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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) JANUARY 10, 1994
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CITADEL HOLDING CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-8625 95-3885184
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(State or other jurisdiction (Commission File (I.R.S. Employer of
incorporation) Number) File Number)
600 NORTH BRAND BLVD., GLENDALE, CALIFORNIA 91203-1241
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 956-7100
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N/A
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(Former name or former address, if changed since last report)
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Citadel Holding Corporation
Item 5. Other Events. The Company issued the press release attached as
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Exhibit A on January 10, 1994.
SIGNATURES
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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.
Date: January 11, 1994 CITADEL HOLDING CORPORATION
By: /s/ Andre S. W. Shih
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Andre S. W. Shih
Senior Vice President, Treasurer
and Principal Financial Officer
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[CITADEL HOLDING CORPORATION LETTERHEAD] NEWS
600 North Brand Boulevard RELEASE
Glendale, California 91203
(818) 956-7100
FOR: IMMEDIATE RELEASE
CONTACT: Andre Shih
(818) 551-2510
GLENDALE, CALIFORNIA, JANUARY 10, 1993 -- Citadel Holding Corporation
(AMEX: CDL), and its wholly-owned subsidiary, Fidelity Federal Bank, FSB,
("Fidelity" or the "Bank") (together, the "Company") announced today that the
Company is pursuing a restructuring plan that could include both the transfer to
a new Citadel subsidiary of certain problem assets and a sale of, or disposition
of a controlling interest in, the Bank.
The Company's management team and outside advisor, J. P. Morgan Securities
Inc., will proceed with actions in furtherance of such a plan. The transfer of
certain problem assets from the Bank, using securitized debt financing, would be
made to a newly-formed Citadel real estate subsidiary. These assets would
consist of commercial and larger multifamily loans and real estate owned
properties with a current net book value of approximately $450 million-$490
million. The Bank had previously retained outside consultants to analyze the
proposed assets to be transferred to the new Citadel real estate subsidiary, and
that work is expected to be finalized within the next month and submitted to
rating agencies for review.
In conjunction with the asset disposition, the Company will begin
solicitation for a strategic buyer or a new set of equity investors for the
Bank. Following the proposed sale of the Bank, Citadel would become a real
estate company and focus on the servicing and enhancement of its loan and real
estate portfolio. The restructuring plan also calls for the Bank's disposition
of substantially all remaining problem assets, consisting of primarily smaller
multifamily loans, in a bulk sale to a third-party purchaser or Citadel.
These actions follow the Company's June announcement that it would review
its business and structure and explore a variety of strategic alternatives to
address the current challenges of the business and financial services
environment. J. P. Morgan was retained in August to assist the Company's
management team with that process.
Exhibit A
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Citadel Holding Corporation
Page two
"Over the past year, our directors have carefully considered and evaluated
a variety of strategic alternatives to address the ongoing financial
difficulties of our Company resulting from the weakened economy and languishing
real estate market in Southern California," said Richard M. Greenwood, Chief
Executive Officer. "While we will fully explore the market values of this
restructuring plan before making any final decisions, we see this approach as
having the greatest potential to maximize shareholder values in the foreseeable
future."
"We believe that the value of Fidelity today is heavily discounted due to
its problem assets," said Greenwood. "By transferring most of these problem
assets to a new Citadel subsidiary, we make the Bank a more attractive
acquisition or investment candidate. Based upon the work completed so far and
upon the advice we have received from J. P. Morgan, I am optimistic that this
move will attract investors who will be interested in providing new capital as
part of an overall acquisition transaction."
To transfer these assets and obtain debt financing in the capital markets
for the transfer, Fidelity would be required to write down these assets to their
bulk sale value, resulting in an additional loss of approximately $110 million,
pretax. The smaller bulk sale of primarily smaller multifamily loans and other
assets, currently at over $90 million net book value, would generate a loss of
approximately $40 million, pretax, if such bulk sale were to occur today or in
the near future. However, because of the changing composition of that pool of
assets, its ultimate size and additional potential loss at the time of the
proposed restructuring cannot currently be quantified. As part of the
restructuring, the Company will implement a plan to streamline its operations
and reduce operating expenses. This will result in additional restructuring
charges associated with the plan.
"Because of the significant conditions to a successful restructuring, we
expect that these losses would only be incurred upon the sale of the Bank," said
Greenwood, "at which time the effects of the losses on capital should be offset
by either a new infusion of capital from investors or a merger with another
financial institution."
General valuation allowances for loans and real estate owned are targeted
to reach approximately $80 million at year-end from their third quarter level of
$71.2 million, in part to address Office of Thrift Supervision ("OTS") concerns
(discussed below). As part of its ongoing asset review process, the Company has
reassessed the valuation of its goodwill and core deposit intangibles, which
will result in a writedown of
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Citadel Holding Corporation
Page three
approximately $14.0 million. The increase in reserves for losses on loans and
real estate owned, write down of goodwill and intangibles, costs associated with
managing troubled assets, one-time expenses related to the restructuring plan,
combined with reduced income associated with a declining asset base and
narrowing margins, will result in significant operating losses for the fourth
quarter of approximately $38.0 million and operating losses for 1993 as a whole
of approximately $68.0 million.
The Company is currently in the final stages of various examinations by the
OTS. While formal results of the examinations have not yet been issued, the OTS
has expressed concerns in the areas of asset quality and the resulting negative
impact on capital levels and earnings. In particular, the OTS has expressed
concern that if 1993 loss trends continue, Fidelity would not be able to
maintain a 4 percent core capital level. The OTS has advised the Company that
it will take action that will result in Fidelity being subjected to higher
examination assessments and additional regulatory restrictions including, but
not limited to, (i) a limitation on increases in total assets during any quarter
in excess of an amount equal to net interest credited on deposit liabilities (or
earnings credited on share accounts) during the quarter; (ii) a requirement that
the Bank submit to the OTS for prior review and approval the names of proposed
new directors and executive officers and proposed employment contracts with any
director or senior officer; (iii) a requirement that the Bank submit to the OTS
for prior review and approval any third party contracts outside the ordinary
course of business; and (iv) possible prior notice requirements for all
affiliate transactions.
Management believes that the current restructuring plan, if implemented,
will be responsive to the OTS' concerns. To support the Bank in the context of
the proposed restructuring and in response to OTS concerns about core capital of
Fidelity, Citadel has infused $10.0 million of core capital into the Bank.
After the infusion, Citadel's liquid assets stand at approximately $2.3 million.
Further, Citadel is now in discussions with a shareholder affiliate for an
infusion of additional capital that management believes may be necessary in
maintaining a core capital ratio above 4 percent during the first half of 1994.
At December 31, 1993, Fidelity's core capital was in excess of 4 percent.
However, no assurances can be given that current capital levels can be
maintained during the next six months or that the aforementioned discussions
will be successful in obtaining a new capital infusion.
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Citadel Holding Corporation
Page four
Under the restructuring plan, the Company has hired Steve Wesson to serve
as Chief Executive Officer of the new Citadel real estate subsidiary. James J.
Cotter has resigned from the Bank's board of directors and will serve as
Chairman of the Board of the new real estate subsidiary, which will focus on
Citadel's future non-banking activities. Cotter will continue in his role as
Chairman of Citadel.
Fidelity Federal Bank offers a full range of retail financial products and
services through its 42 retail branches and 10 mortgage lending offices
throughout Southern California.
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