................ 2,527 1,257 2,995,954
-------- -------- ----------
Borrowings:
FHLB advances (3)............................ 100,000 -- 959,960
Other........................................ 51,478 -- 51,478
-------- -------- ----------
Total borrowings............................ 151,478 -- 1,011,438
-------- -------- ----------
Total..................................... 154,005 1,257 $4,007,392
--------- --------- ----------
IMPACT OF HEDGING............................... -- --
-------- ---------
REPRICING GAP................................... $(136,065) $899,647
========== =========
GAP TO TOTAL ASSETS............................. (3.22)% 21.32%
CUMULATIVE GAP TO TOTAL ASSETS.................. (20.08)% 1.24%
</TABLE>
- --------------
(1) Repricings shown are based on the contractual maturity or repricing
frequency of the instrument.
(2) Investment securities include FHLB stock of $61.4 million.
(3) ARMs and variable rate borrowings from the FHLB system ("FHLB advances") are
primarily in the shorter categories as they are subject to interest rate
adjustments.
(4) These liabilities are subject to daily adjustments and are therefore
included in the "Within 3 Months" category.
Analysis of the Gap provides only a static view of the 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.
12
<PAGE>
Other Derivative Instruments
During the third quarter of 1996, the Company entered into an advisory
agreement with an investment advisor, pursuant to which the advisor will
recommend trading related investments, subject to prior approval and direction
of the Company, and execute trading activities in accordance with the Company's
investment strategy. Such strategy includes the use of derivative instruments
for trading or yield enhancement purposes. Realized and unrealized changes in
fair values of the instruments are recognized in earnings in the period in which
the changes occur. Under the advisory agreement, outstanding forward commitments
to purchase and sell adjustable rate MBSs totaled $75.0 million and $30.0
million, respectively, at March 31, 1998. Also outstanding in relation to this
managed portfolio at March 31, 1998, were $71.0 million notional amount of
interest rate caps which will mature in 2007, $5.0 million notional amount
interest rate swaps which will mature in 2002 and $20.5 million notional amount
of call options on treasury futures with an exercise date in 1998.
In 1997, as part of the growth strategy, the Company purchased approximately
$360.0 million in fixed rate U.S. Agency MBSs, which were categorized as
available for sale. Due to the higher price volatility of fixed rate securities
during interest rate fluctuations as compared to adjustable rate securities,
management began a strategy to hedge the fluctuations of the fair value of the
fixed rate MBSs. The Company uses futures on Treasury Notes which have a high
correlation with Agency MBSs. Outstanding at March 31, 1998 were $167.6 million
notional amount of futures on Treasury Notes. The derivative instruments used to
hedge the fluctuations in fair values of available for sale securities are
carried at fair value, with realized and unrealized changes in fair value
reported as a separate component of stockholders' equity. Realized changes in
fair value are amortized as a yield adjustment over the life of the hedged
instrument.
MARKET RISK
The Company's Asset/Liability Committee ("ALCO"), which includes senior
management representatives, monitors and considers methods of managing the rate
and sensitivity repricing characteristics of the balance sheet components
consistent with maintaining acceptable levels of changes in net portfolio value
("NPV") and net interest income. A primary purpose of the Company's
asset/liability management is to manage interest rate risk to effectively invest
the Company's capital and to preserve the value created by its core business
operations. As such, certain management monitoring processes are designed to
minimize the impact of sudden and sustained changes in interest rates on NPV and
net interest income. There has been no significant change in interest rate risk
since December 31, 1997.
ASSET QUALITY
General
The Company's loan portfolio is primarily secured by assets located in
southern California and is comprised principally of single family and
multifamily (2 units or more) residential loans. At March 31, 1998, 22% of
Fidelity's real estate loan portfolio consisted of California single family
residences, while another 11% and 55% consisted of California multifamily
dwellings of 2 to 4 units and 5 or more units, respectively. At March 31, 1997,
19% of Fidelity's real estate loan portfolio (including loans held for sale)
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.
The performance of the Company's loans secured by multifamily and commercial
properties 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.
There can be no assurances that current improved economic indicators will have a
material impact on the Bank's portfolio in
13
<PAGE>
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.
The Bank's internal asset review process reviews the quality and
recoverability of each of those assets which exhibit credit risk to the Bank
based on delinquency and other criteria in order to establish adequate general
valuation allowance ("GVA") and specific valuation allowance ("SVA").
Accelerated Asset Resolution Plan
An important component of the Company's business strategy is the reduction of
risk in the Bank's loan and real estate owned ("REO") portfolios. In the fourth
quarter of 1995, the Bank adopted Accelerated Asset Resolution Plan (the
"Plan"), which was designed to aggressively dispose of, resolve or otherwise
manage a pool (the "AARP Pool") of primarily multifamily loans and REO that at
that time were considered by the Bank to have higher risk of future
nonperformance or impairment relative to the remainder of the Bank's multifamily
loan portfolio. The Plan reflected both acceleration in estimated timing of
asset resolution, as well as a potential change in recovery method from the
normal course of business. In an effort to maximize recovery on loans and REO
included in the AARP Pool, the Plan allowed for a range of possible methods of
resolution including, but not limited to, (i) individual loan restructuring,
potentially including additional extensions of credit or write-offs of existing
principal, (ii) foreclosure and sale of collateral properties, (iii)
securitization of loans, (iv) the bulk sale of loans and (v) bulk sale or
accelerated disposition of REO properties.
The AARP Pool originally consisted of 411 assets with an aggregate gross book
balance of approximately $213.3 million, comprised of $137.0 million in gross
book balance of loans and $76.3 million in gross book balance of REO. As a
consequence of the adoption of the Plan, the Bank recorded a $45.0 million loan
portfolio charge in the fourth quarter of 1995, which was reflected as a credit
to the Bank's allowance for estimated loan and REO losses. This amount
represented the estimated additional losses, net of SVAs, anticipated to be
incurred by the Bank in executing the Plan. Such additional losses represented,
among other things, estimated reduced recoveries from restructuring loans and
the acceptance of lower proceeds from the sale of individual REO and the
estimated incremental losses associated with recovery through possible bulk
sales of performing and nonperforming loans and REO.
In conjunction with the acquisition of Hancock, the Bank identified a pool of
Hancock assets, with similar risk profiles to the assets included in the Bank's
AARP Pool, for inclusion in the Plan. The Bank identified 54 Hancock assets with
an aggregate gross book balance of approximately $31.1 million, comprised of
$25.8 million in gross book balance of loans and $5.3 million in gross book
balance of REO. Simultaneously with the consummation of the acquisition, Hancock
recorded $5.8 million as an addition to the allowance for estimated loan losses
representing the estimated reduced recoveries in executing the Plan.
Through March 31, 1998, (i) $51.4 million in gross book balances of AARP Pool
loans had been resolved through either a negotiated sale or discounted payoff,
(ii) $8.5 million in gross book balances of AARP Pool loans were collected
through normal principal amortization or paid off through the normal course
without loss, (iii) $24.4 million in gross book balances of AARP Pool loans had
been modified or restructured and retained in the Bank's mortgage portfolio,
(iv) $15.4 million in gross book balances of AARP Pool loans were removed from
the AARP Pool upon management's determination that such assets no longer met the
risk profile for inclusion in the AARP Pool or that accelerated resolution of
such assets was no longer appropriate and (v) $130.3 million in gross book
balances of REO were sold ($53.7 million in gross book balances of AARP Pool
loans were taken through foreclosure and acquired as REO since the inception of
the AARP).
As of March 31, 1998, the AARP Pool consisted of 33 assets with an aggregate
gross book balance of $14.4 million, comprised of accruing and nonaccruing
multifamily real estate loans totaling approximately $9.4 million and REO
properties totaling approximately $5.1 million, which are reported as real
estate owned on the statement of financial condition. Through March 31, 1998, of
the $50.8 million of reserves established in connection with the Plan, including
the $5.8 million established by Hancock, $33.8 million had been charged off and
$7.5 million had been allocated to SVAs or REO writedowns in connection with the
Bank's estimate of recovery for AARP Pool assets. It is anticipated that the
remaining AARP Pool will be resolved by June 30, 1998.
14
<PAGE>
Notwithstanding the actions taken by the Bank in implementing the Plan, there
can be no assurance that the AARP Pool assets retained by the Bank will not
result in additional losses. The Bank's allowance for loan and REO losses and
the SVAs established in connection with such assets are ultimately subjective
and inherently uncertain. There can be no assurance that further additions to
the Bank's allowance for loan and REO losses will not be required in the future
in connection with such assets, which could have an adverse effect on the Bank's
financial condition, results of operations and levels of regulatory capital.
Classified Assets
Total classified assets decreased $33.9 million or 22.1% from December 31,
1997, to $119.6 million at March 31, 1998. This decrease was due to lower levels
of nonperforming and performing classified loans and the large volume of REO
sales during the first quarter of 1998, and by a decrease in other classified
assets of $21.4 million related to the sale of the LIBOR Asset Trust securities
in January 1998. The ratio of nonperforming assets ("NPAs") to total assets
increased from 0.61% at December 31, 1997, to 0.64% at March 31, 1998. This
increase is primarily due to an increased level of nonperforming assets ("NPLs")
at March 31, 1998, compared to December 31, 1997.
15
<PAGE>
The following table presents net classified assets by property type at the
dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1997 1997 1997 1997
---------- ------------- -------------- ---------- ----------
(DOLLARS IN THOUSANDS)
Performing classified loans:
<S> <C> <C> <C> <C> <C>
Single family................................ $ 2,330 $ 3,551 $ 3,521 $ 3,331 $ 2,757
Multifamily:
2 to 4 units................................ 3,769 4,241 4,455 4,856 5,527
5 to 36 units............................... 53,649 63,777 58,694 62,509 50,306
37 units and over........................... 21,661 22,704 24,551 20,761 12,196
-------- --------- ---------- -------- --------
Total multifamily properties............... 79,079 90,722 87,700 88,126 68,029
Commercial and other......................... 9,221 10,412 11,373 9,788 9,342
-------- --------- ---------- -------- --------
Total performing classified loans........... 90,630 104,685 102,594 101,245 80,128
-------- --------- ---------- -------- --------
Nonperforming classified loans:
Single family................................ 5,306 4,222 4,501 5,980 7,001
Multifamily:
2 to 4 units................................ 2,023 948 1,721 2,677 5,527
5 to 36 units............................... 3,970 4,752 10,006 15,745 21,041
37 units and over........................... 3,545 2,090 5,139 4,929 4,162
-------- --------- ---------- -------- --------
Total multifamily properties............... 9,538 7,790 16,866 23,351 30,730
Commercial and other......................... 1,576 1,062 437 3,845 1,982
-------- --------- ---------- -------- --------
Total nonperforming classified loans........ 16,420 13,074 21,804 33,176 39,713
-------- --------- ---------- -------- --------
Total classified loans..................... 107,050 117,759 124,398 134,421 119,841
-------- --------- ---------- -------- --------
Real estate owned:
Single family................................ 2,402 2,611 2,992 4,095 5,211
Multifamily:
2 to 4 units................................ 1,334 1,091 1,326 2,215 2,766
5 to 36 units............................... 3,550 5,318 10,911 12,992 11,218
37 units and over........................... 2,240 3,149 3,105 3,106 2,812
-------- --------- ---------- -------- --------
Total multifamily properties............... 7,124 9,558 15,342 18,313 16,796
Commercial and other......................... 1,455 624 635 2,432 2,933
-------- --------- ---------- -------- --------
Net REO before REO GVA...................... 10,981 12,793 18,969 24,840 24,940
REO GVA...................................... (500) (500) (500) (1,200) (1,300)
-------- --------- ---------- -------- --------
Total real estate owned..................... 10,481 12,293 18,469 23,640 23,640
-------- --------- ---------- -------- --------
Other classified assets....................... 2,065 23,450(1) 14,027(1) 1,404 1,382
-------- --------- ---------- -------- --------
Total classified assets..................... $119,596 $ 153,502 $ 156,894 $159,465 $144,863
======== ========= ========== ======== ========
</TABLE>
- --------------
(1) Includes the Libor Asset Trust investment securities with a book value of
$20.9 million and $12.3 million at December 31, 1997 and September 30,
1997, respectively, which were classified due to the performance of the
underlying collateral. These assets were sold in January 1998.
16
<PAGE>
Delinquent Loans
During the first quarter of 1998, total delinquent mortgage loans decreased
$31.7 million, or 50.4%, from March 31, 1997. The following table presents loan
delinquencies by number of days delinquent and by property type as of the dates
indicated. All assets are reported net of specific reserves and writedowns.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---------- ------------- ----------
(DOLLARS IN THOUSANDS)
Delinquencies by number of days:
<S> <C> <C> <C>
30 to 59 days....................................................... 0.42% 0.34% 0.63%
60 to 89 days....................................................... 0.11 0.14 0.24
90 days and over.................................................... 0.60 0.47 1.48
------- ------- -------
Mortgage loan delinquencies to net mortgage loan portfolio............ 1.13% 0.95% 2.35%
======= ======= =======
Delinquencies by property type:
Single family:
30 to 59 days....................................................... $ 3,376 $ 4,153 $ 4,933
60 to 89 days....................................................... 954 1,354 1,947
90 days and over.................................................... 5,306 4,222 6,770
------- ------- -------
9,636 9,729 13,650
------- ------- -------
Percent to applicable mortgage loan portfolio...................... 1.49% 1.53% 2.72%
Multifamily (2 to 4 units):
30 to 59 days....................................................... 693 1,111 1,856
60 to 89 days....................................................... 529 257 958
90 days and over.................................................... 2,023 948 5,527
------- ------- -------
3,245 2,316 8,341
------- ------- -------
Percent to applicable mortgage loan portfolio...................... 1.02% 0.72% 2.70%
Multifamily (5 to 36 units):
30 to 59 days....................................................... 4,452 3,638 5,100
60 to 89 days....................................................... 1,596 2,329 3,545
90 days and over.................................................... 3,970 4,753 21,041
------- ------- -------
10,018 10,720 29,686
------- ------- -------
Percent to applicable mortgage loan portfolio...................... 0.77% 0.80% 2.18%
Multifamily (37 units and over):
30 to 59 days....................................................... 2,509 531 1,755
60 to 89 days....................................................... -- -- --
90 days and over.................................................... 3,545 2,090 4,162
------- ------- -------
6,054 2,621 5,917
------- ------- -------
Percent to applicable mortgage loan portfolio...................... 2.07% 0.86% 1.94%
Commercial and Industrial:
30 to 59 days....................................................... 634 -- 3,184
60 to 89 days....................................................... -- 154 115
90 days and over.................................................... 1,576 1,062 1,982
------- ------- -------
2,210 1,216 5,281
------- ------- -------
Percent to applicable mortgage loan portfolio...................... 1.11% 0.59% 2.70%
Total mortgage loan delinquencies, net................................ $31,163 $26,602 $62,875
======= ======= =======
Mortgage loan delinquencies to net mortgage loan portfolio............ 1.13% 0.95% 2.35%
======= ======= =======
</TABLE>
17
<PAGE>
The following table presents delinquent credit card loans at the dates
indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
------------- ------------- ----------
(DOLLARS IN THOUSANDS)
Delinquencies by number of days:
<S> <C> <C> <C>
30 to 59 days....................................................... $ 4,087 $ 2,472 $ --
60 to 89 days....................................................... 2,814 1,432 --
90 days and over.................................................... 4,746 1,509 --
---------- -------- ------
Total delinquent credit card loans.................................... $ 11,647(1) $ 5,413(1) $ --
========== ======== ======
Credit card loan delinquencies to net credit
card loan portfolio.................................................. 11.28% 10.65% --%
========== ======== ======
- --------------------
(1) Included in the above delinquent credit card loan balances at March 31,
1998 and December 31, 1997, are $10.7 million and $5.4 million,
respectively, related to the credit enhancement affinity program. No losses
are expected from these delinquencies as a result of the credit
enhancements provided by the affinity partner and, accordingly, loans in
the 90 days and over category are not reported as NPLs.
The following table presents net delinquent loans, including credit card
loans, at the dates indicated:
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1997 1997 1997 1997
------------- ------------- -------------- -------- ---------
(DOLLARS IN THOUSANDS)
Number of days delinquent:
<S> <C> <C> <C> <C> <C>
30 to 59 days..................................... $15,751 $11,905 $12,618 $11,638 $16,828
60 to 89 days..................................... 5,893 5,527 3,661 7,370 6,565
90 days and over.................................. 21,166 14,583 21,914 28,449 39,482
------- ------- ------- ------- -------
Total delinquencies............................ $42,810(1) $32,015(1) $38,193(1) $47,457 $62,875
======= ======= ======= ======= =======
</TABLE>
- -----------------
(1) Included in the net delinquent loan balances at March 31, 1998, December
31, 1997 and September 31, 1997, are $10.7 million, $5.4 million and $1.1
million, respectively, of credit card balances related to the credit
enhancement affinity program. No losses are expected from these
delinquencies as a result of the credit enhancements provided by the
affinity partner and, accordingly, loans in the 90 days and over category
are not reported as NPLs.
18
<PAGE>
Nonperforming Assets
All assets and ratios are reported net of specific reserves and writedowns
unless otherwise stated. The following table presents asset quality details at
the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1997 1997 1997 1997
---------- ------------- -------------- ---------- ----------
(DOLLARS IN THOUSANDS)
NPAs by Type:
<S> <C> <C> <C> <C> <C>
NPLs..................................... $ 16,420 $ 13,074 $ 21,804 $ 33,176 $ 39,713
REO, net of REO GVA...................... 10,481 12,293 18,469 23,640 23,640
-------- -------- -------- -------- --------
Total NPAs.............................. $ 26,901 $ 25,367 $ 40,273 $ 56,816 $ 63,353
======== ======== ======== ======== ========
NPAs by Composition:
Single family residences................. $ 7,708 $ 6,833 $ 7,493 $ 10,075 $ 12,212
Multifamily 2 to 4 units................. 3,357 2,039 3,047 4,892 8,293
Multifamily 5 units and over............. 13,305 15,309 29,161 36,772 39,233
Commercial and other..................... 3,031 1,686 1,072 6,277 4,915
REO GVA.................................. (500) (500) (500) (1,200) (1,300)
-------- -------- -------- -------- --------
Total NPAs.............................. 26,901 25,367 40,273 56,816 63,353
Total troubled debt restructuring
("TDR")................................. 42,195 43,993 46,447 44,828 42,696
-------- -------- -------- -------- --------
Total TDRs and NPAs..................... $ 69,096 $ 69,360 $ 86,720 $101,644 $106,049
======== ======== ======== ======== ========
Classified Assets:
NPAs..................................... $ 26,901 $ 25,367 $ 40,273 $ 56,816 $ 63,353
Performing classified loans.............. 90,630 104,685 102,594 101,245 80,128
Other classified assets.................. 2,065 23,450(1) 14,027(1) 1,404 1,382
-------- -------- -------- -------- --------
Total classified assets................. $119,596 $153,502 $156,894 $159,465 $144,863
======== ======== ======== ======== ========
Classified Asset Ratios:
NPLs to total assets..................... 0.39% 0.31% 0.56% 0.94% 1.21%
NPAs to total assets..................... 0.64% 0.61% 1.03% 1.61% 1.92%
TDRs to total assets..................... 1.00% 1.06% 1.18% 1.27% 1.30%
NPAs and TDRs to total assets............ 1.64% 1.66% 2.21% 2.88% 3.22%
Classified assets to total assets........ 2.83% 3.68% 4.00% 4.51% 4.40%
REO to NPAs.............................. 38.96% 48.46% 45.86% 41.61% 37.31%
NPLs to NPAs............................. 61.04% 51.54% 54.14% 58.39% 62.69%
</TABLE>
- -----------
(1) Includes the Libor Asset Trust investment securities with a book value of
$20.9 million and $12.3 million at December 31, 1997 and September 30,
1997, respectively, which were classified due to the performance of the
underlying collateral. These assets were sold in January 1998.
19
<PAGE>
REO
Direct costs of foreclosed real estate operations totaled $0.8 million and
$1.6 million for the three months ended March 31, 1998 and 1997. The following
table provides information about the change in the book value and the number of
properties owned and obtained through foreclosure for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
1998 1997
-------------------- -------------------
(Dollars in thousands)
<S> <C> <C>
REO net book value........................................................... $ 10,481 $ 23,640
Net decrease in REO book value for the period................................ $ (1,812) $ (1,024)
Number of real estate properties owned....................................... 78 135
(Decrease) increase in number of properties owned for the period............. (10) 4
Number of properties foreclosed for the period............................... 39 73
Gross book value of properties foreclosed.................................... $ 10,891 $ 21,130
Average gross book value of properties foreclosed............................ $ 279 $ 289
</TABLE>
20
<PAGE>
Allowance for Estimated Loan and REO Losses
The following table summarizes the Bank's reserves, writedowns and certain
coverage ratios at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
----------------- ----------------- -----------------
Mortgage loans: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
GVA.............................................................. $ 31,692 $ 32,426 $22,550
SVA.............................................................. 15,843 18,112 30,332
-------- -------- -------
Total allowance for estimated losses (1) (2).................... $ 47,535 $ 50,538 $52,882
======== ======== =======
Writedowns (3)................................................... $ 76 $ 183 $ 146
======== ======== =======
Total allowance and loan writedowns to gross
mortgage loans (4)............................................. 1.64% 1.76% 1.96%
Total mortgage loan allowance to gross mortgage loans............ 1.63% 1.75% 1.95%
Mortgage loan GVA to mortgage loans (4).......................... 1.10% 1.14% 0.85%
Mortgage loan GVA to NPLs........................................ 193.01% 248.02% 56.78%
NPLs to total mortgage loans..................................... 0.58% 0.46% 1.50%
Credit card loans:
GVA.............................................................. $ 500 $ -- $ --
======== ======= =======
GVA to gross credit card loans (6)............................... 1.47% --% --%
REO:
GVA.............................................................. $ 500 $ 500 $ 1,300
SVA.............................................................. 568 623 886
-------- -------- -------
Total allowance for estimated losses............................ $ 1,068 $ 1,123 $ 2,186
======== ======== =======
Writedowns (3)................................................... $ 6,065 $ 7,227 $13,281
======== ======== =======
Total REO allowance and REO writedowns to
gross REO...................................................... 40.50% 40.45% 39.55%
Total REO allowance to gross REO (5)............................. 9.25% 8.37% 8.46%
REO GVA to REO (4)............................................... 4.55% 3.91% 5.21%
Total Loans and REO:
GVA.............................................................. $ 32,692 $ 32,926 $23,850
SVA.............................................................. 16,411 18,735 31,218
-------- -------- -------
Total allowance for estimated losses............................ $ 49,103 $ 51,661 $55,068
======== ======== =======
Writedowns (3)................................................... $ 6,141 $ 7,410 $13,427
======== ======== =======
Total allowance and writedowns to gross loans and
REO............................................................ 1.87% 2.03% 2.49%
Total allowance to gross loans and REO (4)....................... 1.66% 1.78% 2.01%
Total GVA to loans and REO (4)................................... 1.11% 1.15% 0.89%
Total GVA to NPAs................................................ 117.48% 127.29% 36.89%
</TABLE>
- ----------------
(1) All allowances for loan losses are for the Bank's portfolio of mortgage
loans.
(2) At March 31, 1998, December 31, 1997 and March 31, 1997, the allowance for
estimated loan losses includes $12.0 million, $14.4 million and $14.1
million, respectively, of remaining loan GVA and SVA for the Plan. See "--
Asset Quality--Accelerated Asset Resolution Plan."
(3) Writedowns include cumulative charge-offs on outstanding mortgage loans and
REO as of the dates 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 SVA and
writedowns.
(5) Net of writedowns.
(6) Credit card loans in this ratio include only the balances under the shared
risk program, which began in January 1998.
21
<PAGE>
The following schedule summarizes the activity in the Bank's allowances for
estimated loan and real estate losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1998 1997
--------------------------------------- ------------------------------------
Real Estate Real Estate
Loans Owned Total Loans Owned Total
--------- ------------ --------- ---------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance on January 1,......................... $ 50,538 $1,123 $ 51,661 $ 57,508 $2,081 $ 59,589
Provision for losses......................... 2,000 63 2,063 4,251 742 4,993
Charge-offs.................................. (6,469) (141) (6,610) (10,063) (797) (10,860)
Recoveries and other......................... 1,966 23 1,989 1,186 160 1,346
-------- ------ -------- --------- ------ ---------
Balance on March 31,.......................... $ 48,035 $1,068 $ 49,103 $ 52,882 $2,186 $ 55,068
======== ====== ======== ========= ====== =========
</TABLE>
The following table details the activity affecting specific loss reserves for
the period indicated:
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
Real Estate
Loans Owned Total
--------- ----------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Balance on January 1,.................................................................. $ 18,112 $ 623 $ 18,735
Allocations from GVA to specific
reserves........................................................................ 4,200 86 4,286
Charge-offs......................................................................... (6,469) (141) (6,610)
-------- ------ --------
Balance on March 31,................................................................... $ 15,843 $ 568 $ 16,411
======== ====== ========
</TABLE>
22
<PAGE>
NET INTEREST INCOME
Net interest income is the difference between interest earned on loans, MBSs
and investment securities ("interest-earning assets") and interest paid on
deposits and borrowings ("interest-bearing liabilities"). For the three months
ended March 31, 1998, net interest income totaled $20.9 million, increasing by
$0.5 million from $20.4 million for the comparable period in 1997.
Net interest income is primarily 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 net interest income
for the periods indicated. For the purpose of this analysis, nonaccrual loans
are included in the average balances, and delinquent interest on such loans has
been deducted from interest income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------------
1998 1997
---------------------------------------- ------------------------------------
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.......................................... $2,881,857 $ 54,005 7.50% $2,749,569 $49,840 7.25%
MBS............................................ 848,219 13,565 6.40 238,074 4,304 7.23
Investment securities.......................... 407,399 6,118 6.09 227,827 3,672 6.54
Investment in FHLB stock....................... 60,823 875 5.83 52,930 891 6.83
---------- --------- ---------- -------
Total interest-earning assets............... 4,198,298 74,563 7.12 3,268,400 58,707 7.19
--------- -------
Noninterest-earning assets...................... 170,221 61,003
---------- ----------
Total assets................................ $4,368,519 $3,329,403
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits............................. 340,509 987 1.18 $ 292,785 788 1.09
Savings deposits............................ 123,875 916 3.00 119,158 928 3.16
Time deposits............................... 2,472,879 33,568 5.45 2,088,103 27,424 5.33
---------- --------- ---------- -------
Total deposits........................... 2,937,263 35,471 4.90 2,500,046 29,140 4.73
--------- ---------- -------
Borrowings...................................... 1,207,413 18,195 6.11 570,957 9,210 6.54
---------- --------- ---------- -------
Total interest-bearing liabilities.......... 4,144,676 53,666 5.25 3,071,003 38,350 5.06
---------- --------- ---------- -------
Noninterest-bearing liabilities................ 41,281 44,532
Preferred stock issued by consolidated 272 51,750
subsidiary....................................
Stockholders' equity........................... 182,290 162,118
---------- ----------
Total liabilities and equity................... $4,368,519 $3,329,403
========== ==========
Net interest income; interest rate spread...... $ 20,897(1) 1.87% $20,357 2.13%
========= ==== ======= ====
Net yield on interest-earning assets ("net
interest margin")............................. 1.94%(1) 2.44%
==== ====
Average nonaccruing loan balance
included in average loan balance.............. $ 21,172 $ 61,709
========= =========
Net delinquent interest reserve removed
from interest income.......................... $ 719 $ 1,581
========= =======
Reduction in net yield on interest-earning
assets due to delinquent interest............. 0.07% 0.19%
==== ====
</TABLE>
- ---------------------
(1) For the three months ended March 31, 1998, the impact of the Americash
program on net interest income and margin would be increases of $1.1
million and 8 basis points, respectively.
23
<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 current
period. Any change that remains unallocated after such calculations is allocated
proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO MARCH 31, 1997
FAVORABLE (UNFAVORABLE)
------------------------------------------------------
VOLUME Rate Net
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans........................................................... $ 2,379 $ 1,786 $ 4,165
Mortgage-backed securities...................................... 11,022 (1,761) 9,261
Investment securities........................................... 2,908 (462) 2,446
Investment in FHLB stock........................................ 135 (151) (16)
--------- -------- ---------
Total interest income........................................ 16,444 (588) 15,856
--------- -------- ---------
Interest expense:
Deposits:
Demand deposits................................................ (125) (74) (199)
Savings deposits............................................... (37) 49 12
Time deposits.................................................. (5,052) (1,092) (6,144)
--------- -------- ---------
Total deposits............................................... (5,214) (1,117) (6,331)
Borrowings...................................................... (9,034) 49 (8,985)
--------- -------- ---------
Total interest expense......................................... (14,248) (1,068) (15,316)
--------- -------- ---------
Increase (decrease) in net interest income....................... $ 2,196 $ (1,656) $ 540
========= ======== =========
</TABLE>
The $0.5 million increase in net interest income between the first quarter
1998 and the first quarter 1997 was primarily due to an increase in the average
level of interest-earning assets. This was partially offset by decreased rates
on interest earning assets and increases in rates and the average level of
interest-bearing liabilities.
The Company's net interest income, interest rate margin and operating results
have been negatively affected by the level of loans on nonaccrual status. Gross
balances of nonaccruing loans averaged $21.2 million and $61.7 million during
the three months ended March 31, 1998 and 1997, respectively. As a result, the
Company's net interest rate margin was decreased by 0.07% and 0.19% in those
periods, respectively.
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 uninsured investment products and
annuities and retail banking fees, (b) income/expenses associated with owned
real estate, which includes both the provision for real estate losses as well as
income/expenses incurred by the Company associated with the operations of its
owned real estate properties and (c) gains and losses on the sales of loan
servicing, investment securities and MBSs. Items (b) and (c) can fluctuate
widely, and could therefore mask the underlying fee generating performance of
the Company on an ongoing basis.
Noninterest income increased by $3.7 million from $1.7 million in the quarter
ended March 31, 1997 to $5.4 million in the quarter ended March 31, 1998. The
major components of this increase are (a) loan fee income increased by $2.1
million as a result of credit card fees, (b) fee income on Americash increased
$1.1 million as a result of cash service fees received in 1998 with no
comparable amounts in 1997 and (c) decreased real estate
24
<PAGE>
operations of $1.5 million primarily due to improved execution on sales and a
lower volume of foreclosed properties. These favorable variances were partially
offset by decreased net gains on securities activities in the quarter ended
March 31, 1998 of $0.9 million from the 1997 three month period primarily due to
decreased sales.
OPERATING EXPENSES
Operating expenses increased by $5.8 million to $20.2 million for the quarter
ended March 31, 1998 compared to $14.3 million for the quarter ended March 31,
1997. The change was primarily due to (a) a $2.6 million increase in personnel
and benefit expense due to an increase of 158 or 33.2% in FTEs primarily due to
the Hancock acquisition and implementation of the business strategy; (b) an
increase of $0.9 million in occupancy costs primarily due to Hancock and Coast
branch acquisitions completed in 1997; (c) an increase of $1.0 million of
professional services primarily resulting from costs associated with Year 2000
project, (d) an increase of $0.4 million in office related expenses primarily
due to the Hancock and Coast acquisitions and the start-up of BPCS, and (e)
other expenses increased by $0.8 million related to the servicing of the credit
card portfolio by a third party.
While the Company intends to continue to control operating expenses, the level
of expenses are expected to significantly increase as the business initiatives
described in the Company's December 31, 1997 Annual Report on Form 10-K under
Item 1. "Business--Business Strategy" are implemented. The Company also intends
to expend resources as it evaluates and pursues earning asset acquisition
opportunities.
Increased operating expenses resulted in an increase in the annualized
operating expense ratio to 1.85% for the first quarter 1998 from 1.72% for the
first quarter 1997, based on the total average asset size of the Company (from
$3.3 billion for the quarter ended March 31, 1997 to $4.4 billion for the
quarter ended March 31, 1998).
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 in
that it indicates that less expenses were incurred to generate a given level of
revenue.
The efficiency ratio increased to 74.96% for the first quarter 1998 from
61.97% for the first quarter 1997. This increase was due to increased operating
expense.
Year 2000
The Company utilizes numerous computer software programs and systems across
the organization to support ongoing operations. Many of these programs and
systems may not be able to appropriately interpret and process dates into the
year 2000. To the extent that programs and systems are unable to process into
the year 2000, some degree of modification, upgrade, or replacement of such
systems may be necessary. The Company has established a task force to develop a
comprehensive year 2000 plan with the goal of completing updates to key systems
by December 31, 1998. Given information currently known about the Company's
systems and servicers, the current expense estimate for year 2000 corrective
activities is $3.6 to $4.0 million, of which a significant portion will be
related to increased staffing of technology and support personnel to complete
the modifications or upgrades necessary.
While the Company believes it will achieve year 2000 compliance, it is to some
extent dependent upon the efforts of third parties who provide systems and
services. The Company is closely monitoring the year 2000 progress of third
party vendors and has planned a program of testing key systems for compliance.
No assurance can be given that the Company will be successful in addressing year
2000 issues within this estimated timeframe or at the estimated cost.
25
<PAGE>
INCOME TAXES
The Company's combined federal and state statutory tax rate is approximately
42.0% of earnings before income taxes. The effective tax rate of 15.1% on
earnings before income taxes for the quarter ended March 31, 1998 reflects the
utilization of federal and state net operating loss carryforwards, and the
partial recognition of the federal deferred tax asset. The effective tax benefit
rate of 66. % on earnings before income taxes for the quarter ended March 31,
1997, reflects the federal and state tax benefit attributable to the utilization
of net operating loss carryforwards and the partial recognition of the deferred
tax asset.
As of March 31, 1998, the Company reflected a net deferred tax asset of $8.7
million attributable to reductions in the valuation allowance against the
deferred tax asset in 1997 and the three months ended March 31, 1998. Under
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, the reduction in valuation allowance is dependent upon a "more
likely than not" expectation of realization of the deferred tax asset, based
upon the weight of available evidence. The analysis of available evidence is
performed each quarter utilizing the "more likely than not" criteria required by
SFAS 109 to determine the amount, if any, of the deferred tax asset to be
realized. Accordingly, there can be no assurance that the Company will recognize
additional portions of its deferred tax asset in future periods. Moreover, the
criteria of SFAS No. 109 could require the partial or complete recapture of the
$8.7 million deferred tax benefit into expense in future periods.
26
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The OTS capital regulations, as required by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") include three separate minimum
capital requirements for the savings institution industry--a "tangible capital
requirement," a "leverage limit" and a "risk-based capital requirement." These
capital standards must be no less stringent than the capital standards
applicable to national banks.
As of March 31, 1998 and 1997, the Bank was "well capitalized" under the
Prompt Corrective Action ("PCA") regulations adopted by the OTS pursuant to the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To be
categorized as "well capitalized", the Bank must maintain minimum core capital,
core risk-based capital and risk-based capital ratios as set forth in the table
below. The Bank's capital amounts and classification are subject to review by
federal regulators about components, risk-weightings and other factors. There
are no conditions or events since March 31, 1998 that management believes have
changed the institution's category.
The Bank's actual and required capital as of March 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
---------------------- ---------------------------------
Amount Ratio Amount Ratio
--------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total capital (to risk-weighted
assets)............................... $258,400 11.59% Greater Than $178,300 Greater Than 8.00%
Core capital (to adjusted tangible
assets)............................... 230,500 5.47 Greater Than 168,500 Greater Than 4.00
Tangible capital (to tangible assets).. 221,400 5.27 Greater Than 63,100 Greater Than 1.50
Core capital (to risk-weighted
assets)............................... 230,500 10.34 N/A
As of March 31, 1997:
Total capital (to risk-weighted
assets)............................... 235,800 12.29 Greater Than 153,400 Greater Than 8.00
Core capital (to adjusted tangible
assets)............................... 213,200 6.47 Greater Than 131,700 Greater Than 4.00
Tangible capital (to tangible assets).. 212,900 6.46 Greater Than 49,400 Greater Than 1.50
Core capital (to risk-weighted
assets)............................... 213,200 11.12 N/A
</TABLE>
<TABLE>
<CAPTION>
To Be Categorized
As Well Capitalized
Under Prompt
Corrective Action
Provisions
-----------------------------------
AMOUNT Ratio
--------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
As of March 31, 1998:
Total capital (to risk-weighted
assets)............................... Greater Than $222,900 Greater Than 10.00%
Core capital (to adjusted tangible
assets)............................... Greater Than 210,600 Greater Than 5.00
Tangible capital (to tangible assets).. N/A
Core capital (to risk-weighted
assets)............................... Greater Than 133,800 Greater Than 6.00
As of March 31, 1997:
Total capital (to risk-weighted
assets)............................... Greater Than 191,800 Greater Than 10.00
Core capital (to adjusted tangible
assets)............................... Greater Than 164,700 Greater Than 5.00
Tangible capital (to tangible assets).. N/A
Core capital (to risk-weighted
assets)............................... Greater Than 115,100 Greater Than 6.00
</TABLE>
Under FDICIA, the OTS was required to revise its 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. The OTS
added an interest rate risk capital component to its risk-based capital
requirement originally effective September 30, 1994. However, the OTS has
temporarily postponed the implementation of the rule implementing the interest
rate risk capital component until the OTS has collected sufficient data to
determine whether the rule is effective in monitoring and managing interest rate
risk. This capital component will require institutions deemed to have above
normal interest rate risk to hold additional capital equal to 50% of the excess
risk. No interest rate risk component would have been required to be added to
the Bank's risk-based capital requirement at March 31, 1998 and 1997 had the
rule been in effect at these times.
27
<PAGE>
The following table reconciles the Bank's capital in accordance with GAAP to
the Bank's tangible, core and risk-based capital as of March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Tangible Risk-based
Capital Core Capital Capital
-------- ------------ ----------
<S> <C> <C> <C>
(Dollars in thousands)
As of March 31, 1998:
Stockholders' equity (1)........................................ $233,200 $233,200 $233,200
Accumulated other comprehensive loss............................ 4,000 4,000 4,000
Adjustments:
Goodwill....................................................... (6,300) (6,300) (6,300)
Intangible assets.............................................. (9,500) (400) (400)
GVA............................................................ -- -- 27,900
Equity investments............................................. -- -- --
-------- -------- --------
Regulatory capital (2).......................................... $221,400 $230,500 $258,400
======== ======== ========
As of March 31, 1997:
Stockholders' equity (1)........................................ $210,500 $210,500 $210,500
Accumulated other comprehensive loss............................ 2,800 2,800 2,800
Adjustments:
Goodwill....................................................... (300) -- --
Intangible assets.............................................. (100) (100) (100)
GVA............................................................ -- -- 22,600
Equity investments............................................. -- -- --
-------- -------- --------
Regulatory capital (2).......................................... $212,900 $213,200 $235,800
======== ======== ========
</TABLE>
- -----------------
(1) Fidelity's total stockholders' equity, in accordance with GAAP, was 5.53%
and 6.40% of its total assets at March 31, 1998 and December 31, 1997,
respectively.
(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.
Capital Resources and Liquidity
The Bank derives funds from deposits, FHLB advances, securities sold under
agreements to repurchase, and other short-term and long-term borrowings. In
addition, funds are generated from loan payments and payoffs as well as from the
sale of loans and investments.
FHLB Advances
The Bank had net repayments of FHLB advances of $50.0 million for the three
months ended March 31, 1998. This compares to net repayments of $62.7 million
for the three months ended March 31, 1997.
Loan payments and payoffs
Loan principal payments, including prepayments and payoffs, provided $88.4
million for the three months ended March 31, 1998 compared to $53.9 million for
the same period in 1997. The Bank expects that loan payments and prepayments
will remain a significant funding source.
Sales of securities
The sale of investment securities and MBS provided $107.3 million and $56.8
million for the quarters ended March 31, 1998 and 1997, respectively. The Bank
held $812.6 million and $349.9 million of investment securities and MBS in its
available for sale portfolio as of March 31, 1998 and 1997, respectively.
28
<PAGE>
Undrawn sources
The Company maintains other sources of liquidity to draw upon, which at March
31, 1998 include (a) a line of credit with the FHLB with $515.2 million
available, (b) $267.3 million in unpledged securities available to be placed in
reverse repurchase agreements or sold and (c) $692.5 million of unpledged loans,
some of which would be available to collateralize additional FHLB or private
borrowings, or be securitized.
Deposits
At March 31, 1998, the Company had deposits of $3.0 billion. The following
table presents the distribution of deposit accounts at the dates indicated:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------------------------- ------------------------------
Percent Percent
Amount of Total Amount of Total
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Money market savings accounts............................. $ 56,177 1.9% $ 55,885 1.9%
Checking accounts......................................... 351,452 11.8 336,036 11.7
Passbook accounts......................................... 66,517 2.2 67,502 2.3
---------- ------ ---------- -----
Total transaction accounts.............................. 474,146 15.9 459,423 15.9
---------- ------ ---------- -----
Certificates of deposit $100,000 and over................. 783,346 26.1 721,206 24.9
Certificates of deposit less than $100,000................ 1,738,462 58.0 1,711,172 59.2
---------- ------ ---------- -----
Total certificates of deposit........................... 2,521,808 84.1 2,432,378 84.1
---------- ------ ---------- -----
Total deposits.......................................... $2,995,954 100.0% $2,891,801 100.0%
========== ====== ========== =====
</TABLE>
The Company is currently eligible to accept brokered deposits; however, there
were no brokered deposits outstanding at March 31, 1998 and 1997.
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 one year). The Company deals only with
dealers who are recognized as primary dealers in U.S. Treasury securities by the
Federal Reserve Board or perceived by management to be financially strong. There
were no reverse repurchase agreements outstanding at March 31, 1998 and 1997. In
the three months ended March 31, 1998, there were no borrowed and repaid funds
from reverse repurchase agreements compared to $25.5 million of funds borrowed
and repaid during the three months ended March 31, 1997.
Loan Fundings
Fidelity originated and purchased $47.8 million of gross loans (excluding
Fidelity's refinancings) in the three months ended March 31, 1998 compared to
$6.5 million in the same period of 1997.
Contingent or potential uses of funds
The Bank had unfunded loans totaling $1.1 million at March 31, 1998. The Bank
had no unfunded loans at March 31, 1997. The unfunded loans at March 31, 1998
were assumed as part of the Hancock acquisition.
Liquidity
Effective November 24, 1997, the OTS revised its liquidity regulations. The
required average daily balance of liquid assets was reduced from 5% to 4% of the
liquidity base and the calculation changed from a monthly average to a quarterly
average. The liquidity base calculation changed to include only the deposits due
in one year or less rather than all deposits. Liabilities due in one year or
less continue to be included in the base calculation.
29
<PAGE>
Additionally, the liquidity base is calculated only at quarter end and not based
on a daily average. The type of securities qualified for liquidity was expanded
to include all agency securities regardless of maturity. The Bank's quarterly
average regulatory liquidity ratio was 24.44% at March 31, 1998. The Bank's
monthly average regulatory liquidity ratio, under the liquidity regulations in
force at the time was 5.61% for the quarter ended March 31, 1997.
Holding Company Liquidity
At March 31, 1998 and 1997, Bank Plus had cash and cash equivalents of $0.6
million and $0.5 million, respectively, and no material potential cash producing
operations or assets other than its investments in Fidelity and Gateway.
Accordingly, Bank Plus is substantially dependent on dividends from Fidelity,
Gateway and BPCS in order to fund its cash needs, including its payment
obligations on the $51.5 principal amount of Senior Notes issued in exchange for
Fidelity's Preferred Stock. In connection therewith, on April 2, 1998 Fidelity
made a cash dividend to Bank Plus in the amount of $1.5 million to assist in
funding Bank Plus' future payment obligations with respect to the Senior Notes.
Both Gateway's and Fidelity's ability to pay dividends or otherwise provide
funds to Bank Plus are subject to significant regulatory restrictions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank is a defendant in several individual and class actions brought by
several borrowers which raise claims with respect to the manner in which the
Bank serviced certain adjustable rate mortgages which were originated during the
period 1983 through 1988. Six actions were filed between July 1992 and February
1995, one in Federal District Court and five in California Superior Court. In
the federal case the Bank won a summary judgment in the District Court. This
judgment was appealed and the Ninth Circuit Court of Appeals affirmed in part,
reversed in part and remanded back to the District Court for further
proceedings. The District Court has ruled in favor of certifying a class in that
action. Three of the California Superior Court cases resulted in final judgments
in favor of the Bank, after the plaintiffs unsuccessfully appealed the trial
court judgments in favor of the Bank. Two other cases are pending in the
California Superior Court. In both of these actions the parties have reached a
tentative settlement, subject to final documentation and approval by the court.
The plaintiffs' principal claim in these actions 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 notes.
In a declining interest rate environment, the lag effect of an earlier review
date 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 outcome of one or more of
the remaining claims could result in the payment of monetary damages which could
be material in relation to the financial condition or results of operations of
the Bank. 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. Although there can be no
assurance, the Company's management and its counsel believe that none of the
foregoing lawsuits or claims will have a material adverse effect on the
financial condition or business of the Company.
30
<PAGE>
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on April 29, 1998, the shareholders
elected Norman Barker, Jr., Robert P. Condon and Gordon V. Smith to the Board of
Directors of Bank Plus to serve for three year terms, approved an amendment to
the Company's Certificate of Incorporation to change the name of the Company to
iBank Corporation, and ratified the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for 1998. Of the 19,367,203 shares of
Common Stock outstanding as of the record date, March 2, 1998, the following
indicates the number of votes cast for and withheld, with respect to each of the
three directors, as well as the number of votes for, against and abstaining,
with respect to the amendment to the Company's Certificate of Incorporation and
the ratification of Deloitte & Touche LLP:
<TABLE>
<CAPTION>
Number of Votes
--------------------------------------------------
For Withheld
---------------- ---------------
<S> <C> <C>
Proposal 1 -- Election of Directors:
Norman Barker, Jr................................................ 15,790,108 158,368
Robert P. Condon................................................. 15,791,875 156,601
Gordon V. Smith.................................................. 15,791,862 156,614
<CAPTION>
For Against Abstain
---------------- --------------- -------------
<S> <C> <C> <C>
Proposal 2 - Amendment to the Company's Certificate of
Incorporation to change the name of the Company to
iBank Corporation................................................... 14,554,825 1,389,284 4,367
Proposal 3 - Ratification of Independent Public Accountants........... 15,941,283 5,252 1,938
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------- -------------------------------------------------------------------------------------------------
<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")).*
2.2 Agreement and Plan of Merger, dated June 25, 1997, among Bank Plus Corporation, Fidelity and
Hancock Savings Bank, F.S.B (incorporated by reference to Exhibit 2.2 to the Form S-4 of Bank
Plus filed with the SEC on June 30, 1997).*
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 Indenture dated as of July 18, 1997 between Bank Plus Corporation and The Bank of New York, as
trustee relating to the 12% Senior Notes due July 18, 2007 of Bank Plus Corporation
(incorporated by reference to Exhibit 4.4 of the Registration Statement on Form S-8 of Bank Plus
filed on September 4, 1997).*
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).*
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------- -------------------------------------------------------------------------------------------------
<S> <C>
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).*
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 August 1, 1997, between Richard M. Greenwood and
Fidelity (incorporated by reference to Exhibit 10.18 to the quarterly report on Form 10Q for the
quarter ended June 30, 1997).*
10.19 Guaranty of Employment Agreement, dated as of August 1, 1997, between Richard M. Greenwood and
Bank Plus (incorporated by reference to Exhibit 10.19 to the quarterly report on Form 10Q for
the quarter ended June 30, 1997).*
10.20 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).*
10.21 Side letter, dated August 3, 1994, between Fidelity and CRI (incorporated by reference to
Exhibit 10.20 to the Form 8-B).*
10.22 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).*
10.23 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).*
10.24 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).*
10.25 Amended and Restated 1996 Stock Option Plan (incorporated by reference to Exhibit 10.24 to the
quarterly report on Form 10Q for the quarterly period ended March 31, 1997).*
10.26 Retirement Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.25 to the
Form 8-B).*
10.27 Form of Severance Agreement between the Bank and Mr. Sanders (incorporated by reference to
Exhibit 10.26 to the Form 8-B).*
10.28 Form of Change in Control Agreement between the Bank and Mr. Greenwood (incorporated by
reference to Exhibit 10.28 to the quarterly report on Form 10Q for the quarter ended June 30,
1997).*
10.29 Form of Severance and Change in Control Agreement between the Bank and each of Messrs. Austin,
Evans & Taylor (incorporated by reference to Exhibit 10.29 to the quarterly report on Form 10Q
for the quarter ended June 30, 1997).*
10.30 Form of Severance and Change in Control Agreement between the Bank and each of Messrs. Condon, &
Stutz (incorporated by reference to Exhibit 10.30 to the quarterly report on Form 10Q for the
quarter ended June 30, 1997).*
10.31 Form of Severance Agreement between the Bank and Mr. Renstrom (incorporated by reference to
Exhibit 10.29 to the Form 8-B).*
10.32 Form of Incentive Stock Option Agreement between the Bank and certain officers (incorporated by
reference to Exhibit 10.30 to the Form 8-B).*
10.33 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).*
10.34 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).*
10.35 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).*
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------- -------------------------------------------------------------------------------------------------
<S> <C>
10.36 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).*
10.37 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).*
10.38 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).*
10.39 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).*
10.40 Supervisory Agreement dated June 28, 1995, between Fidelity and the OTS (incorporated by
reference to Exhibit 10.38 to the Form 8-B).*
10.41 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).*
10.42 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).*
10.43 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).*
10.44 First Amendment to Standard Office Lease--Modified Gross, dated as of May 15, 1995 between the
Bank and Citadel Realty, Inc (incorporated by reference to Exhibit 10.42 to the quarterly report
on Form 10-Q for the quarterly period ended September 30, 1996).*
10.45 Second Amendment to Standard Office Lease--Modified Gross, dated as of October 1, 1996, between
the Bank and Citadel Realty, Inc (incorporated by reference to Exhibit 10.43 to the quarterly
report on Form 10-Q for the quarterly period ended September 30, 1996).*
10.46 Form of Indemnity Agreement between Bank Plus and its directors and senior officers
(incorporated by reference to Exhibit 10.44 to the quarterly report on Form 10-Q for the
quarterly period ended September 30, 1996).*
10.55 Promissory Note, dated July 31, 1996, from Richard M. Greenwood to Bank Plus (incorporated by
reference to Exhibit 10.55 to the 1996 Form 10-K).*
10.56 Bank Plus Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.56 to
the quarterly report on Form 10Q for the quarter ended June 30, 1997).*
10.57 Form of 1997 Non-Employee Director Stock Option Agreement between the Company and certain
directors (incorporated by reference to Exhibit 10.57 to the 1997 Form 10-K).*
10.58 Form of 1998 Non-Employee Director Stock Option Agreement between the Company and certain
directors.
10.59 Form of Stock Option Agreement between the Company and Messrs. Greenwood, Austin, Condon, Evans,
Stutz and Taylor.
10.60 Form of Incentive Stock Option Agreement between the Company and Messrs. McNamara and Villa.
10.61 Form of Change in Control Agreement between the Company and Messrs. McNamara and Villa.
27. Financial Data Schedule.
</TABLE>
- -----------------
* Indicates previously filed documents.
(b) Reports on Form 8-K
None
34
<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: May 15, 1998 /s/ Richard M. Greenwood
--------------------------------------
Richard M. Greenwood
President and Chief Executive Officer;
Vice Chairman of the Board
(Principal Financial Officer)
Date: May 15, 1998 /s/ Richard Villa
--------------------------------------
Richard Villa
Senior Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
1998 NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
AGREEMENT made as of the 30th day of April, 1998 between Bank Plus
Corporation, a Delaware corporation (the "Company"), and
[NAME_OF_NONEMPLOYEE_DIRECTOR] (the "Optionee"), a nonemployee director of the
Company or its wholly-owned subsidiary, Fidelity Federal Bank, a Federal Savings
Bank ("Fidelity").
WITNESSETH:
WHEREAS, the Company's stockholders approved certain amendments to the Bank
Plus Corporation Stock Option and Equity Incentive Plan (the "Plan"), a copy of
which is attached hereto as Exhibit A and the terms of which are incorporated
---------
herein by reference, at the annual meeting of stockholders held on April 30,
1997; and
WHEREAS, the Plan, as so amended, provides for annual awards of stock
options to be made to the nonemployee directors of the Company and Fidelity on
the first business day after the date of the annual meeting of the Company's
stockholders.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
Company and the Optionee agree as follows:
1. Subject to the terms and conditions of this Agreement and the Plan,
the Company hereby grants to the Optionee the option (the "Option") to purchase,
from time to time, all or a part of 2,500 shares (the "Option Shares") of the
Company's common stock ($0.01 par value) (the "Common Stock"). The Option is
fully vested, and shall expire at the close of business on April 29, 2008,
unless sooner terminated pursuant to sections 3 or 4 of this Agreement. The
Option is exercisable at a purchase price of $14.0625 per Option Share.
2. The Option is not transferable by the Optionee otherwise than by will
or the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
3. In the event that the Optionee shall cease to serve on the board of
directors of the Company and/or Fidelity for any reason other than removal for
cause, the Optionee may exercise the Option at any time within 90 days following
such cessation, but not later than the date of expiration of the Option,
whichever shall first occur. In the event of the removal of the Optionee from
the board of directors of the Company and/or Fidelity for cause, the Option
shall be cancelled as of the effective date of such removal.
4. In the event the Optionee dies while serving as a nonemployee director
of the Company and/or Fidelity, the person or persons to whom the Option is
transferred by will or the laws of descent and distribution may exercise the
Option at any time within one year from the date of death, but no later than the
date of expiration of the Option, whichever shall first occur.
<PAGE>
5. The Option may be exercised only by written notice to the Secretary
of the Company at its office at 4565 Colorado Boulevard, Los Angeles, California
90039. Such notice shall state the election to exercise the Option under the
1998 Nonemployee Director Stock Option Agreement and the number of shares in
respect of which it is being exercised and shall be signed by the Optionee. In
no event may the Option be exercised for less than 500 shares unless there are
fewer than 500 shares remaining for exercise under the Option. The certificate
or certificates of the shares as to which the Option shall have been exercised
will be registered only in the Optionee's name. In the event the Option becomes
exercisable by another person or persons upon the death of the Optionee, the
notice of exercise shall be accompanied by appropriate proof of the right to
exercise the Option.
6. At the time of exercise of the Option and prior to the delivery of
such shares, the Optionee shall pay in cash to the Company the sum of the
aggregate option price of all shares purchased pursuant to such exercise of the
Option. All payments shall be made in cash or by check payable to the order of
the Company. The Optionee shall not have any of the rights and privileges of a
stockholder of the Company with respect to the shares deliverable upon any
exercise of the Option unless and until certificates representing such shares
shall have been delivered to the Optionee.
7. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule).
8. In the event that, prior to the exercise of the Option with respect
to all of the shares of Common Stock in respect of which the Option is granted,
the number of outstanding shares of Common Stock shall be increased or decreased
or changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company, whether through stock dividend, stock split,
reverse stock split, recapitalization or other change affecting the outstanding
Common Stock, the remaining number of shares of Common Stock still subject to
the Option and the purchase price thereof shall be appropriately adjusted by the
committee appointed by the Board of Directors to administer the Plan (the
"Committee") as provided in Section 3 of the Plan.
9. The Committee shall have authority to interpret the Plan and this
Agreement and to make any and all determinations under them, and its decisions
shall be binding and conclusive upon the Optionee and the Optionee's legal
representative in respect of any questions arising under the Plan or this
Agreement.
10. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at 4565 Colorado Boulevard, Los Angeles, California
90039 and any notice to be given to the Optionee shall be addressed to the
Optionee at the Optionee's residence as it may appear on the records of the
Company or at such other address as either party may hereafter designate in
writing to the other.
2
<PAGE>
11. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
12. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California and applicable federal law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date and year first above written.
BANK PLUS CORPORATION
By
--------------------------------------
President and Chief Executive Officer
--------------------------------------
[Name_of_Nonemployee_Director]
3
<PAGE>
EXHIBIT 10.59
STOCK OPTION AGREEMENT
AGREEMENT made as of the 29th day of April, 1998 between BANK PLUS
CORPORATION, a Delaware Corporation (the "Company"), and ________________ (the
"Optionee"), an employee of the Company or its wholly-owned subsidiary, Fidelity
Federal Bank, A Federal Savings Bank ("Fidelity").
WITNESSETH:
WHEREAS, the Company's stockholders approved the Bank Plus Corporation Stock
Option and Equity Incentive Plan, as amended (the "Plan"), a copy of which is
attached hereto as Exhibit A and the terms of which are incorporated herein by
---------
reference, at the annual meeting of stockholders held on April 30, 1997; and
WHEREAS, the Plan is administered by a committee (the "Committee") appointed
by the Board of Directors of the Company as provided in Section 3 of the Plan;
and
WHEREAS, the Committee has determined that the Optionee shall be granted the
option hereinafter set forth upon the terms and conditions hereinafter
contained.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
hereinafter set forth and other good and valuable consideration, the Company and
the Optionee agree as follows:
1. Subject to the terms and conditions of this Agreement and the Plan, the
Company hereby grants to the Optionee the option (the "Option") to purchase,
from time to time, all or a part of ___________ shares (the "Option Shares") of
the Company's common stock ($0.01 par value) (the "Common Stock"). The Option
shall expire at the close of business on April 28, 2008, unless sooner
terminated pursuant to sections 3 or 4 of this Agreement, and shall become
exercisable only in the following cumulative installments:
Date Option Becomes
Number of Option Shares Exercisable Therefor
- ----------------------- --------------------
April 29, 1999
April 29, 2000
April 29, 2001
provided, however, that the Option shall become immediately exercisable in its
entirety upon the occurrence of a "change in control," as defined in the Plan.
The Option is exercisable at a purchase price of $14.00 per Option Share.
<PAGE>
2. The Option is not transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and is exercisable, during the Optionee's
lifetime, only by the Optionee.
3. In the event of the termination of the employment of the Optionee for any
reason other than Cause, the Optionee may exercise the Option to the extent that
the Optionee was entitled to do so on the date of termination, at any time
within 90 days following such termination, but not later than the date of
expiration of the Option, whichever shall first occur. In the event of the
termination of the employment of the Optionee for Cause, the Option shall be
canceled as of the effective date of such termination. For purposes of this
paragraph "Cause" shall mean the willful and continued failure of the Optionee
to substantially perform his duties as an employee of the Company or its
subsidiaries; gross misconduct, material dishonesty or fraud by the Optionee in
connection with the business of the Company and its subsidiaries; the habitual
abuse of any substance (such as narcotics or alcohol) by the Optionee; or the
conviction for, or pleading guilty or nolo contendere to, an act constituting a
---- ----------
felony.
4. In the event the Optionee dies while employed by the Company or Fidelity,
the person or persons to whom the Option is transferred by will or the laws of
descent and distribution may exercise the Option, to the extent that the
Optionee was entitled to do so on the date of the Optionee's death, at any time
within one year from the date of death, but no later than the date of expiration
of the Option, whichever shall first occur.
5. The Option may be exercised only by written notice to the Secretary of the
Company at its office at 4565 Colorado Boulevard, Los Angeles, California 90039.
Such notice shall state the election to exercise the Option and the number of
shares in respect of which it is being exercised and shall be signed by the
Optionee. In no event may the Option be exercised for less than 500 shares
unless there are fewer than 500 shares remaining for exercise under the Option.
The certificate or certificates of the shares as to which the Option shall have
been exercised will be registered only in the Optionee's name. In the event the
Option becomes exercisable by another person or persons upon the death of the
Optionee, the notice of exercise shall be accompanied by appropriate proof of
the right to exercise the Option.
6. At the time of exercise of the Option and prior to the delivery of such
shares, the Optionee shall pay in cash to the Company the sum of the aggregate
option price of all shares purchased pursuant to such exercise of the Option.
All payments shall be made by check payable to the order of the Company. In
lieu of making payment in cash for the aggregate option price of shares
purchased pursuant to the exercise of the Option, the Optionee may, if the
Common Stock is actively traded on an established market, make such payment (i)
by delivery to the Company of Common Stock owned by the Optionee having a fair
market value of at least equal to the aggregate option price or (ii) partly in
cash and partly by delivery of Common Stock or (iii) such other method permitted
by the Committee so long as such method complies with the applicable provisions
of the Internal Revenue Code of 1986 (the "Code") for incentive stock options.
The fair market value shall be established in accordance with any reasonable
valuation methods determined by the Committee. If the fair market value of the
Common Stock so delivered exceeds the aggregate option price (or part thereof),
the Company will pay to the Optionee in cash an amount equal to the fair market
value of the fractional portion of any share of Common Stock so
-2-
<PAGE>
delivered exceeds the aggregate option price (or part thereof), the Company
will pay to the Optionee in cash an amount equal to the fair market value of the
fractional portion of any share of Common Stock so delivered and not applied by
the Company in payment of the option price and a certificate for any whole
shares of Common Stock not required to be applied by the Company in payment of
the option price. The Optionee shall not have any of the rights and privileges
of a stockholder of the Company with respect to the shares deliverable upon any
exercise of the Option unless and until certificates representing such shares
shall have been delivered to the Optionee.
7. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule). The Optionee agrees that the Optionee will
give notice to the Company of any "disposition" (within the meaning of Section
424(c) of the Code) of the shares received upon exercise of the Option which is
made within the two-year period beginning on the date of this Agreement or
within the one-year period beginning on the date of the transfer of such shares
to the Optionee. Such notice shall be given in writing within ten days after
such disposition and shall contain a representation by the Optionee of the net
amount realized by the Optionee from the disposition, or if no amount is
realized, a representation as to the nature of the disposition.
8. In the event that, prior to the exercise of the Option with respect to all
of the shares of Common Stock in respect of which the Option is granted, the
number of outstanding shares of Common Stock shall be increased or decreased or
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company, whether through stock dividend, stock split,
reverse stock split, recapitalization or other change affecting the outstanding
Common Stock, the remaining number of shares of Common Stock still subject to
the Option and the purchase price thereof shall be appropriately adjusted by the
Committee.
9. The Committee shall have authority to interpret the Plan and this
Agreement and to make any and all determinations under them, and its decisions
shall be binding and conclusive upon the Optionee and the Optionee's legal
representative in respect of any questions arising under the Plan or this
Agreement.
10. Any notice to be given to the Company shall be addressed to the Secretary
of the Company at 4565 Colorado Boulevard, Los Angeles, California 90039 and any
notice to be given to the Optionee shall be addressed to the Optionee at the
Optionee's residence as it may appear on the records of the Company or at such
other address as either party may hereafter designate in writing to the other.
11. The Agreement shall be binding upon and inure to the benefit of the
parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
-3-
<PAGE>
12. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California and applicable Federal law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date and year first above written.
BANK PLUS CORPORATION
By
---------------------------
Vice Chairman, President
and Chief Executive Officer
___________________________
Optionee
-4-
<PAGE>
EXHIBIT 10.60
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the 12th day of March, 1998 between BANK PLUS
CORPORATION, a Delaware Corporation (the "Company"), and ________________ (the
"Optionee"), an employee of the Company or its wholly-owned subsidiary, Fidelity
Federal Bank, A Federal Savings Bank ("Fidelity").
WITNESSETH:
WHEREAS, the Company's stockholders approved the Bank Plus Corporation Stock
Option and Equity Incentive Plan, as amended (the "Plan"), a copy of which is
attached hereto as Exhibit A and the terms of which are incorporated herein by
---------
reference, at the annual meeting of stockholders held on April 30, 1997; and
WHEREAS, the Plan is administered by a committee (the "Committee") appointed
by the Board of Directors of the Company as provided in Section 3 of the Plan;
and
WHEREAS, the Committee has determined that the Optionee shall be granted the
option hereinafter set forth upon the terms and conditions hereinafter
contained.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
hereinafter set forth and other good and valuable consideration, the Company and
the Optionee agree as follows:
1. Subject to the terms and conditions of this Agreement and the Plan, the
Company hereby grants to the Optionee the option (the "Option") to purchase,
from time to time, all or a part of 12,000 shares (the "Option Shares") of the
Company's common stock ($0.01 par value) (the "Common Stock"). The Option shall
expire at the close of business on March 12, 2008, unless sooner terminated
pursuant to sections 3 or 4 of this Agreement, and shall become exercisable only
in the following cumulative installments:
Date Option Becomes
Number of Option Shares Exercisable Therefor
- ----------------------- --------------------
4,000 March 12, 1999
4,000 March 12, 2000
4,000 March 12, 2001
provided, however, that the Option shall become immediately exercisable in its
entirety upon the occurrence of a "change in control," as defined in the Plan.
The Option is exercisable at a purchase price of $14.50 per Option Share.
<PAGE>
2. The Option is not transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and is exercisable, during the Optionee's
lifetime, only by the Optionee.
3. In the event of the termination of the employment of the Optionee for any
reason other than Cause, the Optionee may exercise the Option to the extent that
the Optionee was entitled to do so on the date of termination, at any time
within 90 days following such termination, but not later than the date of
expiration of the Option, whichever shall first occur. In the event of the
termination of the employment of the Optionee for Cause, the Option shall be
canceled as of the effective date of such termination. For purposes of this
paragraph "Cause" shall mean the willful and continued failure of the Optionee
to substantially perform his duties as an employee of the Company or its
subsidiaries; gross misconduct, material dishonesty or fraud by the Optionee in
connection with the business of the Company and its subsidiaries; the habitual
abuse of any substance (such as narcotics or alcohol) by the Optionee; or the
conviction for, or pleading guilty or nolo contendere to, an act constituting a
---- ----------
felony.
4. In the event the Optionee dies while employed by the Company or Fidelity,
the person or persons to whom the Option is transferred by will or the laws of
descent and distribution may exercise the Option, to the extent that the
Optionee was entitled to do so on the date of the Optionee's death, at any time
within one year from the date of death, but no later than the date of expiration
of the Option, whichever shall first occur.
5. The Option may be exercised only by written notice to the Secretary of the
Company at its office at 4565 Colorado Boulevard, Los Angeles, California 90039.
Such notice shall state the election to exercise the Option and the number of
shares in respect of which it is being exercised and shall be signed by the
Optionee. In no event may the Option be exercised for less than 500 shares
unless there are fewer than 500 shares remaining for exercise under the Option.
The certificate or certificates of the shares as to which the Option shall have
been exercised will be registered only in the Optionee's name. In the event the
Option becomes exercisable by another person or persons upon the death of the
Optionee, the notice of exercise shall be accompanied by appropriate proof of
the right to exercise the Option.
6. At the time of exercise of the Option and prior to the delivery of such
shares, the Optionee shall pay in cash to the Company the sum of the aggregate
option price of all shares purchased pursuant to such exercise of the Option.
All payments shall be made by check payable to the order of the Company. In
lieu of making payment in cash for the aggregate option price of shares
purchased pursuant to the exercise of the Option, the Optionee may, if the
Common Stock is actively traded on an established market, make such payment (i)
by delivery to the Company of Common Stock owned by the Optionee having a fair
market value of at least equal to the aggregate option price or (ii) partly in
cash and partly by delivery of Common Stock or (iii) such other method permitted
by the Committee so long as such method complies with the applicable provisions
of the Internal Revenue Code of 1986 (the "Code") for incentive stock options.
The fair market value shall be established in accordance with any reasonable
valuation methods determined by the Committee. If the fair market value of the
Common Stock so delivered exceeds the aggregate option price (or part thereof),
the Company will pay to the
2
<PAGE>
Optionee in cash an amount equal to the fair market value of the fractional
portion of any share of Common Stock so delivered and not applied by the Company
in payment of the option price and a certificate for any whole shares of Common
Stock not required to be applied by the Company in payment of the option price.
The Optionee shall not have any of the rights and privileges of a stockholder of
the Company with respect to the shares deliverable upon any exercise of the
Option unless and until certificates representing such shares shall have been
delivered to the Optionee.
7. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule). The Optionee agrees that the Optionee will
give notice to the Company of any "disposition" (within the meaning of Section
424(c) of the Code) of the shares received upon exercise of the Option which is
made within the two-year period beginning on the date of this Agreement or
within the one-year period beginning on the date of the transfer of such shares
to the Optionee. Such notice shall be given in writing within ten days after
such disposition and shall contain a representation by the Optionee of the net
amount realized by the Optionee from the disposition, or if no amount is
realized, a representation as to the nature of the disposition.
8. In the event that, prior to the exercise of the Option with respect to all
of the shares of Common Stock in respect of which the Option is granted, the
number of outstanding shares of Common Stock shall be increased or decreased or
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company, whether through stock dividend, stock split,
reverse stock split, recapitalization or other change affecting the outstanding
Common Stock, the remaining number of shares of Common Stock still subject to
the Option and the purchase price thereof shall be appropriately adjusted by the
Committee.
9. The Committee shall have authority to interpret the Plan and this
Agreement and to make any and all determinations under them, and its decisions
shall be binding and conclusive upon the Optionee and the Optionee's legal
representative in respect of any questions arising under the Plan or this
Agreement.
10. Any notice to be given to the Company shall be addressed to the Secretary
of the Company at 4565 Colorado Boulevard, Los Angeles, California 90039 and any
notice to be given to the Optionee shall be addressed to the Optionee at the
Optionee's residence as it may appear on the records of the Company or at such
other address as either party may hereafter designate in writing to the other.
11. The Agreement shall be binding upon and inure to the benefit of the
parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
3
<PAGE>
12. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California and applicable Federal law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date and year first above written.
BANK PLUS CORPORATION
By____________________________
Vice Chairman, President
and Chief Executive Officer
______________________________
Optionee
4
<PAGE>
As of March 12, 1998
[Name]
Fidelity Federal Bank,
A Federal Savings Bank
4565 Colorado Boulevard
Los Angeles, California 90039
Dear [Name]:
Bank Plus Corporation (the "Company") and its principal subsidiary, Fidelity
Federal Bank, A Federal Savings Bank (the "Bank"), consider the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company and the Bank recognize that, as is the case with many
publicly held corporations, the possibility of a change in control may arise and
that such possibility, and the uncertainty and questions which it may raise
among management of the Bank, may hinder the Bank's efforts to recruit qualified
management personnel and result in the departure or distraction of management
personnel, in each case to the detriment of the Company and the Bank and the
Company's shareholders. Accordingly, the Board of Directors of the Company (the
"Board") and the board of directors of the Bank have determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of management of the Bank to their assigned duties without
distraction in circumstances arising from the possibility of a change in control
of the Company or the Bank. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company or the Bank, that you be able to assess and advise the
Board whether such proposal would be in the best interests of the Company and
its shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Bank, this letter
agreement sets forth the severance benefits which the Bank agrees will be
provided to you in the event your employment with the Bank is terminated
subsequent to a "change in control" of the Company or the Bank.
1. RIGHT TO TERMINATE; AGREEMENT TO PROVIDE SERVICES.
-------------------------------------------------
(a) Except as otherwise provided in paragraph (b) below, the Bank or you
may terminate your employment at any time, subject to the Bank's providing the
benefits hereinafter specified in accordance with the terms hereof.
<PAGE>
As of March 12, 1998
Page 2
(b) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 25% of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of the common
stock of the Company, you agree that you will not leave the employ of the Bank
(other than as a result of Disability or upon Retirement, as such terms are
hereinafter defined) and will render the services contemplated in the recitals
to this Agreement until such tender offer or exchange offer has been abandoned
or terminated or a change in control of the Company or the Bank, as defined in
Section 3 hereof, has occurred. For purposes of this Agreement, the term
"Person" shall mean and include any individual, corporation, partnership, group,
association or other "person", as such term is used in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company,
the Bank, any other subsidiary of the Company or any employee benefit plan(s)
sponsored by the Company, the Bank or any other subsidiary of the Company.
2. TERM OF AGREEMENT.
-----------------
(a) This Agreement shall commence on March 12, 1998 and shall continue in
effect until March 11, 2001; provided, however, that commencing on March 12,
-------- -------
2001 and each March 12 thereafter, the term of this Agreement shall be extended
for one additional year unless at least 90 days prior to such March 12 date, the
Bank or you shall have given notice that this Agreement shall not be extended;
and provided, further, that, notwithstanding the delivery of any such notice,
-------- -------
this Agreement shall continue in effect for a period of twenty-four (24) months
after a change in control of the Company or the Bank, as defined in Section 3
hereof, if such change in control shall have occurred during the term of this
Agreement, as it may be extended by the first proviso set forth above.
(b) Notwithstanding anything in this Section 2 to the contrary:
(i) this Agreement shall terminate if you or the Bank terminate your
employment prior to a change in control of the Company or the Bank;
(ii) the obligations of the Bank hereunder shall terminate for so long
as you are suspended and/or temporarily prohibited from participating in the
conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. (S) 1818(e)(3) and (g)(1)) as of
the date of service of such notice unless stayed by appropriate proceedings;
provided that if the charges in the notice are dismissed, the Bank may in its
- --------
discretion (A) pay you all or part of any payments within the terms of this
Agreement withheld while its obligations under this Agreement was suspended and
(B) reinstate (in whole or in part) any of its obligations which were suspended;
(iii) the obligations of the Bank hereunder shall terminate if you
are removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(e)(4) or (g)(1));
<PAGE>
As of March 12, 1998
Page 3
(iv) this Agreement shall terminate if the Bank is in default (as
defined in Section 3(x)(1) of the Federal Deposit Insurance Act); or
(v) this Agreement shall be terminated by the Director of the Office
of Thrift Supervision or his or her designee (the "Director"), except to the
extent that the Director determines that continuation of this Agreement is
necessary for the continued operation of the Bank, (A) at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act or (B) at the
time the Director approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in
unsafe or unsound condition;
provided, however, that in the case of paragraphs (iii), (iv) and (v) of this
- -------- -------
Section 2(b), vested rights hereunder held by the Bank or you shall not be
affected by such termination.
3. CHANGE IN CONTROL. For purposes of this Agreement, a "change in control"
-----------------
shall be deemed to occur if (a) any "person" (as such term is defined in Section
3(a)(9) and as used in Sections 13(d) and 14(d) of the Exchange Act, excluding
the Company, the Bank or any of the Company's other subsidiaries, a trustee or
any fiduciary holding securities under an employee benefit plan of the Company,
the Bank or any of the Company's other subsidiaries, an underwriter temporarily
holding securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by shareholders of the Company in substantially
the same proportion as their ownership of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities ("Voting
Securities of the Company"); or (b) during any period of not more than two
years, individuals who constitute the Board as of the beginning of the period
and any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction described in
clause (a) or (b) of this sentence) whose election by the Board or nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at such time or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 60% of the
combined voting power of the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or disposition by the Company or all or
substantially all of the Company's assets; or (d) a sale or sales or other
disposition or dispositions by the Company which results in the Company ceasing
to beneficially "own" (within the meaning of Rule 13d-3 under the Exchange Act,
directly or indirectly, more than 50% of the Voting Securities of the Bank; or
(e) a
<PAGE>
As of March 12, 1998
Page 4
sale or sales of all or substantially all of the assets of the Bank, in a
single transaction or series of transactions, other than to a direct or indirect
subsidiary of the Company; or (f) a merger or other combination involving the
Bank as a result of which the Company ceases to beneficially own, directly or
indirectly, more than 50% of the Voting Securities of the Bank or the successor
to the Bank.
4. TERMINATION FOLLOWING A CHANGE IN CONTROL. If any of the events described
-----------------------------------------
in Section 3 hereof constituting a change in control shall have occurred, you
shall be entitled to the benefits provided in Section 5 hereof upon the
termination of your employment with the Bank within twenty-four (24) months
after such event, unless such termination is (a) because of your death or
Retirement, (b) by the Bank for Cause or Disability or (c) by you other than for
Good Reason (as all such capitalized terms are hereinafter defined.
(a) Disability. Termination by the Bank of your employment based on
----------
"Disability" shall mean termination because of your absence from your duties
with the Bank on a full time basis for one hundred eighty (180) consecutive days
as a result of your incapacity due to physical or mental illness, unless within
thirty (30) days after Notice of Termination (as hereinafter defined) is given
to you following such absence you shall have returned to the full time
performance of your duties.
(b) Retirement. Termination by you or by the Bank of your employment
----------
based on "Retirement" shall mean termination on or after your attainment of age
sixty-five (65).
(c) Cause. Termination by the Bank of your employment for "Cause"
-----
shall mean termination upon (i) the willful and continued failure by you to
perform substantially your duties with the Bank (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to you by the Board or the executive
committee thereof or the Chief Executive Officer of the Bank, which specifically
identifies the manner in which such body or executive believes that you have not
substantially performed your duties, or (ii) your willful dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. For purposes of this paragraph (c),
no act, or failure to act, on your part shall be considered "willful" unless
done, or omitted to be done, by you in bad faith and without reasonable belief
that your action or omission was in, or not opposed to, the best interests of
the Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or the board of directors of the Bank or
based upon the advice of counsel for the Company or the Bank shall be
conclusively presumed to be done, or omitted to be done, by you in good faith
and in the best interests of the Bank. It is also expressly understood that
your attention to matters not directly related to the business of the Bank shall
not provide a basis for termination for Cause so long as the Board or the board
of directors of the Bank has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire
<PAGE>
As of March 12, 1998
Page 5
membership of the board of directors of the Bank at a meeting
called and held for the purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the board of
directors of the Bank), finding that in the good faith opinion of the board of
directors of the Bank you were guilty of the conduct set forth above in (i) or
(ii) of this paragraph (c) and specifying the particulars thereof in detail.
(d) Good Reason. Termination by you of your employment for "Good
-----------
Reason" shall mean termination based on:
(i) an adverse change in your status or position(s) as an officer of
the Bank as in effect immediately prior to the date of the change in control,
including, without limitation, any adverse change in your status or position as
a result of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the Company
is no longer publicly owned) or the assignment to you of any duties or
responsibilities which are inconsistent with such status or position(s), or any
removal of you from or any failure to reappoint or reelect you to such
position(s) (except in connection with the termination of your employment for
Cause, Disability or Retirement or as a result of your death or by you other
than for Good Reason);
(ii) a reduction by the Bank in your base salary as in effect
immediately prior to the date of the change in control;
(iii) the failure by the Company or the Bank to continue in effect
any Plan (as hereinafter defined) in which you are participating at the time of
the change in control (or Plans providing you with at least substantially
similar benefits) other than as a result of the normal expiration of any such
Plan, or the taking of any action, or the failure to act, by the Bank which
would adversely affect your continued participation in any of such Plans on at
least as favorable a basis to you as is the case on the date of the change in
control or which would materially reduce your benefits in the future under any
of such Plans or deprive you of any material benefit enjoyed by you at the time
of the change in control;
(iv) the failure by the Bank to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance with
its normal vacation policy as in effect on the date of the change in control;
(v) the requirement by the Bank that you be based at an office
that is greater than 35 miles from where your office is located on the date of
the change in control, except for required travel on the business of the Bank to
an extent substantially consistent with the business travel obligations which
you undertook on behalf of the Bank prior to the date of the change in control;
(vi) the failure by the Company and the Bank to obtain from any
Successor (as hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof;
<PAGE>
As of March 12, 1998
Page 6
(vii) any purported termination by the Bank of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (e) below (and, if applicable, paragraph (c) above);
and for purposes of this Agreement, no such purported termination shall be
effective; or
(viii) any refusal by the Bank to continue to allow you to attend
to matters or engage in business or civic activities not directly related to the
business of the Bank which, as of the date of this agreement, you were permitted
by the Board or the board of directors of the Bank to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan such as
an incentive, stock option or restricted stock plan or any employee benefit plan
such as a thrift, pension, profit sharing, medical, disability, accident, life
insurance plan or a relocation plan or policy or any other plan, program or
policy intended to benefit employees of the Bank.
(e) Notice of Termination. Any purported termination by the Bank or
---------------------
by you following a change in control shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(f) Date of Termination. "Date of Termination" following a change in
-------------------
control shall mean (i) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis during
such thirty (30) day period), (ii) if your employment is to be terminated by the
Bank for Cause or by you pursuant to Sections 4(d)(vi) and 6 hereof or for any
other Good Reason, the date specified in the Notice of Termination, or (iii) if
your employment is to be terminated by the Bank for any reason other than Cause,
the date specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by you
in writing either in advance of, or after, receiving such Notice of Termination.
In the case of termination by the Bank of your employment for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Bank that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by the arbitrators in a proceeding
as provided in Section 14 hereof. During the pendency of any such dispute, the
Bank will continue to pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 14.
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY; OTHER AGREEMENTS.
--------------------------------------------------------------------
(a) During any period following a change in control that you fail to
perform your duties as a result of incapacity due to physical or mental illness,
you shall continue to receive your salary at the rate then in effect and any
benefits or awards under any Plans shall continue to accrue
<PAGE>
As of March 12, 1998
Page 7
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with paragraphs 4(a) and
4(f) hereof. Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(b) If your employment shall be terminated for Cause following a change in
control, the Bank shall pay you your salary through the Date of Termination at
the rate in effect just prior to the time a Notice of Termination is given plus
any benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned and are otherwise payable,
but which have not yet been paid to you. Thereupon the Bank shall have no
further obligations to you under this Agreement.
(c) Subject to Sections 8 and 9 hereof, if, within twenty-four (24) months
after a change in control shall have occurred, your employment by the Bank shall
be terminated (i) by the Bank other than for Cause, Disability or Retirement or
(ii) by you for Good Reason, then the Bank shall pay to you, no later than the
fifth business day following the Date of Termination, without regard to any
contrary provisions of any Plan (other than any deferral election pursuant the
Company's Deferred Compensation Plan), the following:
(A) your salary through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which pursuant to
the terms of any Plans have been earned and otherwise payable, but which
have not yet been paid to you; and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, an amount in cash equal to 1.5 times
the higher of (1) your annual base salary on the Date of Termination or (2)
your annual salary as in effect immediately prior to the change in control.
(d) If, within twenty-four (24) months after a change in control shall have
occurred, your employment by the Bank shall be terminated (i) by the Bank other
than for Cause, Disability or Retirement or (ii) by you for Good Reason, then
the Bank shall maintain in full force and effect, for the continued benefit of
you and your dependents for a period terminating on the earliest of (x) 18
months after the Date of Termination, (y) the commencement date of equivalent
benefits from a new employer or (z) your attainment of age sixty-five (65), all
insured and self-insured employee health and welfare benefit Plans in which you
were entitled to participate immediately prior to the Date of Termination,
provided that your continued participation is possible under the general terms
and provisions of such Plans (and any applicable funding media) and you continue
to pay an amount equal to your regular contribution under such plans for such
participation. If, at the end of 18 months after the Termination Date, you have
not reached your sixty-fifth birthday and you have not previously received or
are not then receiving equivalent benefits from a new employer, the Bank shall
arrange, at its sole cost and expense, to enable you to convert your and your
dependents' coverage under such Plans to individual policies or programs upon
the same terms as employees of the Bank may apply for such conversions. In the
event that your participation in any such Plan is barred, the Bank shall, at its
sole cost and
<PAGE>
As of March 12, 1998
Page 8
expense, arrange to have issued for the benefit of you and your dependents
individual policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which you otherwise would have been entitled to
receive under such Plans pursuant to this paragraph (d) or, if such insurance is
not available at a reasonable cost to the Bank, the Bank shall provide you and
your dependents with equivalent benefits (on an after-tax basis). You shall not
be required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans.
(e) Except as specifically provided in paragraph (d) above, the amount of
any payment provided for in this Section 5 shall not be reduced, offset or
subject to recovery by the Bank by reason of any compensation earned by you as
the result of employment by another employer after the Date of Termination, or
otherwise.
6. SUCCESSORS; BINDING AGREEMENT.
-----------------------------
(a) The Company and the Bank will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person by agreement in form and substance satisfactory to
you, assent to the fulfillment of the Bank's obligations under this Agreement.
Failure of such Person to furnish such assent by the later of (i) three business
days prior to the time such Person becomes Successor or (ii) two business days
after such Person receives a written request to so assent shall constitute Good
Reason for termination by you of your employment if a change in control occurs
or has occurred. For purposes of this Agreement, "Successor" shall mean any
Person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Bank's business directly, by
merger or consolidation, or indirectly, by purchase of the Voting Securities of
the Company or the Bank or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
(c) For purposes of this Agreement, the "Bank" and the "Company" shall
include any corporation or other entity which is the surviving or continuing
entity in respect of any merger, consolidation or form of business combination
in which the Bank or the Company, respectively, ceases to exist.
7. FEES, EXPENSES AND INTEREST; MITIGATION.
---------------------------------------
(a) The Bank shall reimburse you, on a current basis, for all reasonable
legal fees and related expenses incurred by you in connection with this
Agreement following a change in control of the Bank, including, without
limitation, (i) all such fees and expenses, if any, incurred in
<PAGE>
As of March 12, 1998
Page 9
contesting or disputing any termination of your employment or incurred by you in
seeking advice with respect to the matters set forth in Section 8 hereof or (ii)
your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld by a
court of competent jurisdiction; provided, however, you shall be required to
-------- -------
repay any such amounts to the Bank to the extent that a court issues a final and
non-appealable order setting forth the determination that the position taken by
you was frivolous or advanced by you in bad faith. In addition to the fees and
expenses provided herein, you shall also be paid interest on any disputed amount
ultimately paid to you at the prime rate announced by the Bank from time to time
from the date payment should have been made until paid in full.
(b) You shall not be required to mitigate the amount of any payment the
Bank becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. TAXES.
-----
(a) All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
(b) Notwithstanding anything in the foregoing to the contrary, if any of
the payments provided for in this Agreement, together with any other payments
which you have the right to receive from the Bank or any corporation which is a
member of an "affiliated group" (as defined in Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code") without regard to Section 1504(b)
of the Code) of which the Bank is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant
to this Agreement shall be reduced (reducing first the payments under Section
5(c)(B)) to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code; provided,
--------
however, that the determination as to whether any reduction in the payments
- -------
under this Agreement pursuant to this proviso is necessary shall be made by you
in good faith, and such determination shall be conclusive and binding on the
Bank with respect to its treatment of the payment for tax reporting purposes.
9. OTHER LIMITATIONS ON PAYMENTS. Any payments made to you pursuant to this
-----------------------------
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. (S) 1828(k) and any regulations promulgated thereunder.
10. SURVIVAL. The respective obligations of, and benefits afforded to, the
--------
Bank and you as provided in Sections 5, 6(b), 7, 8, 9, 14 and 15 of this
Agreement shall survive termination of this Agreement.
11. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Bank, to the address set forth on the first page of this
<PAGE>
As of March 12, 1998
Page 10
Agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided that all notices to the Bank shall be directed to
the attention of the President of the Company and of the Bank, with a copy to
the Secretary of the Bank, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
12. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
-------------
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the Chief Executive Officer or President of the Bank.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or of compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California applied without regard to conflict of laws principles.
13. VALIDITY. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. ARBITRATION. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in the County of
Los Angeles, State of California by three arbitrators in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrators' award in any court having jurisdiction; provided,
--------
however, that you shall be entitled to seek specific performance of your right
- -------
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Bank shall
bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 14.
15. EMPLOYEE'S COMMITMENT. You agree that subsequent to your period of
---------------------
employment with the Bank, you will not at any time communicate or disclose to
any unauthorized person, without the written consent of the Bank, any
proprietary processes of the Company and the Bank or any other subsidiary of the
Company or other confidential information concerning their business, affairs,
products, suppliers or customers which, if disclosed, would have a material
adverse effect upon the business or operations of the Company, the Bank and the
other subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 15 shall not apply to the extent that the aforesaid
matters (a) are disclosed in circumstances where you are legally required to do
so or (b) become generally known to and available for use by the public
otherwise than by your wrongful act or omission.
16. RELATED AGREEMENTS. To the extent that any provision of any other
------------------
agreement between the Company, the Bank or any of the other subsidiaries of the
Company and you shall limit, qualify or be inconsistent with any provision of
this Agreement, then for purposes of this
<PAGE>
As of March 12, 1998
Page 11
Agreement, while the same shall remain in force, the provision of this Agreement
shall control and such provision of such other agreement shall be deemed to have
been superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
18. COUNTERPARTS. This Agreement may be executed in several counterparts, each
------------
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Bank the enclosed copy of this letter which will
then constitute our agreement on this subject.
Sincerely,
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
____________________________
Name: Richard M. Greenwood
Title: Chief Executive Officer
Agreed to this _____ day
of ____________________, 199__.
________________________________
[Name]
The payment of all obligations and liabilities of Fidelity Federal Bank, A
Federal Savings Bank under this Agreement, is specifically guaranteed by Bank
Plus Corporation.
BANK PLUS CORPORATION
By:
__________________________________________
Name: Richard M. Greenwood
Title: President and Chief Executive Officer
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<PAGE>
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