================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
COMMISSION FILE NUMBER _____
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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 July 31, 1996, Registrant had outstanding 18,242,465 shares of Common
Stock, par value $.01 per share.
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BANK PLUS CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial 1
Condition (Unaudited) as of June 30, 1996
and December 31, 1995.....................
Consolidated Statements of Operations
(Unaudited) for the quarters and six
months ended June 30, 1996 and 1995....... 2
Consolidated Statements of Cash Flows
(Unaudited) for the quarters and six
months ended June 30, 1996 and 1995....... 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................... 27
Item 2. Changes in Securities..................... 28
Item 3. Defaults Upon Senior Securities........... 28
Item 4. Submission of Matters to a Vote of
Security Holders.......................... 28
Item 5. Other Information......................... 28
Item 6. Exhibits and Reports on Form 8-K.......... 29
a. Exhibits............................... 29
b. Reports on Form 8-K.................... 31
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)
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS:
Cash and cash equivalents................................................... $ 65,752 $ 94,794
Investment securities available for sale, at fair value..................... 220,607 94,305
Mortgage-backed securities available for sale, at fair value................ 47,522 31,733
Loans receivable, net of allowances of $73,722 and $89,435 at
June 30, 1996 and December 31, 1995, respectively.......................... 2,809,860 2,935,116
Interest receivable......................................................... 21,368 20,162
Investment in FHLB stock.................................................... 50,752 49,425
Real estate owned, net...................................................... 20,519 19,521
Premises and equipment, net................................................. 33,399 34,333
Other assets................................................................ 26,854 20,055
---------- ----------
$3,296,633 $3,299,444
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits................................................................... $2,552,946 $2,600,869
FHLB advances.............................................................. 232,700 292,700
Commercial paper........................................................... 99,000 50,000
Mortgage-backed notes...................................................... 100,000 100,000
Other borrowings........................................................... 53,357 --
Other liabilities.......................................................... 31,882 26,832
---------- ----------
3,069,885 3,070,401
---------- ----------
Preferred stock issued by consolidated subsidiary........................... 51,750 51,750
Stockholders' equity:
Common stock, par value $.01 per share; 78,500,000 shares authorized;
18,242,465 shares outstanding............................................. 182 182
Paid-in capital............................................................ 262,151 262,151
Unrealized (losses) gains on securities.................................... (2,119) 788
Accumulated deficit........................................................ (85,216) (85,828)
---------- ----------
174,998 177,293
---------- ----------
$3,296,633 $3,299,444
========== ==========
See notes to consolidated financial statements.
1
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1996 1995 1996 1995
------------ ---------- ------------ ------------
(Unaudited)
INTEREST INCOME:
Loans................................................................ $ 54,096 $ 57,504 $ 110,276 $ 112,959
Mortgage-backed securities........................................... 756 1,489 1,260 2,464
Investment securities and other...................................... 4,704 3,528 8,074 7,668
----------- ---------- ----------- ----------
Total interest income............................................... 59,556 62,521 119,610 123,091
----------- ---------- ----------- ----------
INTEREST EXPENSE:
Deposits............................................................. 29,787 32,850 60,822 61,283
FHLB advances........................................................ 3,175 4,020 6,842 9,131
Other borrowings..................................................... 4,828 8,755 8,342 17,852
----------- ---------- ----------- ----------
Total interest expense.............................................. 37,790 45,625 76,006 88,266
----------- ---------- ----------- ----------
NET INTEREST INCOME................................................... 21,766 16,896 43,604 34,825
Provision for estimated loan losses.................................. 3,905 11,131 7,810 15,151
----------- ---------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
ESTIMATED LOAN LOSSES................................................ 17,861 5,765 35,794 19,674
----------- ---------- ----------- ----------
NONINTEREST INCOME (EXPENSE):
Loan fee income...................................................... 560 895 1,374 2,124
Gains on loan sales, net............................................. 6 938 6 646
Fee income from sale of uninsured investment products................ 1,092 1,155 2,291 2,364
Fee income on deposits and other income.............................. 856 961 1,558 1,769
Gains on securities and trading activities, net...................... 235 3,159 152 4,098
Gains on sale of servicing........................................... -- -- -- 4,319
Other................................................................ 18 (342) 106 (252)
----------- ---------- ----------- ----------
2,767 6,766 5,487 15,068
----------- ---------- ----------- ----------
Provision for estimated real estate losses........................... (578) (1,153) (1,246) (1,544)
Direct costs of real estate operations, net.......................... (1,237) (1,366) (3,024) (2,986)
----------- ---------- ----------- ----------
(1,815) (2,519) (4,270) (4,530)
----------- ---------- ----------- ----------
Total noninterest income............................................. 952 4,247 1,217 10,538
----------- ---------- ----------- ----------
OPERATING EXPENSE:
Personnel and benefits............................................... 6,833 8,628 13,806 18,025
Occupancy............................................................ 2,689 3,158 5,406 6,144
FDIC insurance....................................................... 1,931 2,059 3,962 4,119
Professional services................................................ 2,780 2,302 5,283 4,597
Office-related expenses.............................................. 846 1,163 1,932 2,416
Other................................................................ 1,459 1,725 2,776 2,885
----------- ---------- ----------- ----------
Total operating expense............................................. 16,538 19,035 33,165 38,186
----------- ---------- ----------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES................................... 2,275 (9,023) 3,846 (7,974)
Income tax expense................................................... 53 4 93 4
----------- ---------- ----------- ----------
EARNINGS (LOSS) BEFORE DIVIDENDS ON PREFERRED STOCK
OF SUBSIDIARY........................................................ 2,222 (9,027) 3,753 (7,978)
Dividends on preferred stock of subsidiary........................... 1,552 -- 3,105 --
----------- ---------- ----------- ----------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS..................... $ 670 $ (9.027) $ 648 $ (7,978)
=========== ========== =========== ==========
EARNINGS (LOSS) PER COMMON SHARE...................................... $ 0.04 $ (1.39) $ 0.04 $ (1.23)
=========== ========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................ 18,242,465 6,492,465 18,242,465 6,492,465
=========== ========== =========== ==========
See notes to consolidated financial statements.
2
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1996 1995 1996 1995
------------ ---------- ------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings (losses)..................................................... $ 2,222 $ (9,027) $ 3,753 $ (7,978)
Adjustments to reconcile earnings (loss) to net cash
provided by (used in) operating activities:
Provisions for estimated loan and real estate losses................ 4,483 12,284 9,056 16,695
Gains on sale of loans and securities............................... (241) (4,097) (158) (4,744)
Amortization of deferred items, net................................. (568) (677) (1,009) (1,566)
FHLB stock dividend................................................. (727) (443) (1,375) (1,176)
Depreciation and amortization....................................... 992 1,456 1,970 3,024
Proceeds from sales of loans held for sale............................ -- 1,290 -- 1,290
Interest receivable (increase) decrease............................... (285) 553 (1,206) 102
Other assets (increase) decrease...................................... (2,576) 3,384 (6,766) (4,496)
Interest payable (decrease) increase.................................. (1,516) (5,774) 82 3,295
Other liabilities increase (decrease)................................. 2,941 (2,559) 4,665 (2,455)
-------- --------- --------- ---------
Net cash provided by (used in) operating activities............... 4,725 (3,610) 9,012 1,991
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale................. (83,450) -- (151,025) (45,569)
Maturities of investment securities available for sale................ 22,950 -- 22,950 5,000
Proceeds from sales of investment securities available for sale....... -- 36,907 -- 102,061
Purchases of investment securities held to maturity................... -- -- -- (25,001)
Maturities of investment securities held to maturity.................. -- -- -- 10,000
Purchases of mortgage-backed securities available for sale............ (38,961) -- (38,961) (27,858)
Principal repayments of mortgage-backed securities
available for sale................................................... 852 1,663 2,759 3,998
Proceeds from sales of mortgage-backed securities
available for sale................................................... 20,158 127,706 20,158 162,365
Purchases of mortgage-backed securities held to maturity.............. -- -- -- (16,234)
Principal repayments of mortgage-backed securities
held to maturity..................................................... -- 1,802 -- 3,408
Loans receivable decrease............................................. 53,642 36,509 98,196 58,332
Net proceeds from sales of real estate................................ 13,653 5,152 17,597 7,642
Net (additions to) dispositions of premises and equipment............. (266) 1,176 (1,021) 1,433
-------- --------- --------- ---------
Net cash (used in) provided by investing activities............... (11,422) 210,915 (29,347) 239,577
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings decrease......................... (34,887) (29,267) (101,740) (64,050)
Certificate accounts increase......................................... 8,770 16,396 53,817 104,158
Payments of dividends on preferred stock of subsidiary................ (1,552) -- (3,105) --
Proceeds from FHLB advances........................................... -- -- -- 80,000
Repayments of FHLB advances........................................... -- -- (60,000) (120,000)
Short-term borrowings increase (decrease)............................. 42,457 (190,500) 102,357 (241,400)
Other financing activity.............................................. (36) -- (36) --
-------- --------- --------- ---------
Net cash provided by (used in) financing activities.................. 14,752 (203,371) (8,707) (241,292)
-------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............. 8,055 3,934 (29,042) 276
Cash and cash equivalents at the beginning of the period............. 57,697 70,407 94,794 74,065
-------- --------- --------- ---------
Cash and Cash Equivalents at End of Period............................. $ 65,752 $ 74,341 $ 65,752 $ 74,341
======== ========= ========= =========
(Continued on following page)
3
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1996 1995 1996 1995
------------ ---------- ------------ ------------
(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash (paid) received during the period for:
Interest on deposits, advances and other borrowings................... $(38,631) $(51,754) $(74,570) $( 85,257)
Income taxes.......................................................... (81) (4) 302 (89)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additions to real estate acquired through foreclosure.................. 12,346 16,950 21,220 28,349
Loans originated to finance sale of real estate acquired
through foreclosure................................................... 1,129 4,187 1,379 5,470
Loans originated to finance sale of office building.................... -- 5,339 -- 5,339
Transfers from held to maturity to available for sale portfolio:
Loans................................................................. -- 68,995 -- 68,995
Investment securities................................................. -- 141,678 -- 141,678
Mortgage-backed securities............................................ -- 16,404 -- 16,404
Transfer from available for sale to held to maturity portfolio:
Mortgage-backed securities............................................ -- -- -- 3,603
Mortgage loans exchanged for mortgage-backed securities................ -- 66,444 -- 112,840
See notes to consolidated financial statements.
4
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In May 1996, Fidelity Federal Bank, A Federal Savings Bank ("Fidelity" or
the "Bank") completed a reorganization pursuant to which all of the outstanding
common stock of Fidelity was converted on a one-for-one basis into all of the
outstanding common stock of a recently formed Delaware corporation, Bank Plus
Corporation ("Bank Plus"), and Bank Plus became the holding company for Fidelity
(the "Reorganization"). Bank Plus' headquarters are in Los Angeles, California
and its principal operating subsidiaries are Fidelity and Gateway Investment
Services, Inc. ("Gateway"), which prior to the Reorganization was a subsidiary
of the Bank. Bank Plus currently has no significant business or operations other
than serving as the holding company for Fidelity and Gateway. Unless otherwise
indicated, references to the "Company" include Bank Plus, Fidelity, Gateway, and
all subsidiaries of Fidelity and Bank Plus. All references to "Fidelity" prior
to the Reorganization include Gateway.
The Company offers a broad range of consumer financial services, including
demand and term deposits, and loans to consumers, through 33 full-service
branches, all of which are located in Southern California, principally in Los
Angeles and Orange counties. All significant intercompany transactions and
balances have been eliminated. Certain reclassifications have been made to prior
periods' consolidated financial statements to conform to the current period
presentation. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results of operations to be expected for
the entire year of 1996.
In the fourth quarter of 1995, Fidelity completed a plan of
recapitalization (the "1995 Recapitalization"), pursuant to which Fidelity
raised approximately $134.4 million in net new equity through the sale of
2,070,000 shares of 12% Noncumulative Exchangeable Perpetual Preferred Stock,
Series A ("Series A Preferred Stock"), and 47,000,000 shares of Fidelity Class A
Common Stock. As part of the 1995 Recapitalization, Fidelity adopted the
accelerated asset resolution plan (the "Accelerated Asset Resolution Plan"),
which is designed to aggressively dispose of, resolve, or otherwise manage a
pool of primarily multifamily mortgage loans and real estate owned ("REO"). As a
result, Fidelity recorded a $45.0 million loan portfolio charge in the allowance
for estimated loan losses which represents the estimated additional losses
expected to be incurred in connection with the Accelerated Asset Resolution
Plan.
On February 9, 1996, the Bank's stockholders approved a one-for-four
Reverse Stock Split of the issued and outstanding shares of the Bank's Class A
Common Stock. Upon effectiveness of the Reverse Stock Split, each stockholder
became the owner of one share of Common Stock for each four shares of Common
Stock held at the time of the Reverse Stock Split and became entitled to receive
cash in lieu of any fractional shares. All per share data and weighted average
common shares outstanding have been retroactively adjusted to reflect the
Reverse Stock Split.
The Series A Preferred Stock of the Bank is presented on the Company's
Consolidated Statements of Financial Condition as "Preferred stock issued by
consolidated subsidiary."
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and include all
information and footnotes required for interim financial statement presentation.
The financial information provided herein, including the information under the
heading Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" ("MD&A"), is written with the presumption that the users
of the interim financial statements have read, or have access to, the Bank's
most recent Annual Report on Form 10-K which contains the latest available
audited consolidated financial statements and notes thereto, as of December 31,
1995, together with the MD&A as of such date.
5
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1996
Supplementary Earnings/Loss per Share Data
Assuming that 18,242,465 shares of Common Stock were issued at the
beginning of 1995, the net loss per common share would have been $0.49 and $0.44
for the quarter and six months ended June 30, 1995, respectively.
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The following table summarizes the Company's investment securities and
mortgage-backed securities ("MBS") portfolios.
UNREALIZED
AMORTIZED --------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
--------- ------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
JUNE 30, 1996
Available for sale:
Investment securities:
U.S. Treasury and agency securities (1)........... $213,214 $1,287 $(1,144) $ 143 $213,357
Other investments (2)............................. 7,295 -- (45) (45) 7,250
-------- ------ ------- ------- --------
220,509 1,287 (1,189) 98 220,607
-------- ------ ------- ------- --------
MBS:
FHLMC............................................. 2,491 26 -- 26 2,517
GNMA.............................................. 3,496 197 -- 197 3,693
Participation certificates........................ 26,109 -- -- -- 26,109
LIBOR asset trust................................. 15,528 -- (325) (325) 15,203
-------- ------ ------- ------- --------
47,624 223 (325) (102) 47,522
-------- ------ ------- ------- --------
Total available for sale......................... $268,133 $1,510 $(1,514) (4) $268,129
======== ====== ======== ========
Net unrealized losses on investment
securities included in amortized cost (1)......... (2,555)
Net unrealized gains, hedging activities........... 440
-------
Net unrealized losses included in
stockholders' equity............................. $(2,119)
=======
DECEMBER 31, 1995
Available for sale:
Investment securities:
U.S. Treasury and agency securities (1)........... $ 84,200 $2,984 $ -- $ 2,984 $ 87,184
Other investments (2)............................. 7,099 52 (30) 22 7,121
-------- ------ ------- ------- --------
91,299 3,036 (30) 3,006 94,305
-------- ------ ------- ------- --------
MBS:
FHLMC............................................. 3,068 -- (30) (30) 3,038
FNMA.............................................. 55 36 -- 36 91
Participation certificates........................ 28,123 481 -- 481 28,604
-------- ------ ------- ------- --------
31,246 517 (30) 487 31,733
-------- ------ ------- ------- --------
Total available for sale......................... $122.545 $3,553 $ (60) 3,493 $126.038
======== ====== ======= ========
Net unrealized losses on investment
securities included in amortized cost (1)......... (3,366)
Net unrealized gains, hedging activities........... 661
-------
Net unrealized gains included in
stockholders' equity............................. $ 788
=======
- -------------------
(1) Amortized cost of certain securities that were previously transferred from
available for sale to held to maturity and back to available for sale,
includes unamortized market value adjustments recorded at the time of
transfer to the held to maturity portfolio.
(2) Represents U.S. Treasury securities which have been pledged as credit
support to a securitization of loans by the Bank.
6
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1996
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
The Bank reclassified all held to maturity investment securities and MBS to
its available for sale portfolio in the second quarter of 1995. Subsequent to
their reclassification, certain available for sale securities were sold. Under
the Company's current operating plan, all securities are classified as available
for sale. The Company may begin classifying securities as held to maturity in
the near future.
The following table summarizes the weighted average yield of securities as
of the dates indicated:
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
Available for sale
Investment securities... 6.26% 4.70%
MBS..................... 7.12 6.85
The following table presents the Company's securities at June 30, 1996 by
contractual maturity. Actual maturities on MBS may differ from contractual
maturities due to prepayments.
MATURITY
------------------------------------------------------------
WITHIN OVER 1 YEAR OVER 5 YEARS OVER 10
1 YEAR TO 5 YEARS TO 10 YEARS YEARS TOTAL
------ ----------- ------------ ------- ---------
(DOLLARS IN THOUSANDS)
Available for sale:
Investment securities... $2,240 $166,359 $9,977 $42,031 $220,607
MBS..................... -- -- -- 47,522 47,522
------ -------- ------ ------- --------
$2,240 $166,359 $9,977 $89,553 $268,129
====== ======== ====== ======= ========
The following gains and losses were realized from the sale of investment
securities and MBS, the costs of which were computed on a specific
identification method, during the periods indicated:
SALES GAINS LOSSES
----- ----- ------
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30,
---------------------------
1996........................ $ 19,923 $ 235 $ --
1995........................ 160,983 3,154 --
SALES GAINS LOSSES
----- ----- ------
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996........................ $ 19,923 $ 235 $ --
1995........................ 260,796 3,903 (566)
The Company was engaged in certain option activities related to securities.
Realized losses from such activities totaled $0.1 million for the six months
ended June 30, 1996 compared to realized gains of $0.8 million for the
comparable period in 1995. There were no open positions or option activities in
this program at or for the quarter ended June 30, 1996.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company offers a broad range of consumer financial services, including
demand and term deposits, and loans to consumers, through 33 full-service
branches, all of which are located in Southern California, principally in Los
Angeles and Orange counties. The Company also provides residential mortgages and
consumer loans, which the Company does not underwrite or fund, by referral to
certain established providers of mortgage and consumer loan products with which
the Company has negotiated strategic alliances. In addition, through its
subsidiary, Gateway, a National Association of Securities Dealers, Inc. ("NASD")
registered broker/dealer, the Company provides customers with uninsured
investment products, including a number of mutual funds, annuities and unit
investment trusts. The principal executive offices of Bank Plus and Fidelity are
located at 4565 Colorado Boulevard, Los Angeles, California 90039, telephone
number (818) 241-6215.
RECENT DEVELOPMENTS
1995 Recapitalization
In the fourth quarter of 1995, Fidelity completed the 1995 Recapitalization of
the Bank, pursuant to which Fidelity raised approximately $134.4 million in net
new equity. As part of the 1995 Recapitalization, Fidelity adopted an
Accelerated Asset Resolution Plan which is designed to aggressively dispose of,
resolve or otherwise manage a pool of primarily multifamily loans. See "--
Accelerated Asset Resolution Plan."
Reorganization into Holding Company Structure
In May 1996, Fidelity completed the Reorganization pursuant to which all of
the outstanding common stock of Fidelity was converted on a one-for-one basis
into all of the outstanding common stock of Bank Plus, a recently formed
Delaware corporation, and Bank Plus became the holding company for Fidelity.
Effective May 17, 1996, Bank Plus Common Stock was listed on the Nasdaq National
Market ("NASDAQ") under the symbol "BPLS".
OTS Examinations
The Office of Thrift Supervision ("OTS") has completed its annual safety and
soundness examination and the Company is addressing the OTS' concerns.
Following the examination, the Company received notice that it is no longer
considered by the OTS to be an institution "requiring more than normal
supervision."
In the fourth quarter of 1995, the OTS completed the Compliance and Community
Reinvestment Act ("CRA") examinations of the Bank. The Bank has received a
satisfactory compliance rating. The Bank initially received a "needs
improvement" CRA rating. Management strongly disagreed with the examiners' CRA
findings, and the Bank formally requested the OTS to reevaluate its "needs
improvement" rating through the appeals process. On July 18, 1996, the OTS,
upon an internal review, reassessed the Bank's overall performance and upgraded
its rating to satisfactory. Notwithstanding this upgrade, the OTS indicated
that unless the Bank improves its lending activities in delineated lending
areas, it would likely receive an adverse rating in future examinations. The
Bank is evaluating various options to respond to the OTS' concerns. These
actions may include the purchase of whole loans for the Bank's portfolio and
other actions.
Business Strategy
The Company's business strategy is to (i) improve the quality of its loan
portfolio by reducing the level of problem assets through aggressive management
including execution of the Accelerated Asset Resolution Plan (as discussed
below), (ii) continue to increase operating efficiency by reducing and
maintaining lower levels of operating expenses and (iii) be a consumer-focused
provider of financial services, by enhancing its franchise to integrate its
traditional services and products (deposit services, checking and savings
accounts) with the offering of investment products by Gateway and consumer
credit products through strategic partners. As a part of such strategy,
management continues to explore new opportunities to expand the integrated sales
platform, to increase
8
fee income growth, and to build upon the use of technology in delivering
financial products and services. The Company is examining the use of various
electronic delivery systems and software to enhance customer convenience and the
Company's fee income opportunities.
The Company continues to evaluate its plan to purchase assets (loans and
securities) for the Bank of approximately $500 to $700 million during the second
half of 1996. The plan, in general terms, is based upon certain risk adjusted
return and liquidity objectives. This action is designed to increase the
Company's securities and loan portfolios to enhance the Company's earnings
capabilities. The proposed increase in earning assets may be at a lower
interest rate spread than the Company is currently yielding depending on
available financing sources. Accordingly, if the plan is implemented, the
Company's interest rate spread may decline. If management implements the plan,
it will be undertaken in a manner that is designed to maintain the current well-
capitalized status of the Bank.
Accelerated Asset Resolution Plan
The Company's business strategy includes the reduction of risk in the
Company's multifamily portfolio. As a part of the 1995 Recapitalization, the
Bank adopted the Accelerated Asset Resolution Plan designed to aggressively
dispose of, resolve or otherwise manage a pool of primarily multifamily loans
which generally have lower debt coverage ratios than the remainder of the Bank's
multifamily loan portfolio and thereby are considered by the Bank to have higher
risk of future nonperformance or impairment relative to the remainder of the
Bank's multifamily loan portfolio. This plan reflects both an acceleration in
estimated timing of resolution of assets within the pool, as well as a potential
change in recovery method from that which would be anticipated through the
normal course of business.
The Accelerated Asset Resolution Pool originally consisted of 411 assets with
an aggregate gross book value of approximately $213.3 million with Accelerated
Asset Resolution Pool reserves of $45 million. As of June 30, 1996, the
Accelerated Asset Resolution Pool consisted of 250 assets with an aggregate
gross book value of approximately $131.5 million, comprised primarily of
accruing and nonaccruing multifamily real estate loans and REO properties. As
of June 30, 1996, the Company had resolved assets with an aggregate gross book
value of $80.2 million, and utilized $13.5 million in Accelerated Asset
Resolution Pool reserves.
In an effort to maximize recovery on loans included in the accelerated
resolution pool, the Accelerated Asset Resolution Plan provides for a range of
possible methods of resolution including, but not limited to (i) the bulk sale
of loans, (ii) individual loan restructuring, which may include additional
extensions of credit or write-off of existing principal, (iii) foreclosure and
sale of collateral properties, and (iv) securitization of loans. While
resulting in reduced recoveries on certain assets, the Accelerated Asset
Resolution Plan is intended to reduce, among other things, levels of problem
assets, the related utilization of management resources, and direct and indirect
costs of credit administration and problem asset management. Execution of this
plan will allow management to focus on the Company's core operations.
Continued Reduction of Operating Expenses
During the first six months of 1996 as compared to the same 1995 period, the
Company reduced operating expenses by 13.2%, including reductions in personnel
expenses of 23.4%, which reflects a reduction of 25.5% in the six month average
number of full-time-equivalent employees (from 697 during 1995 to 519 during
1996).
During the second quarter of 1996, loan servicing rights were sold on
approximately $1.0 billion of the Company's single family loans. The gain on
the sale of the servicing is being deferred over the estimated life of the loans
included in the sale. As a result of this transaction, the Company reduced the
number of full-time equivalent employees in the servicing department by 14.
Insurance Premium Assessments
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
directed the Federal Deposit Insurance Corporation ("FDIC") to establish a risk-
based system for setting deposit insurance premium assessments. The FDIC has
implemented such a system, under which an institution's insurance assessments
will
9
vary depending on the level of capital the institution holds and the degree
to which it is the subject of supervisory concern to the FDIC.
Congress has discussed proposing legislation to address the disparity in bank
and thrift deposit insurance premiums. The proposed legislation would, among
other things, impose a requirement on all Savings Association Insurance Fund
("SAIF") member institutions to fully recapitalize the SAIF by paying a one-time
special assessment of approximately 80 basis points on all assessable deposits
as of a certain date.
While the outcome of the proposed legislation cannot be predicted with
certainty, it is possible that some kind of legislative or regulatory action
will be taken that will impact the Bank's insured deposits. A one-time special
assessment of 80 basis points would result in the Bank paying approximately $22
million in additional SAIF premiums, gross of related tax benefits, if any. The
enactment of such legislation may have the effect of immediately reducing the
regulatory capital of SAIF member institutions by the amount of the fee,
although provisions are included in the legislation that could exempt a savings
association from paying the assessment in a lump sum if the payment would result
in the association becoming undercapitalized. As of June 30, 1996, after giving
effect to the payment and deduction of an 80 basis point assessment, the Bank's
core and risk-based capital ratios would have been approximately 6.23% and
11.49%, respectively, and the Bank would have remained well capitalized under
the Prompt Corrective Action ("PCA") regulations.
Due to the uncertainty of the legislative process generally, management cannot
predict whether legislation reducing SAIF premiums and/or imposing a special
one-time assessment will be adopted, or, if adopted, the amount of the
assessment, if any, that would be imposed on the Bank.
RESULTS OF OPERATIONS
The Company reported earnings before dividends on preferred stock of
subsidiary of $2.2 million ($0.04 per common share after giving effect to the
dividends on preferred stock of subsidiary of $1.6 million, computed on the
basis of 18,242,465 weighted average common shares outstanding) for the quarter
ended June 30, 1996, and earnings before dividends on preferred stock of
subsidiary of $3.8 million ($0.04 per common share after giving effect to the
dividends on preferred stock of subsidiary of $3.1 million, computed on the
basis of 18,242,465 weighted average common shares outstanding) for the six
months ended June 30, 1996. This compares to a loss of $9.0 million ($1.39 per
common share; computed on the basis of 6,492,465 weighted average common shares
outstanding) for the second quarter of 1995 and a loss of $8.0 million ($1.23
per common share; computed on the basis of 6,492,465 weighted average common
shares outstanding) for the six months ended June 30, 1995.
Results of operations for the quarter ended June 30, 1996, as compared to the
same period in 1995, were favorably impacted by: (a) increased net interest
income of $4.9 million due primarily to the impact of increased interest rates
on the Company's interest-earning assets and lower interest rates on interest-
bearing liabilities; (b) decreased provisions for estimated loan losses of $7.2
million and (c) decreased operating expenses of $2.5 million. These favorable
variances were partially offset by a decrease in noninterest income of $3.3
million.
Results of operations for the six months ended June 30, 1996, as compared to
the same period in 1995, were favorably affected by: (a) increased net interest
income of $8.8 million, primarily due to the impact of increased interest rates
on the Company's interest-earning assets and lower interest rates on interest-
bearing liabilities; (b) decreased provisions for estimated loan losses of $7.3
million, and (c) decreased operating expenses of $5.0 million. These favorable
variances were partially offset by a reduction in noninterest income of $9.3
million, primarily due to: (a) decreased gains on sales of loans, investment
securities and mortgage-backed securities of $4.6 million; and (b) a gain on
sale of servicing of $4.3 million in the first quarter of 1995 with no
comparable amounts in 1996.
10
NET INTEREST INCOME
Net interest income is the difference between interest earned on loans,
mortgage-backed securities and investment securities ("interest-earning assets")
and interest paid on savings deposits and borrowings ("interest-bearing
liabilities").
For the quarter ended June 30, 1996, net interest income totaled $21.8
million, increasing by $4.9 million from $16.9 million for the comparable period
in 1995. For the six months ended June 30, 1996, net interest income totaled
$43.6 million, increasing by $8.8 million from $34.8 million for the comparable
period in 1995.
Net interest income is affected by (a) the average volume and repricing
characteristics of the Company's interest-earning assets and interest-bearing
liabilities, (b) the level and volatility of market interest rates, (c) the
level of nonaccruing loans ("NPLs") and (d) the interest rate spread between the
yields earned and the rates paid.
The following table presents the primary determinants of the Company's net
interest income for the three months ended June 30, 1996 and 1995:
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
DAILY YIELD/ DAILY YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans.............................................. $2,932,512 $54,096 7.38% $3,248,418 $57,504 7.08%
MBS................................................ 42,642 756 7.09 94,182 1,489 6.32
Investment securities.............................. 230,317 3,977 6.94 196,722 3,085 6.29
Investment in FHLB stock........................... 50,638 727 5.77 48,058 443 3.70
---------- ------- ---------- -------
Total interest-earning assets.................... 3,256,109 59,556 7.32 3,587,380 62,521 6.97
------- -------
Noninterest-earning assets........................... 70,712 93,879
---------- ----------
Total assets..................................... $3,326,821 $3,681,259
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits................................... $ 300,560 761 1.02 $ 302,336 662 0.88
Savings deposits.................................. 142,438 918 2.59 163,118 1,087 2.67
Time deposits..................................... 2,109,557 28,108 5.34 2,248,958 31,101 5.54
---------- ------- ---------- -------
Total deposits................................... 2,552,555 29,787 4.68 2,714,412 32,850 4.85
---------- ------- ---------- -------
Borrowings.......................................... 509,699 8,003 6.30 783,163 12,775 6.54
---------- ------- ---------- -------
Total interest-bearing liabilities............... 3,062,254 37,790 4.95 3,497,575 45,625 5.23
---------- ------- ---------- -------
Noninterest-bearing liabilities...................... 38,334 29,131
Stockholders' equity................................. 226,233 154,553
---------- ----------
Total liabilities and equity......................... $3,326,821 $3,681,259
========== ==========
Net interest income; interest rate spread............ $21,766 2.37% $16,896 1.74%
======= ==== ======= ====
Net yield on interest-earning assets
("net interest margin")............................. 2.66% 1.87%
==== =====
Average nonaccruing loan balance
included in average loan balance.................... $ 60,591 $ 81,711
=========== ===========
Net delinquent interest reserve removed
from interest income................................ $ 1,627 $ 1,713
======= =======
Reduction in net yield on interest-earning
assets due to delinquent interest
(in basis points)................................... 20 19
==== ===
11
The following table presents the primary determinants of the Company's net
interest income for the six months ended June 30, 1996 and 1995:
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1996 1995
------------------------------------ ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
DAILY YIELD/ DAILY YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- --------- -------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans.................................. $2,968,577 $110,276 7.43% $3,295,653 $112,959 6.86%
MBS.................................... 36,536 1,260 6.90 77,853 2,464 6.33
Investment securities.................. 188,978 6,699 7.13 202,847 6,492 6.45
Investment in FHLB stock............... 50,252 1,375 5.50 47,780 1,176 4.96
---------- -------- ---------- --------
Total interest-earning assets........ 3,244,343 119,610 7.38 3,624,133 123,091 6.80
-------- --------
Noninterest-earning assets.............. 61,364 92,964
---------- ----------
Total assets......................... $3,305,707 $3,717,097
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits....................... $ 302,602 1,516 1.00 $ 306,038 1,318 0.87
Savings deposits...................... 148,581 1,817 2.45 177,168 2,376 2.70
Time deposits......................... 2,112,847 57,489 5.46 2,209,599 57,589 5.24
---------- -------- ---------- --------
Total deposits....................... 2,564,030 60,822 4.76 2,692,805 61,283 4.59
---------- -------- ---------- --------
Borrowings............................. 477,145 15,184 6.38 839,439 26,983 6.48
---------- -------- ---------- --------
Total interest-bearing liabilities... 3,041,175 76,006 5.01 3,532,244 88,266 5.04
---------- -------- ---------- --------
Noninterest-bearing liabilities......... 37,153 29,637
Stockholders' equity.................... 227,379 155,216
---------- ----------
Total liabilities and equity......... $3,305,707 $3,717,097
========== ==========
Net interest income; interest rate
spread................................. $ 43,604 2.37% $ 34,825 1.76%
======== ===== ======== =====
Net yield on interest-earning assets
("net interest margin")................ 2.68% 1.89%
===== =======
Average nonaccruing loan balance
included in average loan balance....... $ 66,458 $ 81,035
========== ==========
Net delinquent interest reserve removed
from interest income................... $ 3,318 $ 3,010
======== =========
Reduction in net yield on
interest-earning assets due to
delinquent interest (in basis points).. 20 17
===== =====
12
The following tables present the dollar amount of changes in interest income
and expense for each major component of interest-earning assets and interest-
bearing liabilities and the amount of change attributable to changes in average
balances and average rates for the periods indicated. Because of numerous
changes in both balances and rates, it is difficult to allocate precisely the
effects thereof. For purposes of these tables, the change due to volume is
initially calculated as the change in average balance multiplied by the average
rate during the prior period and the change due to rate is calculated as the
change in average rate multiplied by the average volume during the prior period.
Any change that remains unallocated after such calculations is allocated
proportionately to changes in volume and changes in rates.
QUARTER ENDED JUNE 30, 1996 SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO JUNE 30, 1995 COMPARED TO JUNE 30, 1995
FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE)
------------------------------------ -------------------------------------
VOLUME RATE NET VOLUME RATE NET
----------- -------- ----------- ------------ -------- ---------
(DOLLARS IN THOUSANDS)
Interest income:
Loans............................ $(5,768) $2,360 $(3,408) $(11,685) $ 9,002 $(2,683)
Mortgage-backed securities....... (896) 163 (733) (1,409) 205 (1,204)
Investment securities............ 555 337 892 (461) 668 207
Investment in FHLB stock......... 25 259 284 64 135 199
------- ------ ------- -------- ------- -------
Total interest income......... (6,084) 3,119 (2,965) (13,491) 10,010 (3,481)
------- ------ ------- -------- ------- -------
Interest expense:
Deposits:
Demand deposits................. 4 (103) (99) 14 (212) (198)
Savings deposits................ 136 33 169 355 204 559
Time deposits................... 1,853 1,140 2,993 2,447 (2,347) 100
------- ------ ------- -------- ------- -------
Total deposits................ 1,993 1,070 3,063 2,816 (2,355) 461
Borrowings....................... 3,885 887 4,772 10,275 1,524 11,799
------- ------ ------- -------- ------- -------
Total interest expense........ 5,878 1,957 7,835 13,091 (831) 12,260
------- ------ ------- -------- ------- -------
Increase in net interest income... $ (206) $5,076 $ 4,870 $ (400) $ 9,179 $ 8,779
======= ====== ======= ======== ======= =======
The $4.9 million increase in net interest income between the second quarter
1996 and the second quarter 1995 was primarily the result of increased rates on
average interest-earning assets combined with decreased rates and level of
average interest-bearing liabilities. This was partially offset by a decline in
the level of interest-earning assets. The $8.8 million increase in net interest
income between the six months ended June 30, 1996 and the comparable period in
1995 was primarily due to increased rates on average interest-earning assets
combined with a decline in the average level of interest-bearing liabilities.
This was partially offset by a decline in the level of interest-earning assets
and increased rates on interest-bearing liabilities.
The rates on interest-earning assets and interest-bearing liabilities of the
Company both tend to rise or fall in step with the Federal Home Loan Bank
("FHLB") Eleventh District Cost of Funds Index ("COFI"), the index to which most
of the Company's loans are tied. However, due to reporting and contractual
look-back periods contained in the Company's loan documents, the 93% of the
Company's loans which are indexed to COFI, as with all COFI portfolios in the
industry, do not reprice until some time after the industry liabilities
composing COFI reprice. The Company's liabilities reprice in the same period as
the cost of funds of institutions which comprise the FHLB Eleventh District. In
the Company's case, the lag between the repricing of its liabilities and its
adjustable rate mortgage ("ARM") loans indexed to COFI is approximately four
months. As such, when rates rise sharply there will be upward pressure on rates
paid on deposit accounts and wholesale borrowings, and the Company's net
interest income will be adversely affected until the majority of its interest-
earning assets fully reprice. Conversely, in a falling interest rate
environment, net interest income will be positively affected. As interest rates
continued to fall in the second quarter 1996, the Company's liabilities
continued to reprice at lower rates throughout the quarter.
13
ASSET/LIABILITY MANAGEMENT
To reduce fluctuations in net interest income, the Company maintains a loan
portfolio with a yield that generally fluctuates in step with the cost of its
liabilities. The Company has traditionally accomplished this by originating and
purchasing primarily ARM loans for its portfolio. ARM loans comprised 97% of
the total loan portfolio at June 30, 1996. All else being equal, to the extent
that the composition of the Company's liabilities parallels the composition of
COFI, changes in the Company's cost of funds should parallel changes in COFI.
However, due to the lag in COFI-based ARMs repricing discussed above and
depending upon the level of increase or decrease in interest rates, interim
disparities do occur. The decline in short-term rates from 1990 to early 1993
contributed significantly to the Company's net interest margin. Subsequent
increases in rates have caused a reduction in net interest income. If interest
rates were to increase again, the Company's net interest income may again be
negatively impacted.
The Company may employ interest rate swaps, caps and floors in the management
of interest rate risk. Interest rate swaps generally involve the exchange of
fixed or floating interest payments without the exchange of the underlying
principal amounts. Interest rate caps and floors generally involve the payment
of a one-time premium to a counterparty who, if interest rates rise or fall
above or below a predetermined level, will make payments to the Company at an
agreed upon rate for the term of the agreement until such time as interest rates
fall below or rise above the cap or floor level.
During the first quarter of 1995, the Bank terminated interest rate swap
agreements with a notional amount of $700 million, resulting in a deferred gain
of $1.2 million, which was fully amortized in 1995. Also, during the fourth
quarter of 1995, the Bank terminated the remaining interest swap agreements with
a notional amount of $446.7 million and as a result recorded a deferred loss of
$3.2 million being amortized over the original term of the interest swap
agreements. There were no outstanding interest rate swap agreements at June 30,
1996.
14
The following table sets out the maturity and rate sensitivity of the
Company's interest-earning assets and interest-bearing liabilities as of June
30, 1996. "Gap," as reflected in the table, represents the estimated difference
between the amount of interest-earning assets and interest-bearing liabilities
repricing during future periods and based on certain assumptions, including
those stated in the notes to the table.
MATURITY AND RATE SENSITIVITY ANALYSIS
AS OF JUNE 30, 1996
MATURITY OR REPRICING
---------------------------------------------------------------------------------------
WITHIN 3 4-12 1-5 6-10 OVER 10
MONTHS MONTHS YEARS YEARS YEARS TOTAL
---------- ---------- --------- --------- --------- ------------
INTEREST-EARNING ASSETS:
Cash................................... $ 13,973 $ -- $ -- $ -- $ -- $ 13,973
Investment securities(1)(2)............ 50,752 2,240 166,359 9,977 42,031 271,359
MBS(1)................................. 41,312 2,517 -- -- 3,693 47,522
Loans receivable:
ARMs and other adjustables(3)........ 2,320,940 349,670 143,782 2,678 113 2,817,183
Fixed rate loans..................... 459 2,364 7,532 13,276 55,055 78,686
---------- ----------- -------- -------- -------- ----------
Total gross loans receivable....... 2,321,399 352,034 151,314 15,954 55,168 2,895,869
---------- ------------ -------- -------- -------- ----------
Total............................ 2,427,436 356,791 317,673 25,931 100,892 $3,228,723
---------- ------------ -------- -------- -------- ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts(4)..... 351,960 -- -- -- -- $ 351,960
Money market accounts(4)............. 78,870 -- -- -- -- 78,870
Fixed maturity deposits:
Retail customers................. 423,181 1,562,282 121,595 432 254 2,107,744
Wholesale customers............. 3,079 3,125 8,168 -- -- 14,372
---------- ------------ -------- -------- -------- ----------
Total deposits................... 857,090 1,565,407 129,763 432 254 2,552,946
---------- ------------ -------- -------- -------- ----------
Borrowings:
FHLB advances(3)..................... 212,700 -- 20,000 -- -- 232,700
Other................................ 112,357 140,000 -- -- -- 252,357
---------- ------------ -------- -------- -------- ----------
Total borrowings................. 325,057 140,000 20,000 -- -- 485,057
---------- ------------ -------- -------- -------- ----------
Total.......................... 1,182,147 1,705,407 149,763 432 254 $3,038,003
---------- ------------ -------- -------- -------- ==========
REPRICING GAP............................ $1,245,289 $(1,348,616) $167,910 $ 25,499 $100,638
========== ============ ======== ======== ========
GAP TO TOTAL ASSETS...................... 37.77% (40.91)% 5.09% .77% 3.05%
========== ============ ======== ======== ========
CUMULATIVE GAP TO TOTAL ASSETS........... 37.77% (3.14)% 1.95% 2.72% 5.77%
========== ============ ======== ======== ========
- ------------------
(1) Repricings shown are based on the contractual maturity or repricing
frequency of the instrument.
(2) Investment securities include FHLB stock of $50.8 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.
The Company's interest rate risk is reviewed on an ongoing basis. At March 31,
1996, the latest date for which information is available, the Company's interest
rate sensitivity measure was in the 5th percentile (only 10% of institutions
were less sensitive) of all institutions supervised by the OTS, as measured by
the OTS' interest rate risk model. Due to the Company's level of interest rate
risk, the Bank would not have been required to include an interest rate risk
component in its risk-based capital had the new regulation regarding such
inclusion been in effect at June 30, 1996. See "-- Regulatory Capital
Compliance."
15
ASSET QUALITY
The Company's loan portfolio is primarily located in Southern California and
is comprised principally of single family and multifamily (2 units or more)
residential loans. At June 30, 1996, 19% of the Company's real estate loan
portfolio consisted of California single family residences, while another 11%
and 62% consisted of California multifamily dwellings of 2 to 4 units and 5 or
more units, respectively. At June 30, 1995, 20% of the Company's real estate
loan portfolio consisted of California single family residences while another
11% and 61% consisted of California multifamily dwellings of 2 to 4 units and 5
or more units, respectively.
The performance of the Company's multifamily and commercial loan portfolios
has been adversely affected by Southern California economic conditions. These
portfolios are particularly susceptible to the potential for further declines in
the Southern California economy, such as increasing vacancy rates, declining
rents, increasing interest rates, declining debt coverage ratios, and declining
market values for multifamily and commercial properties. In addition, the
possibility that investors may abandon properties or seek bankruptcy protection
with respect to properties experiencing negative cash flow, particularly where
such properties are not cross-collateralized by other performing assets, can
also adversely affect the multifamily loan portfolio.
California has been hit particularly hard by adverse economic conditions and
Southern California has experienced the brunt of the economic downturn in the
state. The Southern California economy continued to be characterized by higher
unemployment than the national and state averages and real estate values that,
in some cases, continue to decline. There can be no assurances that these
economic conditions will improve in the near future as many factors key to
recovery may be impacted adversely by the Federal Reserve Board's interest rate
policy as well as other factors. Consequently, rents and real estate values may
not stabilize, which may affect future delinquency and foreclosure levels and
may adversely impact the Company's asset quality, earnings performance and
capital levels.
16
During the second quarter of 1996, total delinquent loans increased $8.0
million, or 12.0%, from March 31, 1996. The following table presents loan
delinquencies by number of days delinquent and by property type as of the dates
indicated. All assets are reported net of specific reserves and writedowns.
Management believes the increase at June 30, 1996 in the 30 to 59 days
delinquent category was primarily the result of the sale of servicing of the
single family portfolio to an outside party which resulted in a temporary
disruption of the collection process.
JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1995
--------- ---------- -------------
(DOLLARS IN THOUSANDS)
Delinquencies by number of days:
30 to 59 days.......................................... 0.82%(1) 0.59% 0.43%
60 to 89 days.......................................... 0.28 0.33 0.24
90 days and over....................................... 1.52 1.37 1.74
------- ------- -------
Loan delinquencies to net loan portfolio................. 2.62% 2.29% 2.41%
======= ======= =======
Delinquencies by property type:
Single family:
30 to 59 days.......................................... $10,099 (1) $ 4,285 $ 4,283
60 to 89 days.......................................... 2,052 1,704 924
90 days and over....................................... 6,306 5,897 7,226
------- ------- -------
18,457 11,886 12,433
------- ------- -------
Percent to applicable loan portfolio.................. 3.38% 2.09% 2.10%
Multifamily (2 to 4 units):
30 to 59 days.......................................... 2,169 1,914 1,748
60 to 89 days.......................................... 1,508 1,735 282
90 days and over....................................... 4,453 4,951 6,671
------- ------- -------
8,130 8,600 8,701
------- ------- -------
Percent to applicable loan portfolio.................. 2.50% 2.60% 2.57%
Multifamily (5 to 36 units):
30 to 59 days.......................................... 8,978 8,427 5,434
60 to 89 days.......................................... 4,466 5,128 5,801
90 days and over....................................... 24,989 20,698 14,312
------- ------- -------
38,433 34,253 25,547
------- ------- -------
Percent to applicable loan portfolio.................. 2.65% 2.33% 1.71%
Multifamily (37 units and over):
30 to 59 days.......................................... -- 698 304
60 to 89 days.......................................... -- -- --
90 days and over....................................... 4,019 4,720 3,190
------- ------- -------
4,019 5,418 3,494
------- ------- -------
Percent to applicable loan portfolio.................. 1.27% 1.67% 1.07%
Commercial and Industrial:
30 to 59 days.......................................... 2,221 1,811 958
60 to 89 days.......................................... -- 985 213
90 days and over....................................... 3,525 3,845 20,511 (2)
------- ------- -------
5,746 6,641 21,682
------- ------- -------
Percent to applicable loan portfolio.................. 2.67% 2.94% 9.26%
Total loan delinquencies, net............................ $74,785 $66,798 $71,857
======= ======= =======
Loan delinquencies to net loan portfolio................. 2.62% 2.29% 2.41%
======= ======= =======
- -------------------
(1) Management believes the increase at June 30, 1996 in the 30 to 59 days
delinquent category was primarily the result of the sale of servicing of the
single family portfolio to an outside party which resulted in a temporary
disruption of the collection process.
(2) Includes two loans on one hotel property with a total balance of $15.9
million.
17
The following table presents net delinquent loans at the dates indicated:
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1996 1996 1995(1) 1995(1) 1995(1)
------------- --------- ------------- -------------- ---------
(DOLLARS IN THOUSANDS)
Number of days delinquent:
30 to 59 days.............. $23,467(2) $17,135 $12,727 $17,963 $ 9,567
60 to 89 days.............. 8,026 9,552 7,220 8,379 10,343
90 days and over........... 43,292 40,111 51,910 54,313 64,827
------- ------- ------- ------- -------
Total delinquencies..... $74,785 $66,798 $71,857 $80,655 $84,737
======= ======= ======= ======= =======
- --------------------
(1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
(2) Management believes the increase at June 30, 1996 in the 30 to 59 days
delinquent category was primarily the result of the sale of servicing of the
single family portfolio to an outside party which resulted in a temporary
disruption of the collection process.
Total classified assets increased $99.7 million or 45.5% from December 31,
1995, to $318.8 million at June 30, 1996. This increase was primarily due to an
increase of $104.2 million in performing classified assets during the first six
months of 1996 as a result of the continued implementation of the loan grading
system. This enhanced grading process, started in the second half of 1995,
involved a substantial portion of the loan portfolio and as a result downgraded
a considerable number of loans to Special Mention or Substandard for reasons
other than degradation of collateral or the borrower's ability to fully repay
the debt. This increase was partially offset by a decrease in nonperforming
assets ("NPAs") of $7.6 million during the first six months of 1996. The ratio
of NPAs to total assets decreased from 2.16% at December 31, 1995, to 1.94% at
June 30, 1996. This decrease is primarily due to reduced levels of
nonperforming loans ("NPLs") at June 30, 1996, compared to December 31, 1995.
This level of classified assets continues to cause management concern and will
continue to receive specific attention. See "-- Accelerated Asset Resolution
Plan." All assets and ratios are reported net of specific reserves and
writedowns unless otherwise stated. The following table presents asset quality
details at the dates indicated:
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1996 1996 1995(1) 1995(1) 1995(1)
------------- --------- ------------- -------------- ---------
(DOLLARS IN THOUSANDS)
NPAs by Type:
NPLs.............................. $ 43,292 $ 40,111 $ 51,910 $ 55,114 $ 64,944
REO, net of REO general valuation
allowance ("GVA")................ 20,519 23,533 19,521 37,550 27,808
-------- -------- -------- -------- --------
Total NPAs....................... $ 63,811 $ 63,644 $ 71,431 $ 92,664 $ 92,752
======== ======== ======== ======== ========
NPAs by Composition:
Single family residences.......... $ 9,108 $ 9,461 $ 10,178 $ 12,396 $ 10,627
Multifamily 2 to 4 units.......... 7,750 10,197 9,269 11,266 10,593
Multifamily 5 units and over...... 37,730 34,202 25,923 36,956 37,987
Commercial and other.............. 9,923 10,184 28,361 32,046 33,545
REO GVA........................... (700) (400) (2,300) -- --
-------- -------- -------- -------- --------
Total NPAs....................... 63,811 63,644 71,431 92,664 92,752
Total troubled debt restructurings
("TDRs")......................... 57,079 53,745 32,691 47,340 47,991
-------- -------- -------- -------- --------
Total TDRs and NPAs.............. $120,890 $117,389 $104,122 $140,004 $140,743
======== ======== ======== ======== ========
Classified Assets:
NPAs.............................. $ 63,811 $ 63,644 $ 71,431 $ 92,664 $ 92,752
Performing classified loans....... 251,847 222,279 147,646 88,337 74,140
Other classified assets........... 3,100 2,979 -- -- --
-------- -------- -------- -------- --------
Total classified assets.......... $318,758 $288,902 $219,077 $181,001 $166,892
======== ======== ======== ======== ========
Classified Asset Ratios:
NPLs to total assets.............. 1.31% 1.22% 1.57% 1.63% 1.88%
NPAs to total assets.............. 1.94% 1.94% 2.16% 2.74% 2.68%
TDRs to total assets.............. 1.73% 1.64% 0.99% 1.40% 1.39%
NPAs and TDRs to total assets..... 3.67% 3.58% 3.16% 4.14% 4.06%
Classified assets to total assets. 9.67% 8.81% 6.64% 5.35% 4.82%
REO to NPAs....................... 32.16% 36.98% 27.33% 40.52% 29.98%
NPLs to NPAs...................... 67.84% 63.02% 72.67% 59.48% 70.02%
- -----------------
(1) Includes two loans on one hotel property with a total balance of $15.9
million for all 1995 periods presented.
18
Direct costs of foreclosed real estate operations totaled $1.2 million and
$1.4 million for the three months ended June 30, 1996, and 1995, respectively,
and $3.0 million for both the six months ended June 30, 1996 and 1995. The
following table provides information about the change in the book value and the
number of properties owned and foreclosed for the periods indicated:
AT OR FOR THE QUARTER AT OR FOR THE SIX
ENDED JUNE 30, MONTHS ENDED JUNE 30,
---------------------- -----------------------
1996 1995 1996 1995
------- ------- -------- -------
(DOLLARS IN THOUSANDS)
REO net book value....................................... $20,519 $27,808 $20,519 $27,808
(Decrease) increase in REO for the period................ $(3,014) $ 6,458 $(1,302) $13,693
Number of real properties owned.......................... 120 128 120 128
(Decrease) increase in number of properties owned
for the period.......................................... (11) 55 11 64
Number of properties foreclosed for the period........... 53 91 122 129
Gross book value of properties foreclosed................ $15,819 $25,756 $36,383 $42,498
Average gross book value of properties foreclosed........ $ 298 $ 283 $ 298 $ 329
19
The following table summarizes the Company's reserves, writedowns and certain
coverage ratios at the dates indicated:
JUNE 30, DECEMBER 31, JUNE 30,
1996 1995 1995
-------- ----------- --------
(DOLLARS IN THOUSANDS)
Loans:
GVA................................................................. $32,053 $48,921 $40,000
Specific reserves................................................... 41,669(1) 40,514 22,955
------- ------- -------
Total allowance for estimated losses.............................. $73,722 $89,435(2) $62,955
======= ======= =======
Writedowns (3)...................................................... $ 316 $ 316 $ 322
======= ======= =======
Total allowance and loan writedowns to gross loans.................. 2.54% 2.96% 2.01%
Total loan allowance to gross loans (3)............................. 2.53% 2.95% 2.00%
Loan GVA to loans (4)............................................... 1.13% 1.64% 1.28%
Loan GVA to NPLs.................................................... 74.04% 94.24% 61.59%
NPLs to total loans................................................. 1.54% 1.77% 2.11%
Real Estate Owned:
REO GVA............................................................. $ 700 $ 2,300 $ --
Specific reserves................................................... 3,050 1,192 832
------- ------- -------
Total allowance for estimated losses.............................. $ 3,750 $ 3,492 $ 832
======= ======= =======
Writedowns (3)...................................................... $17,321 $17,584 $19,937
======= ======= =======
Total REO allowance and REO writedowns to gross REO................. 50.66% 51.92% 42.75%
Total REO allowance to gross REO (5)................................ 15.45% 15.17% 2.91%
REO GVA to REO (4).................................................. 3.30% 10.54% --%
Total Loans and REO:
GVA................................................................. $32,753 $51,221 $40,000
Specific reserves................................................... 44,719 41,706 23,787
------- ------- -------
Total allowance for estimated losses.............................. $77,472 $92,927 $63,787
======= ======= =======
Writedowns (3)...................................................... $17,637 $17,900 $20,259
======= ======= =======
Total allowance and writedowns to gross loans and REO............... 3.22% 3.60% 2.62%
Total allowance to gross loans and REO (4).......................... 2.64% 3.04% 2.00%
Total GVA to loans and REO.......................................... 1.14% 1.70% 1.27%
Total GVA to NPAs................................................... 50.77% 69.47% 43.13%
- ---------------
(1) Includes specific reserves on non-mortgage loans totaling $0.02 million.
(2) The allowance for estimated loan losses includes the effect of the $45
million reserve established in 1995 in connection with the adoption of the
Accelerated Asset Resolution Plan.
(3) Writedowns include cumulative charge-offs on outstanding loans and REO as of
the date indicated.
(4) Loans and REO, as applicable, in these ratios are calculated prior to their
reduction for loan and REO GVA, respectively, but are net of specific
reserves and writedowns.
(5) Net of writedowns.
20
The following schedules summarize the activity in the Company's allowances for
estimated loan and real estate losses:
QUARTER ENDED JUNE 30,
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ ---------- ---------- ------------ ---------
(DOLLARS IN THOUSANDS)
Balance on April 1, .......... $ 81,430 $ 3,093 $ 84,523 $ 62,834 $ 2,029 $ 64,863
Provision for losses......... 3,905 579 4,484 11,131 1,153 12,284
Charge-offs.................. (10,582) (1,904) (12,486) (11,923) (2,350) (14,273)
Allocation from GVA to REO... (1,982) 1,982 -- -- -- --
Recoveries and other......... 951 -- 951 913 -- 913
-------- ------- -------- -------- ------- --------
Balance on June 30,........... $ 73,722 $ 3,750 $ 77,472 $ 62,955 $ 832 $ 63,787
======== ======= ======== ======== ======= ========
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS)
Balance on January 1, ........ $ 89,435 $ 3,492 $ 92,927 $ 67,202 $ 2,318 $ 69,520
Provision for losses......... 7,805 1,247 9,052 15,151 1,544 16,695
Charge-offs.................. (22,704) (3,295) (25,999) (21,396) (3,030) (24,426)
Allocation from GVA to REO... (2,306) 2,306 -- -- -- --
Recoveries and other......... 1,492 -- 1,492 1,998 -- 1,998
-------- ------- -------- -------- ------- --------
Balance on June 30,........... $ 73,722 $ 3,750 $ 77,472 $ 62,955 $ 832 $ 63,787
======== ======= ======== ======== ======= ========
The following table details the activity affecting specific loss reserves for
the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------------------------ -------------------------------------
REAL ESTATE REAL ESTATE
LOANS OWNED TOTAL LOANS OWNED TOTAL
---------- ------------ --------- -------- ------------ ----------
(DOLLARS IN THOUSANDS)
Balance at beginning of
period........................ $ 43,228 $ 2,693 $ 45,921 $ 40,514 $ 1,192 $ 41,706
Allocations from GVA to
specific reserves........... 9,023 2,261 11,284 23,859 5,153 29,012
Charge-offs.................. (10,582) (1,904) (12,486) (22,704) (3,295) (25,999)
-------- ------- -------- -------- ------- --------
Balance at end of period
indicated..................... $ 41,669 $ 3,050 $ 44,719 $ 41,669 $ 3,050 $ 44,719
======== ======= ======== ======== ======= ========
21
NONINTEREST INCOME (EXPENSE)
Noninterest income has three major components: (a) noninterest income from
ongoing operations, which includes loan fee income, gains or losses on loans
held for sale, fees earned on the sale of securities and annuities and retail
banking fees, (b) income/expenses associated with REO, which includes both the
provision for real estate losses as well as income/expenses incurred by the
Company associated with the operation of its REO properties and (c) gains and
losses on the sales of loan servicing, investment securities and mortgage-backed
securities. Items (b) and (c) can fluctuate widely, and could therefore mask the
underlying fee generating performance of the Company on an ongoing basis.
Net noninterest income decreased by $3.3 million from net noninterest income
of $4.2 million in the second quarter 1995 to net noninterest income of $0.9
million in the second quarter 1996. The major components of this decrease are:
(a) net gains on loan sales decreased in the second quarter of 1996 by $0.9
million from the second quarter of 1995; (b) net gains on sales of mortgage-
backed securities decreased in the second quarter of 1996 by $1.0 million from
the 1995 second quarter and (c) net gains on securities activities in the second
quarter of 1996 decreased by $1.9 million from the 1995 second quarter. The
increased sales activity in loans, mortgage-backed securities and investment
securities in 1995 was primarily for regulatory capital maintenance purposes.
This was partially offset by decreased real estate provisions and costs of $0.7
million as a result of decreased levels of REO properties.
Net noninterest income decreased by $9.3 million from net noninterest income
of $10.5 million in the six months ended June 30, 1995 to net noninterest income
of $1.2 million in the six months ended June 30, 1996. The major components of
this decrease are: (a) other noninterest income (expense) decreased by $4.0
million as a result of a net gain of $4.3 million realized from the sale of
$435.8 million in rights to service loans for others in the first quarter of
1995, with no comparable amounts in 1996; (b) loan service fees decreased by
$1.1 million in the first six months of 1996 from the 1995 six month period
primarily as a result of the sale of the rights to service loans in the first
quarter of 1995; (c) net gains on loan sales decreased in the first six months
of 1996 by $0.6 million from first six months of 1995; (d) net gains on sales of
mortgage-backed securities decreased in the first six months of 1996 by $1.0
million from the 1995 six month period and (e) net gains on securities
activities in the first six months of 1996 decreased by $2.9 million from the
1995 six month period. The increased sales activity in loans, mortgage-backed
securities and investment securities in 1995 was primarily for regulatory
capital maintenance purposes. This was partially offset by decreased real
estate provisions and costs of $0.3 million as a result of decreased levels of
REO properties.
OPERATING EXPENSES
Operating expenses decreased by $2.5 million to $16.5 million for the second
quarter 1996 compared to $19.0 million for the second quarter 1995. The change
was primarily due to (a) a $1.8 million decrease in personnel and benefit
expense due to a decline of 177 or 26.0% in the three month average number of
full-time equivalent employees; (b) a decrease of $0.5 million in occupancy
costs; (c) a decrease of $0.6 million in marketing expenses and (d) a decrease
of $0.3 million in office-related expenses. These favorable variances were
partially offset by an increase of $0.7 million in professional services and
other costs.
Operating expenses decreased by $5.0 million to $33.2 million for the six
months ended June 30, 1996 compared to $38.2 million for the same six months of
1995. The change was primarily due to (a) a $4.2 million decrease in personnel
and benefit expense due to a decline of 178 or 25.5% in the six month average
number of full-time equivalent employees; (b) a decrease of $0.7 million in
occupancy costs; (c) a decrease of $0.9 million in marketing expenses and (d) a
decrease of $0.5 million in office-related expenses. These favorable variances
were partially offset by an increase of $1.3 million in professional services
and other costs.
Decreased operating expenses resulted in a decrease in the annualized
operating expense ratio to 2.00% for the six months ended June 30, 1996 from
2.07% for the same period in 1995, notwithstanding the decrease in total average
asset size of the Company (from $3.7 billion for the six months ended June 30,
1995 to $3.3 billion for the six months ended June 30, 1996).
22
Due to the sensitivity of the operating expense ratio to changes in the size
of the balance sheet, management also looks at trends in the efficiency ratio to
assess the changing relationship between operating expenses and income. The
efficiency ratio measures the amount of cost expended by the Company to generate
a given level of revenues in the normal course of business. It is computed by
dividing total operating expense by net interest income and noninterest income,
excluding infrequent items. A decrease in the efficiency ratio is favorable as
it indicates that less expenses were incurred to generate a given level of
revenue.
The efficiency ratio improved to 68.06% for the second quarter 1996 from
95.73% for the second quarter 1995. The efficiency ratio also improved between
the six months ended June 30, 1995 and June 30, 1996 from 92.46% to 67.77%.
This decrease was due to increased net interest income and decreased operating
expense, which were partially offset by decreased net noninterest income
(expense).
INCOME TAXES
The Company's combined federal and state statutory tax rate is approximately
42.4% of earnings before income taxes. The effective tax rates of 2.3% and 2.4%
on earnings before income taxes for the quarter and six months ended June 30,
1996, respectively, reflect the utilization of federal and state net operating
loss carryforwards offset by alternative minimum tax for financial reporting
purposes. The income tax provision for both the quarter and six months ended
June 30, 1995, reflects only the state minimum corporation taxes.
Due to the 1995 Recapitalization and the restructuring and recapitalization
completed in the third and fourth quarters of 1994 (the "1994 Restructuring and
Recapitalization"), the utilization in future periods of net operating loss
carryforwards generated prior to these events will be limited.
REGULATORY CAPITAL COMPLIANCE
The FDICIA required the OTS to implement a system providing for regulatory
sanctions against institutions that are not adequately capitalized. The severity
of these sanctions increases to the extent that an institution's capital
continues to decline. Under FDICIA, the OTS issued the PCA Regulations which
established specific capital ratios for five separate capital categories as set
forth below:
CORE CAPITAL TO CORE CAPITAL
ADJUSTED TO TOTAL CAPITAL
TOTAL ASSETS RISK-WEIGHTED TO
(LEVERAGE RATIO) ASSETS RISK-WEIGHTED ASSETS
---------------- -------------- ---------------------
Well capitalized................. 5% or above 6% or above 10% or above
Adequately capitalized........... 4% or above 4% or above 8% or above
Undercapitalized................. Under 4% Under 4% Under 8%
Significantly undercapitalized... Under 3% Under 3% Under 6%
Critically undercapitalized...... Ratio of tangible equity to adjusted total assets of 2% or less
The following table summarizes the capital ratios required by FDICIA for an
institution to be considered well capitalized and the Bank's regulatory capital
at June 30, 1996 as compared to such ratios.
TANGIBLE CAPITAL CORE CAPITAL TO CORE CAPITAL TO TOTAL CAPITAL TO
TO ADJUSTED ADJUSTED RISK-WEIGHTED RISK-WEIGHTED
TOTAL ASSETS TOTAL ASSETS ASSETS ASSETS
--------------------- --------------------- ---------------------- ----------------------
BALANCE % BALANCE % BALANCE % BALANCE %
----------- ------- ----------- ------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
Fidelity's regulatory capital... $ 225,600 6.85% $ 225,900 6.86% $ 225,900 11.32% $ 250,900 12.58%
Well capitalized requirement.... 98,800 3.00% 164,700 5.00% 119,700 6.00% 199,600 10.00%
---------- ----- ---------- ---- ---------- ------ ---------- -----
Excess capital.................. 126,800 3.85% $ 61,200 1.86% $ 106,200 5.32% $ 51,300 2.58%
========== ===== ========== ==== ========== ====== ========== =====
Adjusted assets (1)............. $3,293,200 $3,293,500 $1,995,500 $1,995,500
========== ========== ========== ==========
- ----------------
(1) The term "adjusted assets" refers to the term "adjusted total assets" as
defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core
capital requirements, and refers to the term "risk-weighted assets" as
defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital
requirements.
23
The proposed changes discussed in "Recent Developments--Insurance Premium
Assessments" would also have an impact on the Bank's capital ratios. As of June
30, 1996, after giving effect to the payment and deduction of an 80 basis point
SAIF deposit assessment, the Bank's core and risk-based capital ratios would
have been approximately 6.23% and 11.49%, respectively, and the Bank would have
continued to meet the minimum numerical requirements to remain well-capitalized
under the PCA Regulations.
FDICIA also required the OTS and the federal bank regulatory agencies to
revise their risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk, and risks
of nontraditional activities. Effective January 1, 1994, the OTS incorporated an
interest rate risk component into its regulatory capital rule. Under the revised
rule, savings institutions with "above-normal" interest rate risk exposure would
be subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. An institution's interest rate risk is measured
by the decline in the net present value ("NPV") of its assets that would result
from a hypothetical 200-basis point increase or decrease in market interest
rates divided by the estimated economic value of a bank's assets, as calculated
in accordance with guidelines set forth by the OTS. An institution whose
measured interest rate risk exposure exceeds 2% would be required to deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of a bank's assets. That dollar
amount would be deducted from a bank's total capital in calculating compliance
with its risk-based capital requirement. Under the rule, there is a lag between
the reporting date of an institution's financial data and the effective date for
the new capital requirement based on that data. However, the OTS has temporarily
postponed the implementation of the new rule until the OTS has collected
sufficient data to determine whether the rule is effective in monitoring and
managing interest rate risk. No interest rate risk component would have been
required to be added to the Bank's risk-based capital requirement at March 31,
1996, the latest date for which this information is available, had the rule been
in effect at that time. Effective in January 1995, the OTS amended the risk-
based capital standards by explicitly identifying concentration of credit risk
and the risks arising from nontraditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy.
24
The Bank is also subject to OTS capital regulations under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). These
regulations require the Bank to maintain: (a) tangible capital of at least 1.5%
of adjusted total assets (as defined in the regulations), (b) core capital of at
least 3% of adjusted total assets (as defined in the regulations) and (c) total
capital of at least 8.0% of risk-weighted assets (as defined in the
regulations).
RISK-BASED
TANGIBLE CAPITAL CORE CAPITAL CAPITAL
--------------------- --------------------- -------------------------
BALANCE % BALANCE % BALANCE %
---------- -------- ----------- ------ ---------- -------
(DOLLARS IN THOUSANDS)
Stockholders' equity (1).................... $ 224,000 $ 224,000 $ 224,000
Unrealized losses on securities............. 2,100 2,100 2,100
Adjustments
Intangible assets......................... (300) -- --
Nonqualifying mortgage servicing rights... (100) (100) (100)
Nonincludable subsidiaries................ (100) (100) (100)
General valuation reserves................ -- -- 25,000
---------- ---------- ----------
Regulatory capital (2)...................... 225,600 6.85% 225,900 6.86% 250,900 12.58%
Required minimum............................ 49,400 1.50% 98,800 3.00% 159,600 8.00%
---------- ---- ---------- ---- ---------- -----
Excess capital.............................. $ 176,200 5.35% $ 127,100 3.86% $ 91,300 4.58%
========== ==== ========== ==== ========== =====
Adjusted assets (3)......................... $3,293,200 $3,293,500 $1,995,500
========== ========== ==========
(1) The Bank's total stockholders' equity, in accordance with generally accepted
accounting principles, was 6.80% of its total assets at June 30, 1996.
(2) Both the OTS and the FDIC may examine the Bank as part of their legally
prescribed oversight of the industry. Based on their examinations, the
regulators can direct that the Bank's financial statements be adjusted in
accordance with their findings.
(3) The term "adjusted assets" refers to the term "adjusted total assets" as
defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core
capital requirements, and refers to the term "risk-weighted assets" as
defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital
requirements.
CAPITAL RESOURCES AND LIQUIDITY
Sales of Loans: There were no sales of loans from the held for sale
portfolio in the six months ended June 30, 1996 compared to $46.4 million for
the six months ended June 30, 1995. Sales of loans are dependent upon various
factors, including volume of loans originated, interest rate movements, investor
demand for loan products, deposit flows, the availability and attractiveness of
other sources of funds, loan demand by borrowers, desired asset size and
evolving capital and liquidity requirements. Due to the volatility and
unpredictability of these factors, the volume of the Company's sales of loans
has fluctuated significantly and no estimate of future sales can be made at this
time. At June 30, 1996, the Company had no loans held for sale. Sales of loans
from the held for investment portfolio would be caused by unusual events. The
level of future sales, if any, is difficult to predict.
During the first and second quarters of 1995, the Bank securitized $46.4
million and $66.4 million, respectively, of single-family adjustable rate
mortgages through a swap of whole loans for mortgage-backed securities which are
held in the Bank's available for sale portfolio.
FHLB Advances: The Company had net repayments of FHLB advances of $60.0
million for the six months ended June 30, 1996. This compares to net repayments
of $40.0 million for the six months ended June 30, 1995.
Commercial paper: Commercial paper outstanding was increased by $49.0 million
for the six months ended June 30, 1996 from December 31, 1995 and reduced by
$241.4 million for the six months ended June 30, 1995 from December 31, 1994.
25
Loan payments and payoffs: Loan principal payments, including prepayments and
payoffs, provided $125.0 million for the six months ended June 30, 1996 compared
to $87.8 million for the same period in 1995. The Company expects that loan
payments and prepayments will remain a significant funding source.
Sales of securities: The sale of investment securities and MBS provided $20.2
million for the six months ended June 30, 1996 compared to $264.4 million in
sales during the same period in 1995. The Company held $268.1 million in its
available for sale portfolio as of June 30, 1996, compared to $126.0 million at
December 31, 1995, and $144.6 million at June 30, 1995.
Undrawn sources: The Company maintains other sources of liquidity to draw
upon, which at June 30, 1996 include (a) a line of credit with the FHLB with
$137.9 million available (assuming all of the $500.0 million commercial paper
capacity is used); (b) unused commercial paper facility capacity of $401.0
million; (c) $180.0 million in unpledged securities available to be placed in
reverse repurchase agreements or sold; and (d) $684.0 million of unpledged
loans, some of which would be available to collateralize additional FHLB or
private borrowings, or be securitized.
Deposits: At June 30, 1996, the Company had deposits of $2.6 billion. The
following table presents the distribution of the Company's deposit accounts:
JUNE 30, 1996 DECEMBER 31, 1995
------------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
Money market savings accounts............................. $ 76,184 3.0% $ 93,901 3.6%
Checking accounts......................................... 294,839 11.5 309,065 11.8
Passbook accounts......................................... 59,807 2.4 62,934 2.4
---------- ----- ---------- -----
Total transaction accounts.............................. 430,830 16.9 465,900 17.8
---------- ----- ---------- -----
Certificates of Deposit $100,000 and over................. 538,743 21.1 528,320 20.3
Certificates of deposit less than $100,000................ 1,583,373 62.0 1,606,649 61.9
---------- ----- ---------- -----
Total certificates of deposit........................... 2,122,116 83.1 2,134,969 82.2
---------- ----- ---------- -----
Total deposits......................................... $2,552,946 100.0% $2,600,869 100.0%
========== ===== ========== =====
Repurchase Agreements: From time to time the Company enters into reverse
repurchase agreements by which it sells securities with an agreement to
repurchase the same securities at a specific future date (overnight to 30 days).
The Company deals only with dealers perceived by management to be financially
strong and who are recognized as primary dealers in U.S. Treasury securities by
the Federal Reserve Board. Repurchase agreements outstanding at June 30, 1996,
totaled $53.4 million with no comparable amount at June 30, 1995. In the six
months ended June 30, 1996, the Company borrowed net funds from repurchase
agreements of $53.4 million compared to $43.6 million of funds borrowed and
repaid during the six months ended June 30, 1995.
Loan Fundings: The Company funded $1.4 million of gross loans (excluding the
Company's refinancings) in the six months ended June 30, 1996 compared to $15.4
million in the same period of 1995. The closing of the Company's wholesale and
correspondent lending operations in the fourth quarter of 1994 resulted in
reduced loan fundings in 1995 and a significant decrease in loan fundings during
the first six months of 1996.
Contingent or potential uses of funds: The Company had no unfunded loans at
June 30, 1996, compared to $2.2 million at June 30, 1995.
Liquidity: OTS regulations require the maintenance of an average regulatory
liquidity ratio of at least 5% of deposits and short-term borrowings. the Bank's
average regulatory liquidity ratio was 6.36% and 5.28% for the six months ended
June 30, 1996 and 1995, respectively.
26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank was named as a defendant in a purported class action lawsuit alleging
violations of federal securities laws in connection with the offering of common
stock by the Bank in 1994 as part of the Bank's previously reported 1994
Restructuring and Recapitalization. The suit was filed by Harbor Finance
Partners ("Harbor") in an alleged class action complaint in the United States
District Court-Central District of California on July 28, 1995 and originally
named as defendants the Bank, Citadel Holding Co., Richard M. Greenwood (the
Bank's chief executive officer and Citadel's former chief executive officer), J.
P. Morgan Securities, Inc., and Deloitte & Touche. The suit alleged that false
or misleading information was provided by the defendants in connection with the
Bank's 1994 Restructuring and Recapitalization and stock offering and that the
defendants knew and failed to disclose negative information concerning the Bank.
A motion to dismiss the original complaint was filed by the Bank, and was
granted without opposition. The amended complaint did not include J. P. Morgan
Securities, Inc. and Deloitte & Touche as defendants and contained some factual
and legal contentions which were different from those set forth originally. On
May 21, 1996, the court granted the Bank's motion to dismiss the first amended
complaint, but granted leave to amend. Following the filing of a second amended
complaint, the Bank filed a motion to dismiss. At a hearing on July 22, 1996,
the court ruled that the case should be dismissed with prejudice and a formal
order to that effect was submitted to the court for execution. Harbor lodged
certain objections to the proposed order, including objections that the state
law claims in the second amended complaint should not be dismissed with
prejudice. The court's Order of Dismissal was entered on August 5, 1996 and
provided that all claims asserted in the second amended complaint under federal
law were dismissed with prejudice and those under state law were dismissed
without prejudice to their renewal in state court pursuant to 28 U.S.C.
(S)1367(b)(3).
Both the original complaint filed by Harbor and the amended complaints raised
certain issues previously pleaded in a wrongful termination and defamation
action brought by William Strocco against the Bank and Citadel, which was filed
in Los Angeles County Superior Court on March 9, 1995 although the nature and
use of the same varies in the three pleadings. Plaintiff in the Strocco case is
a former manager of the Bank's REO department who alleged, among other things,
that his employment was terminated in violation of public policy and was a
result of breaches of his implied employment contract and the implied covenant
of good faith and fair dealing based on the notion that he objected to various
aspects of the Bank's 1994 Restructuring and Recapitalization, including the
selling of REO properties in bulk sales, as not in the best interests of the
Bank, and that he asserted that the same were not fully disclosed to potential
investors and to the OTS. Plaintiff also seeks damages for defamation and
interference with contractual relationship. In July 1996, the Los Angeles
Superior Court granted Citadel's motion for summary judgment to dismiss it as a
defendant in the Strocco litigation. A motion for summary adjudication of
issues, which is directed at the major issues of the case, has been filed by the
Bank and is set for hearing on September 4, 1996.
The William Strocco complaint seeks damages, including punitive damages, in an
unspecified amount. The Bank believes that Mr. Strocco's claims are meritless
and plans to vigorously contest them.
In addition, the Bank is a defendant in several individual and purported class
actions brought by several borrowers which raise similar claims with respect to
the manner in which the Bank serviced certain adjustable rate mortgages which
were originated during the period 1983 through 1988. The actions have been filed
between July 1, 1992 and February of 1995. In one case the Bank won a summary
judgement in Federal District Court. This judgment was appealed. On July 25,
1996, the Ninth Circuit Court of Appeals filed its opinion which affirmed in
part, reversed in part and remanded back to the Federal District Court for
further hearing. In three Los Angeles Superior Court cases, judgment in favor
of the Bank was recently entered. Plaintiff has appealed in all three cases.
Two other cases are pending in the Los Angeles Superior Court. The plaintiffs'
principal claim is that the Bank selected an inappropriate review date to
consult the index upon which the rate adjustment is based that was one or two
months earlier than what was required under the terms of the notes. In a
declining interest rate environment, the lag effect of an earlier review period
defers the benefit to the borrower of such decline, and the reverse would be
true in a rising interest rate environment. The Bank strongly disputes these
contentions and is
27
vigorously defending these suits. The legal responsibility and financial
exposure of these claims presently cannot be reasonably ascertained and,
accordingly, there is a risk that the final outcome of one or more of these
claims could result in the payment of monetary damages which could be material
in relation to the financial condition or primarily results of operations of the
Bank. At this point, the Bank does not believe the likelihood of such a result
is probable and has not established any specific litigation reserves with
respect to such lawsuits.
The Bank has settled an aggregate of $18.3 million of claims asserted by a
purchaser of assets from the Bank in a 1994 bulk sale transaction. Pursuant to
the terms of the settlement, the Bank received $0.4 million and the parties
executed mutual releases with respect to all claims arising out of that
particular bulk sale transaction.
In the normal course of business, the Company and certain of its
subsidiaries have a number of other lawsuits or claims pending. The Company's
management and its counsel believe that none of the lawsuits or claims pending
will have a materially adverse impact on the financial condition or business of
the Company.
An adverse outcome with respect to the foregoing claims could have a
material adverse effect on the Company's financial condition, results of
operations and the Bank's regulatory capital.
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 an annual meeting of shareholders held on April 24, 1996, the
shareholders reelected George Gibbs, Jr., Lilly V. Lee, Mark K. Mason, Gordon V.
Smith and W. Pendleton Tudor, to the Board of Directors of Fidelity to serve for
one to three year terms, approved an Agreement and Plan of Reorganization under
which all of the outstanding common stock of the Bank will be converted
automatically, on a one-for-one basis, into all of the outstanding common stock
of a newly formed Delaware corporation, Bank Plus, with Bank Plus becoming the
holding company for the Bank, and ratified the appointment of Deloitte & Touche
LLP as Fidelity's independent public accountants for 1996. Of the 18,242,465
shares of Class A Common Stock outstanding as of the record date, March 26,
1996, the following indicates the number of votes cast for and against, as well
as the number of votes abstaining and broker non-votes, with respect to each of
the five directors, the formation of Bank Plus as the holding company for the
Bank and the ratification of Deloitte & Touche LLP:
NUMBER OF VOTES
----------------------------------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
---------- ------- ------- ---------
Proposal 1 - Election of Directors:
George Gibbs, Jr. ....................................... 16,343,125 6,300 -- N/A
Lilly V. Lee............................................. 16,343,025 6,400 -- N/A
Mark K. Mason............................................ 16,342,925 6,500 -- N/A
Gordon V. Smith.......................................... 16,343,125 6,300 -- N/A
V. Pendleton Tudor....................................... 16,343,125 6,300 -- N/A
Proposal 2 - Agreement and Plan of Reorganization............. 11,363,165 94,537 552 4,891,171
Proposal 3 - Ratification of Independent Public Accountants... 16,195,514 89,362 952 63,597
ITEM 5. OTHER INFORMATION
Not applicable.
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Sequential
No. Description Page Number
- ------- ----------- -----------
2.1 Agreement and Plan of Reorganization, dated as of March 27, *
1996, among Fidelity, Bank Plus Corporation and Fidelity
Interim Bank.
3.1 Amended and Restated Charter S of the Bank (incorporated by *
reference to Exhibit 4.1 to the Form 10-K filed with the
OTS for the fiscal year ended December 31, 1994 (Docket No.
5770)(the "1994 Form 10-K")).
3.2 Amended and Restated Bylaws of the Bank, as amended *
(incorporated by reference to Exhibit 3.2 of the Form OC of
which the Offering Circular dated November 9, 1995 is a
part (Docket No. 5770)(the "1995 Form OC")).
3.3 Form of Certificate of Resolutions adopting the First *
Supplemental Section to Section 5(B) of the Amended and
Restated Charter S of the Bank relating to Series A
Preferred Stock (incorporated by reference to Exhibit 3.3
to the 1995 Form OC).
4.1 Specimen of Class A Common Stock Certificate (incorporated *
by reference to Exhibit 4.1 to the Form OC of which the
Offering Circular dated July 12, 1994 is a part (Docket
No. 5770)(the "1994 Form OC")).
4.2 Specimen of Class C Common Stock Certificate (incorporated *
by reference to Exhibit 4.3 to the 1994 Form OC).
4.3 Specimen of Right to purchase Class A and Class C Common *
Stock (incorporated by reference to Exhibit 4.3 of the 1995
Form OC).
4.4 Registration Rights Agreement dated as of June 30, 1994, *
between Fidelity, Citadel and certain holders of Class C
Common Stock of Fidelity Federal Bank (incorporated by
reference to Exhibit 4.3 to the Form 10-Q filed with the OTS
for the quarterly period ended on June 30, 1994 (Docket No.
5770)(the "Form 10-Q")).
4.5 Stockholders Agreement, dated as of June 30, 1994, between *
Citadel and Fidelity (incorporated by reference to Exhibit
4.4 to the Form 10-Q).
4.6 Form of Indenture relating to senior notes (incorporated by *
reference to Exhibit 4.6 of the 1995 Form OC).
10.1 Settlement Agreement between Fidelity, Citadel and certain *
lenders, dated as of June 3, 1994 (the "Letter Agreement")
(incorporated by reference to Exhibit 10.18 to the 1994
Form OC).
10.2 Amendment No. 1 to Letter Agreement, dated as of June 20, *
1994 (incorporated by reference to Exhibit 10.2 to the
Form 10-Q).
10.3 Amendment No. 2 to Letter Agreement, dated as of July 28, 1994 *
(incorporated by reference to Exhibit 10.3 to the Form 10-Q).
10.4 Amendment No. 3 to Letter Agreement, dated as of August 3, 1994 *
(incorporated by reference to Exhibit 10.4 to the Form 10-Q).
10.5 Mutual Release, dated as of August 4, 1994, between Fidelity, *
Citadel and certain lenders (incorporated by reference to
Exhibit 10.5 to the Form 10-Q).
10.6 Mutual Release between Fidelity, Citadel and The Chase *
Manhattan Bank, NA, dated June 17, 1994, (incorporated by
reference to Exhibit 10.6 to the Form 10-Q).
10.7 Loan and REO Purchase Agreement (Primary), dated as of July 13, *
1994, between Fidelity and Colony Capital, Inc. (incorporated
by reference to Exhibit 10.7 to the Form 10-Q).
10.8 Real Estate Purchase Agreement, dated as of August 3, 1994, *
between Fidelity and CRI (incorporated by reference to Exhibit
10.8 to the Form 10-Q).
29
Exhibit Sequential
No. Description Page Number
- ------- ----------- -----------
10.9 Loan and REO Purchase Agreement (Secondary), dated as of July 12, *
1994, between Fidelity and EMC Mortgage Corporation (incorporated
by reference to Exhibit 10.9 to the Form 10-Q).
10.10 Loan and REO Purchase Agreement (Secondary), dated as of July 21, *
1994, between Fidelity and International Nederlanden (US) Capital
Corporation, Farallon Capital Partners, L.P., Tinicum Partners,
L.P. and Essex Management Corporation (incorporated by reference
to Exhibit 10.10 to the Form 10-Q).
10.11 Purchase of Assets and Liability Assumption Agreement by and *
between Home Savings of America, FSB and Fidelity, dated as of
July 19, 1994 (incorporated by reference to Exhibit 10.11 to the
Form 10-Q).
10.12 Promissory Note, dated July 28, 1994, by CRI in favor of Fidelity *
and related loan documents (3943 Veselich Avenue)(incorporated by
reference to Exhibit 10.12 to the Form 10-Q).
10.13 Promissory Note, dated July 28, 1994, by CRI in favor of Fidelity *
and related loan documents (23200 Western Avenue)(incorporated by
reference to Exhibit 10.13 to the Form 10-Q).
10.14 Promissory Note, dated August 3, 1994, by CRI in favor of Fidelity *
and related loan documents (1661 Camelback Road)(incorporated by
reference to Exhibit 10.14 to the Form 10-Q).
10.15 Guaranty Agreement, dated August 3, 1994, by Citadel in favor of *
Fidelity (incorporated by reference to Exhibit 10.15 to the Form
10-Q).
10.16 Tax Disaffiliation Agreement, dated as of August 4, 1994, by and *
between Citadel and Fidelity (incorporated by reference to
Exhibit 10.16 to the Form 10-Q).
10.17 Option Agreement, dated as of August 4, 1994, by and between *
Fidelity and Citadel (incorporated by reference to Exhibit 10.17
to the Form 10-Q).
10.18 Executive Employment Agreement, dated as of June 2, 1995, between *
Richard M. Greenwood and Fidelity (incorporated by reference to
Exhibit 10.18 to the 1995 Form OC).
10.19 Amended Service Agreement between Fidelity and Citadel dated as *
of August 1, 1994 (incorporated by reference to Exhibit 10.19 to
the Form 10-Q).
10.20 Side letter, dated August 3, 1994, between Fidelity and CRI *
(incorporated by reference to Exhibit 10.20 to the Form 10-Q).
10.21 Placement Agency Agreement, dated July 12, 1994, between Fidelity, *
Citadel and J.P. Morgan Securities Inc. (incorporated by reference
to Exhibit 10.21 to the Form 10-Q).
10.22 Stock Purchase Agreement, dated as of August 3, 1994, between *
Fidelity and Citadel (incorporated by reference to Exhibit 10.22
to the Form 10-Q).
10.23 Litigation and Judgement Assignment and Assumption Agreement, *
dated as of August 3, 1994, between Fidelity and Citadel
(incorporated by reference to Exhibit 10.23 to the Form 10-Q).
10.24 1996 Equity Incentive Plan. *
10.25 Retirement Plan for Non-Employee Directors (incorporated by *
reference to Exhibit 10.26 to the 1994 Form 10-K).
10.26 Form of Severance Agreement between the Bank and each of Messrs. *
Johnson and Osborne (incorporated by reference to Exhibit 10.27
to the Form 1994 10-K).
10.27 Form of Severance Agreement between the Bank and each of Messrs. *
Condon, Evans, Mason, Stutz and Taylor (incorporated by reference
to Exhibit 10.27 to the 1995 Form OC).
10.28 Form of Severance Agreement between the Bank and each of Messrs. *
Michel and Renstrom (incorporated by reference to Exhibit 10.28
to the 1995 Form OC).
10.29 Form of Incentive Stock Option Agreement between the Bank and *
certain officers (incorporated by reference to Exhibit 10.28
to the 1994 Form 10-K).
30
Exhibit Sequential
No. Description Page Number
- ------- ----------- -----------
10.30 Form of Non-Employee Director Stock Option Agreement between the *
Bank and certain directors (incorporated by reference to Exhibit
10.29 to the 1994 Form 10-K).
10.31 Loan and REO Purchase Agreement, dated as of December 15, 1994 *
between Fidelity and Berkeley Federal Bank & Trust FSB (incor-
porated by reference to Exhibit 10.30 to the 1994 Form 10-K).
10.32 Standard Office Lease-Net, dated July 15, 1994, between the *
Bank and 14455 Ventura Blvd., Inc. (incorporated by reference
to Exhibit 10.31 to the 1994 Form 10-K).
10.33 Loan Servicing Purchase and Sale Agreement dated March 31, 1995 *
between the Bank and Western Financial Savings Bank, FSB
(incorporated by reference to Exhibit 10.32 to the Form 10-Q filed
with the OTS for the quarterly period ended March 31, 1995).
10.34 Supervisory Agreement dated June 28, 1995 between Fidelity and *
the OTS (incorporated by reference to Exhibit 10.33 to the Form
10-Q filed with the OTS for the quarterly period ended June 30,
1995).
10.35 Form of Indemnity Agreement between the Bank and its directors *
and senior officers (incorporated by reference to Exhibit 10.35
to the 1995 Form OC).
10.36 Letter from the OTS to the Bank dated December 8, 1995, termin- *
ating the Supervisory Agreement as of the date of the letter
(incorporated by reference to Exhibit 10.36 to the Form 10-K
filed with the OTS for the fiscal year ended December 31,
1995 (Docket No. 5770)).
10.37 Loan Servicing Purchase and Sale Agreement dated May 15, 1996
between Fidelity and Western Financial Savings Bank.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None
* Previously filed
31
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: August 8, 1996 /s/ Richard M. Greenwood
---------------------------------------
Richard M. Greenwood
President and Chief Executive Officer;
Vice Chairman of the Board
Date: August 8, 1996 /s/ William L. Sanders
---------------------------------------
William L. Sanders
Executive Vice President and
Chief Financial Officer
32