-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WEPLTp/mrKhSNbyLZ+sgOgAmg8yYfruKMUKtyaFsJe7O+SLOSFyosmF+cilZWvfp ZGKoIpAiV8rkmhE61a3aaA== 0000898430-96-005133.txt : 19961107 0000898430-96-005133.hdr.sgml : 19961107 ACCESSION NUMBER: 0000898430-96-005133 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK PLUS CORP CENTRAL INDEX KEY: 0001012616 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 954571410 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28292 FILM NUMBER: 96655493 BUSINESS ADDRESS: STREET 1: 4565 COLORADO BLVD CITY: LOS ANGELES STATE: CA ZIP: 90039 BUSINESS PHONE: 8185493330 MAIL ADDRESS: STREET 1: 4565 COLORADO BLVD CITY: LOS ANGELES STATE: CA ZIP: 90039 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to _______________ COMMISSION FILE NUMBER 0-28292 -------------- BANK PLUS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4571410 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 4565 COLORADO BOULEVARD 90039 LOS ANGELES, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 241-6215 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] --- --- As of November 1, 1996, Registrant had outstanding 18,242,965 shares of Common Stock, par value $.01 per share. ================================================================================ BANK PLUS CORPORATION INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (Unaudited) as of September 30, 1996 and December 31, 1995.............................. 1 Consolidated Statements of Operations (Unaudited) for the quarters and nine months ended September 30, 1996 and 1995..................... 2 Consolidated Statements of Cash Flows (Unaudited) for the quarters and nine months ended September 30, 1996 and 1995..................... 3 Notes to Consolidated Financial Statements............................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................... 28 Item 2. Changes in Securities................................................. 29 Item 3. Defaults Upon Senior Securities....................................... 29 Item 4. Submission of Matters to a Vote of Security Holders................... 29 Item 5. Other Information..................................................... 29 Item 6. Exhibits and Reports on Form 8-K...................................... 30 a. Exhibits........................................................... 30 b. Reports on Form 8-K................................................ 32
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)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS: Cash and cash equivalents.............. $ 57,433 $ 94,794 Investment securities available for sale, at fair value................... 215,704 94,305 Investment securities held to maturity, at amortized cost (fair value of $7,366 at September 30, 1996) 7,378 -- Mortgage-backed securities available for sale, at fair value............... 110,429 31,733 Mortgage-backed securities held to maturity, at amortized cost (fair value approximates cost).............. 31,421 -- Loans receivable, net of allowances of $62,832 and $89,435 at September 30, 1996 and December 31, 1995, respectively.......................... 2,743,085 2,935,116 Interest receivable.................... 21,111 20,162 Investment in FHLB stock............... 51,514 49,425 Real estate owned, net................. 25,216 19,521 Premises and equipment, net............ 32,535 34,333 Other assets........................... 27,383 20,055 ---------- ---------- $3,323,209 $3,299,444 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Deposits.............................. $2,516,769 $2,600,869 FHLB advances......................... 339,028 292,700 Commercial paper...................... 95,000 50,000 Mortgage-backed notes................. 100,000 100,000 Other liabilities..................... 62,653 26,832 ---------- ---------- 3,113,450 3,070,401 ---------- ---------- Preferred stock issued by consolidated subsidiary............................ 51,750 51,750 Stockholders' equity: Common stock, par value $.01 per share; 78,500,000 shares authorized; 18,242,965 shares outstanding at September 30, 1996 and 18,242,465 at December 31, 1995................. 182 182 Paid-in capital....................... 261,918 262,151 Unrealized (losses) gains on securities........................... (952) 788 Accumulated deficit................... (103,139) (85,828) ---------- ---------- 158,009 177,293 ---------- ---------- $3,323,209 $3,299,444 ========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (Unaudited) INTEREST INCOME: Loans.................................. $ 52,142 $ 57,559 $ 162,418 $ 170,518 Mortgage-backed securities............. 1,617 582 2,877 3,046 Investment securities and other........ 5,261 3,559 13,335 11,227 ----------- ---------- ----------- ---------- Total interest income................. 59,020 61,700 178,630 184,791 ----------- ---------- ----------- ---------- INTEREST EXPENSE: Deposits............................... 29,808 33,513 90,630 94,796 FHLB advances.......................... 3,827 4,154 10,669 13,285 Other borrowings....................... 4,140 5,951 12,482 23,803 ----------- ---------- ----------- ---------- Total interest expense................ 37,775 43,618 113,781 131,884 ----------- ---------- ----------- ---------- NET INTEREST INCOME..................... 21,245 18,082 64,849 52,907 Provision for estimated loan losses.... 3,900 8,773 11,710 23,924 ----------- ---------- ----------- ---------- NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOAN LOSSES.................. 17,345 9,309 53,139 28,983 ----------- ---------- ----------- ---------- NONINTEREST INCOME (EXPENSE): Loan fee income........................ 462 831 1,836 3,210 Gains on loan sales, net............... 3 15 9 661 Fee income from sale of uninsured investment products................... 1,005 878 3,296 3,242 Fee income on deposits................. 761 823 2,319 2,592 Gains on securities and trading activities, net....................... 610 -- 762 4,098 Gains on sale of servicing............. -- 183 -- 4,502 Other.................................. (186) 100 (80) (152) ----------- ---------- ----------- ---------- 2,655 2,830 8,142 18,153 ----------- ---------- ----------- ---------- Provision for estimated real estate losses................................ (731) (1,229) (1,977) (2,773) Direct costs of real estate operations, net....................... (1,393) (1,023) (4,417) (4,264) ----------- ---------- ----------- ---------- (2,124) (2,252) (6,394) (7,037) ----------- ---------- ----------- ---------- Total noninterest income............... 531 578 1,748 11,116 ----------- ---------- ----------- ---------- OPERATING EXPENSE: Personnel and benefits................. 7,358 8,671 21,164 26,696 Occupancy.............................. 2,490 3,188 7,896 9,332 FDIC insurance......................... 1,850 2,043 5,812 6,162 Professional services.................. 2,922 3,394 8,205 7,991 Office-related expenses................ 867 974 2,799 3,390 Other.................................. 1,946 2,196 4,722 5,081 ----------- ---------- ----------- ---------- 17,433 20,466 50,598 58,652 SAIF special assessment................ 18,000 -- 18,000 -- ----------- ---------- ----------- ---------- Total operating expense............... 35,433 20,466 68,598 58,652 ----------- ---------- ----------- ---------- LOSS BEFORE INCOME TAXES................ (17,557) (10,579) (13,711) (18,553) Income tax (benefit) expense........... (1,186) -- (1,093) 4 ----------- ---------- ----------- ---------- LOSS BEFORE DIVIDENDS ON PREFERRED STOCK OF SUBSIDIARY.......................... (16,371) (10,579) (12,618) (18,557) Dividends on preferred stock of subsidiary............................ 1,553 -- 4,658 -- ----------- ---------- ----------- ---------- LOSS APPLICABLE TO COMMON STOCKHOLDERS.. $ (17,924) $ (10,579) $ (17,276) $ (18,557) =========== ========== =========== ========== LOSS PER COMMON SHARE................... $ (0.98) $ (1.63) $ (0.95) $ (2.86) =========== ========== =========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................ 18,242,715 6,492,465 18,242,549 6,492,465 =========== ========== =========== ==========
See notes to consolidated financial statements. 2 BANK PLUS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Losses................................. $ (16,371) $ (10,579) $ (12,618) $ (18,557) Adjustments to reconcile loss to net cash provided by (used in) operating activities: Provisions for estimated loan and real estate losses.................. 4,631 10,002 13,687 26,697 Gains on sale of loans and securities (613) (15) (771) (4,759) Amortization of deferred items, net.. (670) (912) (1,679) (2,446) FHLB stock dividend.................. (804) (588) (2,179) (1,764) Depreciation and amortization........ 961 1,346 2,931 4,370 Purchases of mortgage-backed securities held for trading........... (25,013) -- (25,013) -- Principal repayments of MBS held for trading............................... 38 -- 38 -- Proceeds from sales of MBS held for trading............................... 24,971 -- 24,971 -- Proceeds from sales of loans held for sale.................................. -- 703 -- 1,993 Interest receivable decrease (increase) 257 (518) (949) (416) Other assets (increase) decrease....... (355) 1,202 (7,121) (3,294) Interest payable increase.............. 2,418 6,271 2,500 9,566 Other liabilities increase (decrease).. 28,500 (1,403) 33,165 (3,891) --------- --------- ---------- ---------- Net cash provided by operating activities.......................... 17,950 5,509 26,962 7,499 --------- --------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities available for sale.................... (50,288) (350) (201,313) (45,919) Maturities of investment securities available for sale.................... -- 5,000 22,950 10,000 Proceeds from sales of investment securities available for sale......... 48,765 -- 48,765 102,061 Purchases of investment securities held to maturity...................... -- -- -- (25,001) Maturities of investment securities held to maturity...................... -- -- -- 10,000 Purchases of MBS available for sale.... (98,200) -- (137,161) (27,858) Principal repayments of MBS available for sale.............................. 488 969 3,247 4,967 Proceeds from sales of MBS available for sale.............................. 20,332 -- 40,490 162,365 Purchases of MBS held to maturity...... (15,869) -- (15,869) (16,234) Principal repayments of MBS held to maturity.............................. -- -- -- 3,408 Loans receivable decrease.............. 48,807 34,723 147,003 93,056 Net proceeds from sales of real estate. 8,777 5,907 26,374 13,549 Net (additions to) dispositions of premises and equipment................ (90) 1,030 (1,111) 2,463 --------- --------- ---------- ---------- Net cash (used in) provided by investing activities................ (37,278) 47,279 (66,625) 286,857 --------- --------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Demand deposits and passbook savings decrease.............................. (15,343) (9,265) (117,083) (73,315) Certificate accounts (decrease) increase.............................. (20,834) (62,524) 32,983 41,634 Payments of dividends on preferred stock of subsidiary................... (1,553) -- (4,658) -- Proceeds from FHLB advances............ 106,631 -- 106,631 80,000 Repayments of FHLB advances............ (303) -- (60,303) (120,000) Short-term borrowings (decrease) increase.............................. (57,357) (5,600) 45,000 (247,000) Other financing activity............... (232) -- (268) -- --------- --------- ---------- ---------- Net cash provided by (used in) financing activities................. 11,009 (77,389) 2,302 (318,681) --------- --------- ---------- ---------- Net decrease in cash and cash equivalents......................... (8,319) (24,601) (37,361) (24,325) Cash and cash equivalents at the beginning of the period.............. 65,752 74,341 94,794 74,065 --------- --------- ---------- ---------- Cash and Cash Equivalents at End of $ 57,433 $ 49,740 $ 57,433 $ 49,740 Period................................. ========= ========= ========== ==========
(Continued on following page) 3 BANK PLUS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (Unaudited) SUPPLEMENTAL CASH FLOW INFORMATION: Cash (paid) received during the period for: Interest on deposits, advances and other borrowings..................... $(34,844) $(34,660) $(109,414) $(119,907) Income taxes.......................... (45) 467 257 378 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additions to real estate acquired through foreclosure................... 14,205 19,012 35,425 47,361 Loans originated to finance sale of real estate acquired through foreclosure........................... -- 2,134 1,379 7,604 Loans originated to finance sale of office building through foreclosure -- -- -- 5,339 Transfers from held to maturity to available for sale portfolio: Loans................................ -- -- -- 68,995 Investment securities................ -- -- -- 141,678 Mortgage-backed securities........... -- -- -- 16,404 Transfer from available for sale to held to maturity portfolio: Investment securities................ 7,378 -- 7,378 -- Mortgage-backed securities........... 15,552 -- 15,552 3,603 Mortgage loans exchanged for mortgage-backed securities............ -- -- -- 112,840
See notes to consolidated financial statements. 4 BANK PLUS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation In May 1996, Fidelity Federal Bank, A Federal Savings Bank ("Fidelity" or the "Bank"), completed a reorganization pursuant to which all of the outstanding common stock of Fidelity were converted on a one-for-one basis into all of the outstanding common stock of a recently formed Delaware corporation, Bank Plus Corporation ("Bank Plus"), and Bank Plus became the holding company for Fidelity (the "Reorganization"). Bank Plus' headquarters are in Los Angeles, California and its principal operating subsidiaries are Fidelity and Gateway Investment Services, Inc. ("Gateway"), which prior to the Reorganization was a subsidiary of the Bank. Bank Plus currently has no significant business or operations other than serving as the holding company for Fidelity and Gateway. Unless otherwise indicated, references to the "Company" include Bank Plus, Fidelity, Gateway, and all subsidiaries of Fidelity and Bank Plus. All references to "Fidelity" prior to the Reorganization include Gateway. The Company offers a broad range of consumer financial services, including demand and term deposits, and loans to consumers, through 33 full-service branches, all of which are located in Southern California, principally in Los Angeles and Orange counties. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior periods' consolidated financial statements to conform to the current period presentation. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results of operations to be expected for the entire year of 1996. In the fourth quarter of 1995, Fidelity completed a plan of recapitalization (the "1995 Recapitalization"), pursuant to which Fidelity raised approximately $134.4 million in net new equity through the sale of 2,070,000 shares of 12% Noncumulative Exchangeable Perpetual Preferred Stock, Series A ("Series A Preferred Stock"), and 47,000,000 shares of Fidelity Class A Common Stock. As part of the 1995 Recapitalization, Fidelity adopted the accelerated asset resolution plan (the "Accelerated Asset Resolution Plan"), which is designed to aggressively dispose of, resolve, or otherwise manage a pool of primarily multifamily mortgage loans and real estate owned ("REO"). As a result, Fidelity recorded a $45.0 million loan portfolio charge in the allowance for estimated loan losses which represents the estimated additional losses expected to be incurred in connection with the Accelerated Asset Resolution Plan. On February 9, 1996, the Bank's stockholders approved a one-for-four Reverse Stock Split of the issued and outstanding shares of the Bank's Class A Common Stock. Upon effectiveness of the Reverse Stock Split, each stockholder became the owner of one share of Common Stock for each four shares of Common Stock held at the time of the Reverse Stock Split and became entitled to receive cash in lieu of any fractional shares. All per share data and weighted average common shares outstanding have been retroactively adjusted to reflect the Reverse Stock Split. The Series A Preferred Stock of the Bank is presented on the Company's Consolidated Statements of Financial Condition as "Preferred stock issued by consolidated subsidiary." The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all information and footnotes required for interim financial statement presentation. The financial information provided herein, including the information under the heading Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"), is written with the presumption that the users of the interim financial statements have read, or have access to, the Bank's most recent Annual Report on Form 10-K which contains the latest available audited consolidated financial statements and notes thereto, as of December 31, 1995, together with the MD&A as of such date. 5 BANK PLUS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 1996 Supplementary Loss per Share Data Assuming that 18,242,965 shares of Common Stock were issued at the beginning of 1995, the net loss per common share would have been $0.58 and $1.02 for the quarter and nine months ended September 30, 1995, respectively. 2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES The following table summarizes the Company's investment securities and mortgage-backed securities ("MBS") portfolios.
UNREALIZED AMORTIZED --------------------------------- AGGREGATE COST GAINS LOSSES NET FAIR VALUE --------- ------- -------- --------- ---------- (DOLLARS IN THOUSANDS) SEPTEMBER 30, 1996 Available for sale: Investment securities: U.S. Treasury and agency securities (1).................................. $215,318 $1,213 $ (827) $ 386 $215,704 -------- ------ ------- ------- -------- MBS: FHLMC................................. 47,139 498 -- 498 47,637 GNMA.................................. 36,989 31 (189) (158) 36,831 Participation certificates............ 25,961 -- -- -- 25,961 -------- ------ ------- ------- -------- 110,089 529 (189) 340 110,429 -------- ------ ------- ------- -------- Total available for sale............. $325,407 $1,742 $(1,016) 726 $326,133 ======== ====== ======= ------- ======== Held to maturity: Investment securities: Other investments (2)................. $ 7.378 $ -- $ -- -- $ 7,378 -------- ------ ------- ------- -------- MBS: LIBOR asset trust..................... 31,421 -- -- -- 31,421 -------- ------ ------- ------- -------- Total held to maturity............... $ 38,799 $ -- $ -- -- $ 38,799 ======== ====== ======= ======== Net unrealized losses on investment securities included in amortized cost (1)................................... (2,264) Net unrealized gains, hedging activities............................ 586 ------- Net unrealized losses included in stockholders' equity................. $ (952) ======= DECEMBER 31, 1995 Available for sale: Investment securities: U.S. Treasury and agency securities (1).................................. $ 84,200 $2,984 $ -- $ 2,984 $ 87,184 Other investments (2)................. 7,099 52 (30) 22 7,121 -------- ------ ------- ------- -------- 91,299 3,036 (30) 3,006 94,305 -------- ------ ------- ------- -------- MBS: FHLMC................................. 3,068 -- (30) (30) 3,038 FNMA.................................. 55 36 -- 36 91 Participation certificates............ 28,123 481 -- 481 28,604 -------- ------ ------- ------- -------- 31,246 517 (30) 487 31,733 -------- ------ ------- ------- -------- Total available for sale............. $122,545 $3,553 $ (60) 3,493 $126,038 ======== ====== ======= ======== Net unrealized losses on investment securities included in amortized cost (1)................................... (3,366) Net unrealized gains, hedging activities............................ 661 ------- Net unrealized gains included in stockholders' equity................. $ 788 =======
- --------------------- (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 SEPTEMBER 30, 1996 2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED) The following table summarizes the weighted average yield of securities as of the dates indicated:
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- -------------- Available for sale: Investment securities... 6.33% 4.70% MBS..................... 7.51 6.85 Held to maturity: Investment securities... 5.55% -- MBS..................... 7.52 --
The following table presents the Company's securities at September 30, 1996 by contractual maturity. Actual maturities on MBS may differ from contractual maturities due to prepayments.
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... $ -- $173,787 $ -- $ 41,917 $215,704 MBS..................... -- -- 6,743 103,686 110,429 ------ -------- ------ -------- -------- $ -- $173,787 $6,743 $145,603 $326,133 ====== ======== ====== ======== ======== Held to maturity: Investment securities... $2,278 $ -- $5,100 $ -- $ 7,378 MBS..................... -- -- -- 31,421 31,421 ------ -------- ------ -------- -------- $2,278 $ -- $5,100 $ 31,421 $ 38,799 ====== ======== ====== ======== ========
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:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (DOLLARS IN THOUSANDS) Sales of investment securities and MBS: Available for sale..................... $69,097 $ -- $ 89,255 $264,426 Held for trading....................... 24,971 -- 24,971 -- ------- ----- -------- -------- $94,068 $ -- $114,226 $264,426 ======== ======== ======== ======== Gains (losses) on sales of securities: Gains.................................. $ 541 $ -- $ 776 $ 3,903 Losses................................. (71) -- (71) (566) ------- ----- -------- -------- Gains on sales of securities, net..... 470 -- 705 3,337 - ---------------------------------------- Gains on trading activities, net....... 140 -- 57 761 ------- ----- -------- -------- Gains on securities and trading $ 610 $ -- $ 762 $ 4,098 activities, net...................... ======= ===== ======== ========
7 BANK PLUS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 1996 3. SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT On September 30, 1996 legislation was enacted that would require member institutions to recapitalize the SAIF by paying a one-time special assessment of approximately 65.7 basis points on all assessable deposits as of March 31, 1995. The one-time special assessment resulted in the Bank recording an $18.0 million charge in additional SAIF premiums. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments--Insurance Premium Assessments." 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company offers a broad range of consumer financial services, including demand and term deposits, and loans to consumers, through 33 full-service branches, all of which are located in Southern California, principally in Los Angeles and Orange counties. The Company also provides residential mortgages and consumer loans, which the Company does not underwrite or fund, by referral to certain established providers of mortgage and consumer loan products with which the Company has negotiated strategic alliances. In addition, through its subsidiary, Gateway, a National Association of Securities Dealers, Inc. ("NASD") registered broker/dealer, the Company provides customers with uninsured investment products, including a number of mutual funds, annuities and unit investment trusts. The principal executive offices of Bank Plus and Fidelity are located at 4565 Colorado Boulevard, Los Angeles, California 90039, telephone number (818) 241-6215. RECENT DEVELOPMENTS Insurance Premium Assessments The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") directed the Federal Deposit Insurance Corporation ("FDIC") to establish a risk- based system for setting deposit insurance premium assessments. The FDIC has implemented such a system, under which an institution's insurance assessments will vary depending on the level of capital the institution holds and the degree to which it is the subject of supervisory concern to the FDIC. Legislation was enacted on September 30, 1996, to address the disparity in bank and thrift deposit insurance premiums. The legislation will, among other things, impose a requirement on all SAIF member institutions to fully recapitalize the SAIF by paying a one-time special assessment of approximately 65.7 basis points on all assessable deposits as of March 31, 1995. This one-time special assessment of 65.7 basis points resulted in the Bank recording $18.0 million in additional SAIF premiums, gross of related tax benefits. As of September 30, 1996, after giving effect to the deduction of 65.7 basis point assessment, the Bank's core and risk-based capital ratios are 6.25% and 11.70%, respectively, and the Bank remains well capitalized under the Prompt Corrective Action ("PCA") regulations. Recapitalization and Reverse Stock Split In the fourth quarter of 1995, Fidelity completed a plan of recapitalization (the "1995 Recapitalization"), pursuant to which Fidelity raised approximately $134.4 million in net new equity through the sale of 2,070,000 shares of 12% Noncumulative Exchangeable Perpetual Preferred Stock, Series A ("Series A Preferred Stock"), and 47,000,000 shares of Fidelity Class A Common Stock. As part of the 1995 Recapitalization, Fidelity adopted the accelerated asset resolution plan (the "Accelerated Asset Resolution Plan"), which is designed to aggressively dispose of, resolve, or otherwise manage a pool of primarily multifamily mortgage loans and real estate owned ("REO"). As a result, Fidelity recorded a $45.0 million loan portfolio charge in the allowance for estimated loan losses which represents the estimated additional losses expected to be incurred in connection with the Accelerated Asset Resolution Plan. On February 9, 1996, the Bank's stockholders approved a one-for-four Reverse Stock Split of the issued and outstanding shares of the Bank's Class A Common Stock. Upon effectiveness of the Reverse Stock Split, each stockholder became the owner of one share of Common Stock for each four shares of Common Stock held at the time of the Reverse Stock Split and became entitled to receive cash in lieu of any fractional shares. All per share data and weighted average common shares outstanding have been retroactively adjusted to reflect the Reverse Stock Split. 9 Reorganization into Holding Company Structure In May 1996, Fidelity completed a holding company Reorganization pursuant to which all of the outstanding common stock of Fidelity was converted on a one- for-one basis into all of the outstanding common stock of Bank Plus, a recently formed Delaware corporation, and Bank Plus became the holding company for Fidelity. Effective May 17, 1996, Bank Plus Common Stock was listed on the Nasdaq National Market ("NASDAQ") under the symbol "BPLS". Business Strategy The Company's business strategy is to (i) improve the quality of its loan portfolio by reducing the level of problem assets through aggressive management including execution of the Accelerated Asset Resolution Plan (as discussed below), (ii) continue to increase operating efficiency by reducing and maintaining lower levels of operating expenses and (iii) be a consumer-focused provider of financial services, by enhancing its franchise to integrate its traditional services and products (deposit services, checking and savings accounts) with the offering of investment products by Gateway and consumer credit products through strategic partners. As a part of such strategy, management continues to explore new opportunities to expand the integrated sales platform, to increase fee income growth, and to build upon the use of technology in delivering financial products and services. The Company is examining the use of various electronic delivery systems, which includes an Internet bank solution, and software to enhance customer convenience and the Company's fee income opportunities. With regards to the software opportunity, Bank Plus has an investment of $525,000 in a software development company for which it expects to receive preferred stock of that company. Bank Plus has also loaned $443,908 to that company's principal, primarily secured by a significant block of common stock in the aforementioned software development company. The investment is of high risk and is speculative in nature. Bank Plus continues to explore the feasibility of acquiring the software development capability of that company. As a part of its business strategy, the Company is addressing issued raised in discussions with the OTS regarding plans to purchase assets (loans and securities) that may exceed $150 million in 1997. The plan, in general terms, is based upon certain risk adjusted return and liquidity objectives and is designed to increase the Company's securities and loan portfolios to enhance the Company's earning capabilities. The proposed increase in earning assets may be at a lower interest rate spread than the Company is currently yielding depending on available financing sources. Accordingly, if the plan is implemented, the Company's interest rate spread may decline. There can be no assurances, however, that management will reach an understanding with the OTS necessary to implement its asset growth plan. Accelerated Asset Resolution Plan The Company's business strategy includes the reduction of risk in the Company's multifamily portfolio. As a part of the 1995 Recapitalization, the Bank adopted the Accelerated Asset Resolution Plan designed to aggressively dispose of, resolve or otherwise manage a pool of primarily multifamily loans which generally have lower debt coverage ratios than the remainder of the Bank's multifamily loan portfolio and thereby are considered by the Bank to have higher risk of future nonperformance or impairment relative to the remainder of the Bank's multifamily loan portfolio. This plan reflects both an acceleration in estimated timing of resolution of assets within the pool, as well as a potential change in recovery method from that which would be anticipated through the normal course of business. The Accelerated Asset Resolution Pool originally consisted of 411 assets with an aggregate gross book value of approximately $213.3 million with Accelerated Asset Resolution Pool reserves of $45 million. As of September 30, 1996, the Accelerated Asset Resolution Pool consisted of 203 assets with an aggregate gross book value of approximately $85.2 million, comprised primarily of accruing and nonaccruing multifamily real estate loans and REO properties. As of September 30, 1996, the Company had resolved assets with an aggregate gross book value of $128.1 million, and charged-off $18.2 million in Accelerated Asset Resolution Pool reserves. In an effort to maximize recovery on loans included in the accelerated resolution pool, the Accelerated Asset Resolution Plan provides for a range of possible methods of resolution including, but not limited to (i) the bulk sale of loans, (ii) individual loan restructuring, which may include additional extensions of credit or write-off of 10 existing principal, (iii) foreclosure and sale of collateral properties, and (iv) securitization of loans. While resulting in reduced recoveries on certain assets, the Accelerated Asset Resolution Plan is intended to reduce, among other things, levels of problem assets, the related utilization of management resources, and direct and indirect costs of credit administration and problem asset management. Continued Reduction of Operating Expenses During the first nine months of 1996 as compared to the same 1995 period, the Company reduced operating expenses, excluding the SAIF special assessment of $18.0 million, by $8.1 million or 13.7%, including reductions in personnel expenses of $5.5 million or 20.7%, which reflects a reduction of 25.4% in the nine month average number of full-time-equivalent employees (from 673 during 1995 to 502 during 1996). RESULTS OF OPERATIONS The Company reported a loss of $16.4 million before dividends on preferred stock of subsidiary of $1.6 million, ($0.98 per common share after giving effect to the dividends on preferred stock of subsidiary, computed on the basis of 18,242,715 weighted average common shares outstanding) for the quarter ended September 30, 1996. Without the SAIF special assessment $18.0 million, the Company would have reported earnings of $1.6 million for the quarter ended September 30, 1996, before dividends on preferred stock of subsidiary. For the nine months ended September 30, 1996, losses were $12.6 million before dividends on preferred stock of subsidiary of $4.7 million ($0.95 per common share after giving effect to the dividends on preferred stock of subsidiary, computed on the basis of 18,242,549 weighted average common shares outstanding). Without the SAIF special assessment, the Company would have reported earnings of $5.4 million for the nine months ended September 30, 1996, before dividends on preferred stock of subsidiary. This compares to a loss of $10.6 million ($1.63 per common share; computed on the basis of 6,492,465 weighted average common shares outstanding) for the third quarter of 1995 and a loss of $18.6 million ($2.86 per common share; computed on the basis of 6,492,465 weighted average common shares outstanding) for the nine months ended September 30, 1995. Results of operations for the quarter ended September 30, 1996, as compared to the same period in 1995, were favorably impacted by: (a) increased net interest income of $3.2 million due primarily to the impact of lower interest rates on the Company's interest-bearing liabilities; (b) decreased provisions for estimated loan losses of $4.9 million; (c) decreased operating expenses of $ 3.0 million excluding the SAIF special assessment of $18.0 million and (d) increased income tax benefit of $1.2 million. Results of operations for the nine months ended September 30, 1996, as compared to the same period in 1995, were favorably affected by: (a) increased net interest income of $11.9 million, primarily due to the impact of lower interest rates on the Company's interest-bearing liabilities; (b) decreased provisions for estimated loan losses of $12.2 million; (c) decreased operating expenses of $8.1 million excluding the SAIF special assessment of $18.0 million and (d) increased income tax benefit of $1.1 million.. These favorable variances were partially offset by a reduction in noninterest income of $9.4 million, primarily due to: (a) decreased gains on sales of loans, investment securities and mortgage-backed securities of $3.9 million; and (b) a gain on sale of servicing of $4.5 million in the first and third quarters of 1995 with no comparable amounts in 1996. NET INTEREST INCOME Net interest income is the difference between interest earned on loans, mortgage-backed securities and investment securities ("interest-earning assets") and interest paid on savings deposits and borrowings ("interest-bearing liabilities"). For the quarter ended September 30, 1996, net interest income totaled $21.3 million, increasing by $3.2 million from $18.1 million for the comparable period in 1995. For the nine months ended September 30, 1996, net interest income totaled $64.8 million, increasing by $11.9 million from $52.9 million for the comparable period in 1995. 11 Net interest income is affected by (a) the average volume and repricing characteristics of the Company's interest-earning assets and interest-bearing liabilities, (b) the level and volatility of market interest rates, (c) the level of nonaccruing loans ("NPLs") and (d) the interest rate spread between the yields earned and the rates paid. The following table presents the primary determinants of the Company's net interest income for the quarter ended September 30, 1996 and 1995:
QUARTER ENDED SEPTEMBER 30, --------------------------------------------------------------------- 1996 1995 --------------------------------- --------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE DAILY YIELD/ DAILY YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ----------- -------- -------- ----------- -------- -------- (DOLLARS IN THOUSANDS) Interest-earning assets: Loans.................................. $2,866,162 $52,142 7.28% $3,125,633 $57,559 7.37% MBS.................................... 89,335 1,617 7.24 34,807 582 6.69 Investment securities.................. 255,518 4,457 6.94 190,932 2,971 6.17 Investment in FHLB stock............... 51,308 804 6.23 48,681 588 4.79 ---------- ------- ---------- ------- Total interest-earning assets........ 3,262,323 59,020 7.24 3,400,053 61,700 7.26 ------- ------- Noninterest-earning assets.............. 56,713 86,448 ---------- ---------- Total assets......................... $3,319,036 $3,486,501 ========== ========== Interest-bearing liabilities: Deposits: Demand deposits....................... $ 293,778 791 1.07 $ 301,590 701 0.92 Savings deposits...................... 130,985 950 2.88 156,802 1,043 2.64 Time deposits......................... 2,102,184 28,067 5.30 2,239,372 31,769 5.63 ---------- ------- ---------- ------- Total deposits....................... 2,526,947 29,808 4.68 2,697,764 33,513 4.93 ---------- ------- Borrowings............................. 514,817 7,967 6.14 609,275 10,105 6.58 ---------- ------- ---------- ------- Total interest-bearing liabilities.... 3,041,764 37,775 4.93 3,307,039 43,618 5.23 ---------- ------- ------- Noninterest-bearing liabilities......... 52,893 31,970 Stockholders' equity.................... 224,379 147,492 ---------- ---------- Total liabilities and equity............ $3,319,036 $3,486,501 ========== ========== Net interest income; interest rate spread................................. $21,245 2.31% $18,082 2.03% ======= ===== ======= ===== Net earning balance/net yield on interest-earning assets ("net interest margin")............................... $ 220,559 2.64% $ 93,014 2.17% ========== ===== ========== ===== Average nonaccruing loan balance included in average loan balance.... $ 55,318 $ 75,666 ========== ========== Net delinquent interest reserve removed from interest income................ $ 1,178 $ 1,526 ======= ======= Reduction in net yield on interest-earning assets due to delinquent interest (in basis points).. 14 18 ===== =====
12 The following table presents the primary determinants of the Company's net interest income for the nine months ended September 30, 1996 and 1995:
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------- 1996 1995 ---------------------------------- ---------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE DAILY YIELD/ DAILY YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ----------- --------- -------- ----------- --------- -------- (DOLLARS IN THOUSANDS) Interest-earning assets: Loans.................................. $2,934,439 $162,418 7.38% $3,238,980 $170,518 7.02% MBS.................................... 54,136 2,877 7.09 63,504 3,046 6.40 Investment securities.................. 211,158 11,156 7.06 198,875 9,463 6.36 Investment in FHLB stock............... 50,604 2,179 5.75 48,080 1,764 4.91 ---------- -------- ---------- -------- Total interest-earning assets........ 3,250,337 178,630 7.33 3,549,439 184,791 6.94 -------- -------- Noninterest-earning assets.............. 59,812 90,791 ---------- ---------- Total assets......................... $3,310,149 $3,640,230 ========== ========== Interest-bearing liabilities: Deposits: Demand deposits....................... $ 299,661 2,307 1.03 $ 304,556 2,019 0.89 Savings deposits...................... 142,715 2,767 2.58 170,379 3,419 2.68 Time deposits......................... 2,109,293 85,556 5.40 2,219,523 89,358 5.38 ---------- -------- ---------- -------- Total deposits....................... 2,551,669 90,630 4.73 2,694,458 94,796 4.70 ---------- -------- Borrowings............................. 489,701 23,151 6.30 762,717 37,088 6.50 ---------- -------- ---------- -------- Total interest-bearing liabilities.... 3,041,370 113,781 4.98 3,457,175 131,884 5.10 ---------- -------- -------- Noninterest-bearing liabilities......... 42,400 30,414 Stockholders' equity.................... 226,379 152,641 ---------- ---------- Total liabilities and equity............ $3,310,149 $3,640,230 ========== ========== Net interest income; interest rate $ 64,849 2.35% $ 52,907 1.84% spread................................. ======== ===== ======== ===== Net earning balance/net yield on interest-earning assets ("net interest margin")............................... $ 208,967 2.67% $ 92,264 1.97% ========== ===== ========== ===== Average nonaccruing loan balance included in average loan balance.... $ 62,744 $ 79,245 ========== ========== Net delinquent interest reserve removed from interest income................ $ 4,496 $ 4,536 ======== ======== Reduction in net yield on interest-earning assets due to delinquent interest (in basis points).. 18 17 ===== =====
13 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 SEPTEMBER 30, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995 COMPARED TO SEPTEMBER 30, 1995 FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE) ------------------------------------ ------------------------------------ VOLUME RATE NET VOLUME RATE NET ----------- --------- ---------- ------------ -------- ---------- (DOLLARS IN THOUSANDS) Interest income: Loans................................ $(4,723) $ (694) $ (5,417) $ (16,559) $ 8,459 $(8,100) Mortgage-backed securities........... 983 52 1,035 (478) 309 (169) Investment securities................ 1,085 401 1,486 609 1,084 1,693 Investment in FHLB stock............. 33 183 216 97 318 415 ------- ------ -------- --------- ------- -------- Change in total interest income..... (2,622) (58) (2,680) (16,331) 10,170 (6,161) ------- ------ -------- --------- ------- -------- Interest expense: Deposits: Demand deposits..................... 19 (109) (90) 33 (321) (288) Savings deposits.................... 181 (88) 93 530 122 652 Time deposits....................... 1,900 1,802 3,702 3,991 (189) 3,802 ------- ------ -------- --------- ------- -------- Total deposits.................... 2,100 1,605 3,705 4,554 (388) 4,166 Borrowings........................... 1,952 186 2,138 11,701 2,236 13,937 ------- ------ -------- --------- ------- -------- Change in total interest expense.... 4,052 1,791 5,843 16,255 1,848 18,103 ------- ------ -------- --------- ------- -------- Increase (decrease) in net interest income............................... $ 1,430 $1,733 $ 3,163 $ (76) $12,018 $ 11,942 ======= ====== ======== ========= ======= ========
The $3.2 million increase in net interest income between the third quarter 1996 and the third quarter 1995 was primarily the result of decreased rates and level of average interest-bearing liabilities. This was partially offset by a decline in the rates and level of average interest-earning assets. The $11.9 million increase in net interest income between the nine months ended September 30, 1996 and the comparable period in 1995 was primarily due to increased rates on average interest-earning assets combined with a decline in the rates and level of average interest-bearing liabilities. This was partially offset by a decline in the level of average interest-earning assets. The rates on interest-earning assets and interest-bearing liabilities of the Company both tend to rise or fall in step with the Federal Home Loan Bank ("FHLB") Eleventh District Cost of Funds Index ("COFI"), the index to which most of the Company's loans are tied. However, due to reporting and contractual look-back periods contained in the Company's loan documents, the 93% of the Company's loans which are indexed to COFI, as with all COFI portfolios in the industry, do not reprice until some time after the industry liabilities composing COFI reprice. The Company's liabilities reprice in the same period as the cost of funds of institutions which comprise the FHLB Eleventh District. In the Company's case, the lag between the repricing of its liabilities and its adjustable rate mortgage ("ARM") loans indexed to COFI is approximately four months. As such, when rates rise sharply there will be upward pressure on rates paid on deposit accounts and wholesale borrowings, and the Company's net interest income will be adversely affected until the majority of its interest- earning assets fully reprice. Conversely, in a falling interest rate environment, net interest income will be positively affected. As interest rates continued to fall in the third quarter 1996, the Company's liabilities continued to reprice at lower rates throughout the quarter. 14 ASSET/LIABILITY MANAGEMENT To reduce fluctuations in net interest income, the Company maintains a loan portfolio with a yield that generally fluctuates in step with the cost of its liabilities. The Company has traditionally accomplished this by originating and purchasing primarily ARM loans for its portfolio. ARM loans comprised 97% of the total loan portfolio at September 30, 1996. All else being equal, to the extent that the composition of the Company's liabilities parallels the composition of COFI, changes in the Company's cost of funds should parallel changes in COFI. However, due to the lag in COFI-based ARMs repricing discussed above and depending upon the level of increase or decrease in interest rates, interim disparities do occur. The decline in short-term rates from 1990 to early 1993 contributed significantly to the Company's net interest margin. Subsequent increases in rates have caused a reduction in net interest income. If interest rates increase again, the Company's net interest income may again be negatively impacted. The Company may employ interest rate swaps, caps and floors in the management of interest rate risk. Interest rate swaps generally involve the exchange of fixed or floating interest payments without the exchange of the underlying principal amounts. Interest rate caps and floors generally involve the payment of a one-time premium to a counterparty who, if interest rates rise or fall above or below a predetermined level, will make payments to the Company at an agreed upon rate for the term of the agreement until such time as interest rates fall below or rise above the cap or floor level. During the third quarter of 1996, the Bank entered into an investment advisory agreement with an investment advisor, for a period of one year. Pursuant to this agreement, the advisor will recommend investments and execute investment purchases in accordance with the Bank's investment strategy. As part of its services, the advisor will make recommendations subject to prior approval and direction of the Bank. Under this agreement, outstanding forward commitments to purchase MBS to be announced ("TBA") ARMs totaled $26.3 million, with a fair value gain of $0.1 million at September 30, 1996. Also outstanding at September 30, 1996 are the following instruments which are hedging the forward commitments:
MATURITY/ FAIR INSTRUMENT UNAMORTIZED NOTIONAL EXERCISE CURRENT CAP VALUE PREMIUM AMOUNT DATE INDEX RATE/STRIKE LOSS - --------------------------------- ----------- -------- --------- -------- ------------ ----- (DOLLARS IN THOUSANDS) Interest Rate Cap................ $924 $21,000 Aug 2003 5.63% 7.00% $23 Put option on Treasury Futures... 23 4,000 Feb 1997 107 102 7 ---- ------- --- $947 $25,000 $30 ==== ======= ===
15 The following table sets out the maturity and rate sensitivity of the Company's interest-earning assets and interest-bearing liabilities as of September 30, 1996. "Gap," as reflected in the table, represents the estimated difference between the amount of interest-earning assets and interest-bearing liabilities repricing during future periods and based on certain assumptions, including those stated in the notes to the table. MATURITY AND RATE SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 1996 MATURITY OR REPRICING --------------------------------------------------------------------------------------------- WITHIN 3 4-12 1-5 6-10 OVER 10 MONTHS MONTHS YEARS YEARS YEARS TOTAL ---------- ---------- --------- -------- --------- ----------- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS: Cash............................... $ 13,679 $ -- $ -- $ -- $ -- $ 13,679 Investment securities (1).......... 53,792 -- 178,887 -- 41,917 274,596 MBS................................ 28,320 -- -- 6,743 106,787 141,850 Loans receivable: ARMs and other adjustables........ 2,329,215 281,317 134,812 1,831 112 2,747,287 Fixed rate loans.................. 480 3,133 6,420 14,225 51,741 75,999 ---------- ------------ -------- ------- -------- ---------- Total gross loans receivable.... 2,329,695 284,450 141,232 16,056 51,853 2,823,286 ---------- ------------ -------- ------- -------- ---------- Total.......................... 2,425,486 284,450 320,119 22,799 200,557 $3,253,411 ---------- ------------ -------- ------- -------- ========== INTEREST-BEARING LIABILITIES: Deposits: Checking and savings accounts... 273,105 -- -- -- -- $ 273,105 Money market accounts........... 69,443 -- -- -- -- 69,443 Fixed maturity deposits: Retail customers............... 433,766 1,542,753 110,464 414 560 2,087,957 Wholesale customers........... 2,368 2,570 8,387 -- -- 13,325 ---------- ------------ -------- ------- -------- ---------- Total deposits............... 778,682 1,545,323 118,851 414 560 2,443,830 ---------- ------------ -------- ------- -------- ---------- Borrowings: FHLB advances................... 319,028 -- 20,000 -- -- 339,028 Other........................... 86,000 109,000 -- -- -- 195,000 ---------- ------------ -------- ------- -------- ---------- Total borrowings............... 405,028 109,000 20,000 -- -- 534,028 ---------- ------------ -------- ------- -------- ---------- Total........................ 1,183,710 1,654,323 138,851 414 560 $2,977,858 ---------- ------------ -------- ------- -------- ========== REPRICING GAP...................... $1,241,776 $ (1,369,873) $181,268 $22,385 $199,997 ========== ============ ======== ======= ======== GAP TO TOTAL ASSETS................ 37.37% (41.22)% 5.45% 0.67% 6.02% ========== ============ ======== ======= ======== CUMULATIVE GAP TO TOTAL ASSETS..... 37.37% (3.85)% 1.60% 2.27% 8.29% ========== ============ ======== ======= ========
- ------------ (1) Investment securities include FHLB stock of $51.5 million. Analysis of the Gap provides only a static view of the Company's interest rate sensitivity at a specific point in time. The actual impact of interest rate movements on the Company's net interest income may differ from that implied by any Gap measurement. The actual impact on net interest income may depend on the direction and magnitude of the interest rate movement, as well as competitive and market pressures. The Company's interest rate risk is reviewed on an ongoing basis. At June 30, 1996, the latest date for which information is available, the Company's interest rate sensitivity measure was in the 4th percentile (only 28% of institutions were less sensitive) of all institutions supervised by the OTS, as measured by the OTS' interest rate risk model. Due to the Company's level of interest rate risk, the Bank would not have been required to include an interest rate risk component in its risk-based capital had the new regulation regarding such inclusion been in effect at September 30, 1996. See "-- Regulatory Capital Compliance." 16 ASSET QUALITY The Company's loan portfolio is primarily located in Southern California and is comprised principally of single family and multifamily (2 units or more) residential loans. At September 30, 1996, 19% of the Company's real estate loan portfolio consisted of California single family residences, while another 11% and 62% consisted of California multifamily dwellings of 2 to 4 units and 5 or more units, respectively. At December 31, 1995, 20% of the Company's real estate loan portfolio consisted of California single family residences while another 11% and 61% consisted of California multifamily dwellings of 2 to 4 units and 5 or more units, respectively. The performance of the Company's multifamily and commercial loan portfolios has been adversely affected by Southern California economic conditions. These portfolios are particularly susceptible to the potential for further declines in the Southern California economy, such as increasing vacancy rates, declining rents, increasing interest rates, declining debt coverage ratios, and declining market values for multifamily and commercial properties. In addition, the possibility that investors may abandon properties or seek bankruptcy protection with respect to properties experiencing negative cash flow, particularly where such properties are not cross-collateralized by other performing assets, can also adversely affect the multifamily loan portfolio. California has been hit particularly hard by adverse economic conditions and Southern California has experienced the brunt of the economic downturn in the state. Though the Southern California economy continues to be characterized by higher unemployment than the national and state averages and real estate values that, in some cases, continue to decline, there are economic indicators that imply that the recovery is beginning to improve. There can be no assurances that these improved economic indicators will have a material impact on the Bank's portfolio in the near future as many factors key to recovery may be impacted adversely by the Federal Reserve Board's interest rate policy as well as other factors. Consequently, rents and real estate values may not stabilize, which may affect future delinquency and foreclosure levels and may adversely impact the Company's asset quality, earnings performance and capital levels. The Bank's internal asset review process reviews the quality and recoverability of each of those assets which exhibits credit risk to the Bank based on delinquency and other criteria in order to establish adequate specific valuation allowances and general valuation allowances. The Bank utilizes several analytical tools in determining the adequacy of its GVA. The Bank calculates an estimated range of possible loss by applying these analytics in conjunction with the application of judgment and knowledge of particular credits, economic trends, industry experience and other relevant factors to estimate the appropriate level of the GVA. Should any of the aforementioned factors vary materially in the near term the Company could experience the need to increase its allowance for loan losses which could result in a higher level of provisions for loan losses. 17 During the third quarter of 1996, total delinquent loans decreased $7.5 million, or 10.1%, from June 30, 1996. The following table presents loan delinquencies by number of days delinquent and by property type as of the dates indicated. All assets are reported net of specific reserves and writedowns.
SEPTEMBER 30, JUNE 30, DECEMBER 31, 1996 1996 1995 -------------- ------------- ------------- (DOLLARS IN THOUSANDS) Delinquencies by number of days: 30 to 59 days......................... 0.82% 0.82% 0.43% 60 to 89 days......................... 0.30 0.28 0.24 90 days and over...................... 1.30 1.52 1.74 ------- ------- ------- Loan delinquencies to net loan portfolio 2.42% 2.62% 2.41% ======= ======= ======= Delinquencies by property type: Single family: 30 to 59 days......................... $ 4,297 $10,099(1) $ 4,283 60 to 89 days......................... 2,928 2,052 924 90 days and over...................... 7,246 6,306 7,226 ------- ------- ------- 14,471 18,457 12,433 ------- ------- ------- Percent to applicable loan portfolio. 2.74% 3.38% 2.10% Multifamily (2 to 4 units): 30 to 59 days......................... 2,603 2,169 1,748 60 to 89 days......................... 631 1,508 282 90 days and over...................... 4,897 4,453 6,671 ------- ------- ------- 8,131 8,130 8,701 ------- ------- ------- Percent to applicable loan portfolio. 2.55% 2.50% 2.57% Multifamily (5 to 36 units): 30 to 59 days......................... 13,937 8,978 5,434 60 to 89 days......................... 4,701 4,466 5,801 90 days and over...................... 19,201 24,989 14,312 ------- ------- ------- 37,839 38,433 25,547 ------- ------- ------- Percent to applicable loan portfolio. 2.67% 2.65% 1.71% Multifamily (37 units and over): 30 to 59 days......................... -- -- 304 60 to 89 days......................... -- -- -- 90 days and over...................... 1,665 4,019 3,190 ------- ------- ------- 1,665 4,019 3,494 ------- ------- ------- Percent to applicable loan portfolio. 0.54% 1.27% 1.07% Commercial and Industrial: 30 to 59 days......................... 1,911 2,221 958 60 to 89 days......................... -- -- 213 90 days and over...................... 3.240 3,525 20,511(2) ------- ------- ------- 5,151 5,746 21,682 ------- ------- ------- Percent to applicable loan portfolio. 2.44% 2.67% 9.26% Total loan delinquencies, net........... $67,257 $74,785 $71,857 ======= ======= ======= Loan delinquencies to net loan portfolio 2.42% 2.62% 2.41% ======= ======= =======
- -------------- (1) Management believes the increase at June 30, 1996 from December 31, 1995 in the 30 to 59 days delinquent category was primarily the result of the sale of servicing of the single family portfolio to an outside party which resulted in a temporary disruption of the collection process. (2) Includes two loans on one hotel property with a total balance of $15.9 million. 18 The following table presents net delinquent loans at the dates indicated:
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, 1996 1996 1996 1995 (1) 1995 (1) ------------- -------- --------- ------------- -------------- (DOLLARS IN THOUSANDS) Number of days delinquent: 30 to 59 days.............. $22,748 $23,467 $17,135 $ 12,727 $ 17,963 60 to 89 days.............. 8,260 8,026 9,552 7,220 8,379 90 days and over........... 36,249 43,292 40,111 51,910 54,313 ------- ------- ------- -------- -------- Total delinquencies..... $67,257 $74,785 $66,798 $ 71,857 $ 80,655 ======= ======= ======= ======== ========
- --------------- (1) Includes two loans on one hotel property with a total balance of $15.9 million for all 1995 periods presented. Total classified assets increased $94.1 million or 43% from December 31, 1995, to $313.2 million at September 30, 1996. This increase was primarily due to an increase of $101.1 million in performing classified loans during the first nine months of 1996 as a result of the continued implementation of the loan grading system. This enhanced grading process, started in the second half of 1995, involved a substantial portion of the loan portfolio and as a result downgraded a considerable number of loans to Special Mention or Substandard for reasons other than degradation of collateral or the borrower's ability to fully repay the debt. For example, approximately 83% of the Bank's multifamily (5+ units) and commercial/industrial loans have been reviewed utilizing the new loan grading system. The increase in classified assets was partially offset by a decrease in nonperforming assets ("NPAs") of $9.7 million during the first nine months of 1996. The ratio of NPAs to total assets decreased from 2.16% at December 31, 1995, to 1.86% at September 30, 1996. This decrease is primarily due to reduced levels of nonaccruing loans ("NPLs") at September 30, 1996, compared to December 31, 1995. This level of classified assets continues to cause management concern and will continue to receive specific attention. See "-- Accelerated Asset Resolution Plan." All assets and ratios are reported net of specific reserves and writedowns unless otherwise stated. The following table presents asset quality details at the dates indicated:
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, 1996 1996 1996 1995 (1) 1995 (1) ------------- ---------- ----------- ------------- ------------- (DOLLARS IN THOUSANDS) NPAs by Type: NPLs................................... $ 36,480 $ 43,292 $ 40,111 $ 51,910 $ 55,114 REO, net of REO general valuation allowance ("GVA")..................... 25,216 20,519 23,533 19,521 37,550 -------- -------- -------- -------- -------- Total NPAs............................ $ 61,696 $ 63,811 $ 63,644 $ 71,431 $ 92,664 ======== ======== ======== ======== ======== NPAs by Composition: Single family residences............... $ 10,968 $ 9,108 $ 9,461 $ 10,178 $ 12,396 Multifamily 2 to 4 units............... 8,974 7,750 10,197 9,269 11,266 Multifamily 5 units and over........... 35,040 37,730 34,202 25,923 36,956 Commercial and other................... 7,714 9,923 10,184 28,361 32,046 REO GVA................................ (1,000) (700) (400) (2,300) -- -------- -------- -------- -------- -------- Total NPAs............................ 61,696 63,811 63,644 71,431 92,664 Total troubled debt restructurings 49,575 57,079 53,745 32,691 47,340 ("TDRs").............................. -------- -------- -------- -------- -------- Total TDRs and NPAs................... $111,271 $120,890 $117,389 $104,122 $140,004 ======== ======== ======== ======== ======== Classified Assets: NPAs................................... $ 61,696 $ 63,811 $ 63,644 $ 71,431 $ 92,664 Performing classified loans............ 248,967 251,847 222,279 147,646 88,337 Other classified assets................ 2,503 3,100 2,979 -- -- -------- -------- -------- -------- -------- Total classified assets............... $313,166 $318,758 $288,902 $219,077 $181,001 ======== ======== ======== ======== ======== Classified Asset Ratios: NPLs to total assets................... 1.10% 1.31% 1.22% 1.57% 1.63% NPAs to total assets................... 1.86% 1.94% 1.94% 2.16% 2.74% TDRs to total assets................... 1.49% 1.73% 1.64% 0.99% 1.40% NPAs and TDRs to total assets.......... 3.35% 3.67% 3.58% 3.16% 4.14% Classified assets to total assets...... 9.42% 9.67% 8.81% 6.64% 5.35% REO to NPAs............................ 40.87% 32.16% 36.98% 27.33% 40.52% NPLs to NPAs........................... 59.13% 67.84% 63.02% 72.67% 59.48%
- -------------- 1) Includes two loans on one hotel property with a total balance of $15.9 million for all 1995 periods presented. 19 The following table presents classified asset by property type at the dates indicated:
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, 1996 1996 1996 1995 (1) 1995 (1) ------------- ---------- ----------- ------------- ------------- (DOLLARS IN THOUSANDS) Performing classified loans: Single family.......................... $ 10,054 $ 8,098 $ 6,638 $ 4,368 $ 2,730 Multifamily: 2 to 4 units.......................... 9,374 10,227 11,173 8,297 7,962 5 to 36 units......................... 146,050 148,073 115,857 85,581 45,464 37 units and over..................... 42,861 43,564 48,656 39,301 25,962 -------- -------- -------- -------- -------- Total multifamily properties......... 198,285 201,864 175,686 133,179 79,388 Commercial and other................... 40,628 41,885 39,955 10,099 6,219 -------- -------- -------- -------- -------- Total performing classified loans..... 248,967 251,847 222,279 147,646 88,337 -------- -------- -------- -------- -------- Nonperforming classified loans: Single family.......................... 7,478 6,306 5,897 7,226 8,966 Multifamily: 2 to 4 units.......................... 4,897 4,453 4,950 6,671 5,414 5 to 36 units......................... 19,200 24,989 20,699 14,312 16,029 37 units and over..................... 1,665 4,019 4,720 3,190 -- -------- -------- -------- -------- -------- Total multifamily properties......... 25,762 33,461 30,369 24,173 21,443 Commercial and other................... 3,240 3,525 3,845 20,511 24,705 -------- -------- -------- -------- -------- Total nonperforming classified loans.. 36,480 43,292 40,111 51,910 55,114 -------- -------- -------- -------- -------- Total classified loans................ 285,447 295,139 262,390 199,556 143,451 -------- -------- -------- -------- -------- Real estate owned: Single family.......................... 3,548 2,802 3,564 2,952 3,430 Multifamily: 2 to 4 units.......................... 4,018 3,297 5,246 2,598 5,851 5 to 36 units......................... 12,331 7,457 7,345 8,421 16,496 37 units and over..................... 1,844 1,265 1,439 -- 4,432 -------- -------- -------- -------- -------- Total multifamily properties......... 18,193 12,019 14,030 11,019 26,779 Commercial and other................... 4,475 6,398 6,339 7,850 7,341 -------- -------- -------- -------- -------- Net REO before REO GVA................ 26,216 21,219 23,933 21,821 37,550 REO GVA................................ (1,000) (700) (400) (2,300) -- -------- -------- -------- -------- -------- Total real estate owned............... 25,216 20,519 23,533 19,521 37,550 -------- -------- -------- -------- -------- Other classified assets................. 2,503 3,100 2,979 -- -- -------- -------- -------- -------- -------- Total classified assets............... $313,166 $318,758 $288,902 $219,077 $181,001 ======== ======== ======== ======== ========
- --------------- 1) Includes two loans on one hotel property with a total balance of $15.9 million for all 1995 periods presented. Direct costs of foreclosed real estate operations totaled $1.4 million and $1.3 million for the three months ended September 30, 1996, and 1995, respectively, and $4.4 million and $4.3 million for the nine months ended September 30, 1996 and 1995, respectively. The following table provides information about the change in the book value and the number of properties owned and foreclosed for the periods indicated:
AT OR FOR THE QUARTER AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- ------------------------- 1996 1995 1996 1995 --------- --------- ----------- ---------- (DOLLARS IN THOUSANDS) REO net book value...................... $25,216 $37,550 $25,216 $37,550 Increase in REO for the period.......... $ 4,697 $ 9,742 $ 5,695 $23,435 Number of real properties owned......... 152 162 152 162 Increase in number of properties owned for the period......................... 32 34 43 98 Number of properties foreclosed for the period................................. 60 86 182 215 Gross book value of properties foreclosed............................. $20,875 $32,319 $57,258 $74,817 Average gross book value of properties foreclosed............................. $ 348 $ 376 $ 315 $ 348
20 The following table summarizes the Company's reserves, writedowns and certain coverage ratios at the dates indicated:
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ------------- ------------ ------------- (DOLLARS IN THOUSANDS) Loans: GVA................................... $ 29,281 $ 48,921 $35,000 Specific reserves...................... 33,551(1) 40,514 24,759 ---------- ---------- ------- Total allowance for estimated losses. $ 62,832 $ 89,435(2) $59,759 ========== ========== ======= Writedowns (3)......................... $ 216 $ 316 $ 316 ========== ========== ======= Total allowance and loan writedowns to gross loans........................... 2.23% 2.96% 1.94% Total loan allowance to gross loans (3) 2.22% 2.95% 1.93% Loan GVA to loans (4).................. 1.06% 1.64% 1.14% Loan GVA to NPLs....................... 80.27% 94.24% 63.50% NPLs to total loans.................... 1.33% 1.77% 1.82% GVA and SVA to gross classified loans.. 19.08% 36.70% 35.46% NPLs to classified loans............... 12.67% 26.01% 38.42% Real Estate Owned: REO GVA................................ $ 1,000 $ 2,300 $ -- Specific reserves...................... 1,975 1,192 1,065 ---------- ---------- ------- Total allowance for estimated losses. $ 2,975 $ 3,492 $ 1,065 ========== ========== ======= Writedowns (3)......................... $ 15,242 $ 17,584 $26,214 ========== ========== ======= Total REO allowance and REO writedowns to gross REO.......................... 41.94% 51.92% 42.08% Total REO allowance to gross REO (5)... 10.55% 15.17% 2.76% REO GVA to REO (4)..................... 3.81% 10.54% --% Total Loans and REO: GVA.................................... $ 30,281 $ 51,221 $35,000 Specific reserves...................... 35,526 41,706 25,824 ---------- ---------- ------- Total allowance for estimated losses. $ 65,807 $ 92,927 $60,824 ========== ========== ======= Writedowns (3)......................... $ 15,458 $ 17,900 $26,530 ========== ========== ======= Total allowance and writedowns to gross loans and REO................... 2.83% 3.60% 2.77% Total allowance to gross loans and REO (4)................................... 2.30% 3.04% 1.94% Total GVA to loans and REO............. 1.08% 1.70% 1.13% Total GVA to NPAs...................... 48.30% 69.47% 37.77%
- --------------- (1) Includes specific reserves on non-mortgage loans totaling $0.1 million. (2) Increase in the allowance for estimated loan losses from September 30, 1995 includes the effect of the $45 million reserve established in 1995 in connection with the adoption of the Accelerated Asset Resolution Plan. (3) Writedowns include cumulative charge-offs on outstanding loans and REO as of the date indicated. (4) Loans and REO, as applicable, in these ratios are calculated prior to their reduction for loan and REO GVA, respectively, but are net of specific reserves and writedowns. (5) Net of writedowns. 21 The following schedules summarize the activity in the Company's allowances for estimated loan and real estate losses:
QUARTER ENDED SEPTEMBER 30, ------------------------------------------------------------------------------- 1996(1) 1995 -------------------------------------- -------------------------------------- REAL ESTATE REAL ESTATE LOANS OWNED TOTAL LOANS OWNED TOTAL ---------- ------------ ---------- ---------- ------------ ---------- (DOLLARS IN THOUSANDS) Balance on July 1,......... $ 73,722 $2,787(2) $ 76,509 $ 62,955 $ 832 $ 63,787 Provision for losses...... 3,900 731 4,631 8,773 1,229 10,002 Charge-offs............... (15,199) (543) (15,742) (12,418) (996) (13,414) Recoveries and other...... 409 -- 409 449 -- 449 -------- ------ -------- -------- ------ -------- Balance on September 30,... $ 62,832 $2,975 $ 65,807 $ 59,759 $1,065 $ 60,824 ======== ====== ======== ======== ====== ========
- --------------- (1) Includes all activity related to the Accelerated Asset Resolution Plan assets. (2) Beginning balance in allowance for estimated real estate losses has been restated to reclassify the allocations from GVA to REO reserves as charge-offs.
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------- 1996(1) 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...... 11,705 1,978 13,683 23,924 2,773 26,697 Charge-offs............... (40,209) (2,495) (42,704) (33,814) (4,026) (37,840) Recoveries and other...... 1,901 -- 1,901 2,447 -- 2,447 -------- ------- -------- -------- ------- -------- Balance on September 30,... $ 62,832 $ 2,975 $ 65,807 $ 59,759 $ 1,065 $ 60,824 ======== ======= ======== ======== ======= ========
- ---------------- (1) Includes all activity related to the Accelerated Asset Resolution Plan assets. The following table details the activity affecting specific loss reserves for the periods indicated, including activity on assets included in the Accelerated Asset Resolution Plan:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 -------------------------------------- -------------------------------------- REAL ESTATE REAL ESTATE LOANS OWNED TOTAL LOANS OWNED TOTAL ---------- ------------ ---------- ---------- ------------ ---------- (DOLLARS IN THOUSANDS) Balance at beginning of period....... $ 41,669 $2,087(1) $ 43,756(1) $ 40,514 $ 1,192 $ 41,706 Allocations from GVA to specific reserves.................. 7,081 431 7,512 33,246 3,278 36,524 Charge-offs......................... (15,199) (543) (15,742) (40,209) (2,495) (42,704) -------- ----- -------- -------- ------- -------- Balance at end of period indicated... $ 33,551 1,975 $ 35,526 $ 33,551 $ 1,975 $ 35,526 ======== ===== ======== ======== ======= ========
- ---------------- (1) Beginning balance in allowance for estimated real estate losses has been restated to properly reflect allocations from GVA to REO reserves as charge offs. 22 NONINTEREST INCOME (EXPENSE) Noninterest income has three major components: (a) noninterest income from ongoing operations, which includes loan fee income, gains or losses on loans held for sale, fees earned on the sale of securities and annuities and retail banking fees, (b) income/expenses associated with REO, which includes both the provision for real estate losses as well as income/expenses incurred by the Company associated with the operation of its REO properties and (c) gains and losses on the sales of loan servicing, investment securities and mortgage-backed securities. Items (b) and (c) can fluctuate widely, and could therefore mask the underlying fee generating performance of the Company on an ongoing basis. Net noninterest income decreased by $0.1 million from net noninterest income of $0.6 million in the third quarter 1995 to net noninterest income of $0.5 million in the third quarter 1996. For the nine months ended September 30, 1996, net noninterest income decreased by $9.4 million from net noninterest income of $11.1 million in the nine months ended September 30, 1995, to net noninterest income of $1.7 million in the same period of 1996. The major components of this decrease are: (a) other noninterest income (expense) decreased by $4.4 million as a result of a net gain of $4.5 million realized from the sale of $495.5 million in rights to service loans for others, with no comparable amounts in 1996; (b) loan service fees decreased by $1.4 million in the first nine months of 1996 from the 1995 nine month period primarily as a result of the sale of the rights to service loans in the first quarter of 1995 and the second quarter of 1996; (c) net gains on loan sales decreased in the first nine months of 1996 by $0.7 million from first nine months of 1995; (d) net gains on sales of mortgage-backed securities decreased in the first nine months of 1996 by $0.8 million from the 1995 nine month period and (e) net gains on securities activities in the first nine months of 1996 decreased by $2.6 million from the 1995 nine month period. The increased sales activity in loans, mortgage-backed securities and investment securities in 1995 was primarily for regulatory capital maintenance purposes. This was partially offset by decreased real estate provisions and costs of $0.6 million in 1996 as a result of decreased levels of REO properties. OPERATING EXPENSES Operating expenses (excluding the SAIF special assessment of $18.0 million) decreased by $3.0 million to $17.4 million for the third quarter 1996 compared to $20.5 million for the third quarter 1995. The change was primarily due to (a) a $1.3 million decrease in personnel and benefit expense due to a decline of 157 or 25.1% in the three month average number of full-time equivalent employees; (b) a decrease of $0.7 million in occupancy costs; (c) a decrease of $0.5 million in professional services and (d) a decrease of $0.5 million in office-related expenses and other costs. Operating expenses (excluding the SAIF special assessment of $18.0 million) decreased by $8.1 million to $50.6 million for the nine months ended September 30, 1996 compared to $58.7 million for the same nine months of 1995. The change was primarily due to (a) a $5.5 million decrease in personnel and benefit expense due to a decline of 171 or 25.4% in the nine month average number of full-time equivalent employees; (b) a decrease of $1.4 million in occupancy costs; (c) a decrease of $0.4 million of FDIC insurance costs excluding the SAIF special assessment of $18.0 million and (d) a decrease of $1.0 million in office-related expenses and other costs. These favorable variances were partially offset by an increase of $0.2 million in professional services. Decreased operating expenses, excluding the SAIF special assessment of $18.0 million, resulted in a decrease in the annualized operating expense ratio to 2.04% for the nine months ended September 30, 1996 from 2.15% for the same period in 1995, notwithstanding the decrease in total average asset size of the Company (from $3.6 billion for the nine months ended September 30, 1995 to $3.3 billion for the nine months ended September 30, 1996). Due to the sensitivity of the operating expense ratio to changes in the size of the balance sheet, management also looks at trends in the efficiency ratio to assess the changing relationship between operating expenses and income. The efficiency ratio measures the amount of cost expended by the Company to generate a given level of revenues in the normal course of business. It is computed by dividing total operating expense by net interest income and noninterest income, excluding infrequent items. A decrease in the efficiency ratio is favorable as it indicates that less expenses were incurred to generate a given level of revenue. 23 The efficiency ratio improved to 74.85% for the third quarter 1996 from 92.28% for the third quarter 1995. The efficiency ratio also improved between the nine months ended September 30, 1995 and September 30, 1996 from 91.09% to 70.05%. This decrease was due to increased net interest income and decreased operating expense (excluding the SAIF special assessment of $18.0 million), which were partially offset by decreased net noninterest income (expense). INCOME TAXES The Company's combined federal and state statutory tax rate is approximately 42.4% of earnings before income taxes. The effective tax rates of 6.8% and 8.0% on losses before income taxes for the quarter and nine months ended September 30, 1996, respectively, reflect the federal income tax benefit attributable to the third quarter filing of a loss carryback claim under Internal Revenue Code ("IRC") Section 172(f), as discussed in the following paragraph. No income tax provision is reflected for the quarter ended September 30, 1995. The income tax provision for the nine months ended September 30, 1995, reflects only the state minimum corporation taxes. In the quarter ended September 30, 1996, various federal Form 1120Xs "Amended U.S. Corporation Income Tax Return" were filed for years 1986 through 1989, 1991, 1992 and 1994 to reflect the 10-year loss carryback under IRC Section 172(f) for qualifying deductions through August 4, 1994. These returns were filed jointly with the Bank's former holding company, Citadel Holding Corporation. The amended returns, if accepted in total, would result in a net refund of $19.4 million to Fidelity. IRC Section 172(f) is an area of the tax law without significant legal precedent. There may be opposition by the IRS as to Fidelity's ability to carryback such losses. Therefore, no assurances can be made as to Fidelity's entitlement to such claim. Fidelity is recording $1.1 million of federal income tax benefit with respect to these amended tax returns. Effective for taxable years beginning after 1995, recently enacted legislation has repealed for federal purposes the reserve method of accounting for bad debts for thrift institutions. While thrifts qualifying as "small banks" may continue to use the experience method, Fidelity being deemed a "large bank," is required to use the specific charge-off method. In addition, this enacted legislation contains certain income recapture provisions which are discussed below. Thrift institutions which are deemed a "large bank," are required to take into income ratably over 6 years, beginning with the first taxable year beginning after 1995, the institution's "applicable excess reserves." The applicable excess reserves are the excess of (1) the balance of the institution's reserves for losses on loans other than supplemental reserves at the close of its last taxable year beginning before January 1, 1996, over (2) the adjusted balance of such reserves as of the close of its last taxable year beginning before January 1, 1988. Fidelity's applicable excess reserves at December 31, 1995 are $14.6 million. This amount will be recognized as taxable income over six years at the rate of $2.4 million per year starting with the taxable year ended December 31, 1996. The adjusted pre-1988 total reserve balance of $35.2 million as of December 31, 1995, will be recaptured into taxable income in the event Fidelity (1) ceases to be a "bank" or "thrift," or (2) makes distributions to shareholders in excess of post-1951 earnings and profits, redemptions, or liquidations. Based on current estimates, Fidelity will have no post-1951 earnings and profits at December 31, 1996. As a result, Fidelity's $6.2 million distribution with respect to its preferred stock will trigger reserve recapture into taxable income for 1996. Based on current estimates, there is no current period income tax impact. Due to the 1995 Recapitalization and the restructuring and recapitalization completed in the third and fourth quarters of 1994 (the "1994 Restructuring and Recapitalization"), the utilization in future periods of net operating loss and tax credit carryforwards generated prior to these events will be limited. 24 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 September 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... $ 207,200 6.24% $ 207,500 6.25% $ 207,500 10.45% $ 232,200 11.70% Well capitalized requirement.... 99,600 3.00 166,000 5.00 119,100 6.00 198,500 10.00 ---------- ----- ---------- ----- ---------- ------ ---------- ------ Excess capital.................. 107,600 3.24% $ 41,500 1.25% $ 88,400 4.45% $ 33,700 1.70% ========== ===== ========== ===== ========== ====== ========== ====== Adjusted assets (1)............ $3,319,400 $3,319,700 $1,984,900 $1,984,900 ========== ========== ========== ==========
- --------------------- (1) The term "adjusted assets" refers to the term "adjusted total assets" as defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core capital requirements, and refers to the term "risk-weighted assets" as defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital requirements. FDICIA also required the OTS and the federal bank regulatory agencies to revise their risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk, and risks of nontraditional activities. Effective January 1, 1994, the OTS incorporated an interest rate risk component into its regulatory capital rule. Under the revised rule, savings institutions with "above-normal" interest rate risk exposure would be subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. An institution's interest rate risk is measured by the decline in the net present value ("NPV") of its assets that would result from a hypothetical 200-basis point increase or decrease in market interest rates divided by the estimated economic value of a bank's assets, as calculated in accordance with guidelines set forth by the OTS. An institution whose measured interest rate risk exposure exceeds 2% would be required to deduct an interest rate component in calculating its total capital under the risk-based capital rule. The interest rate risk component is an amount equal to one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the estimated economic value of a bank's assets. That dollar amount would be deducted from a bank's total capital in calculating compliance with its risk-based capital requirement. Under the rule, there is a lag between the reporting date of an institution's financial data and the effective date for the new capital requirement based on that data. However, the OTS has temporarily postponed the implementation of the new rule until the OTS has collected sufficient data to determine whether the rule is effective in monitoring and managing interest rate risk. No interest rate risk component would have been required to be added to the Bank's risk-based capital requirement at September 30, 1996, the latest date for which this information is available, had the rule been in effect at that time. Effective in January 1995, the OTS amended the risk-based capital standards by explicitly identifying concentration of credit risk and the risks arising from nontraditional activities, as well as an institution's ability to manage those risks, as important factors to be taken into account by the agency in assessing an institution's overall capital adequacy. 25 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)............. $ 206,700 $ 206,700 $ 206,700 Unrealized losses on securities...... 1,000 1,000 1,000 Adjustments Intangible assets.................. (300) -- -- Nonqualifying mortgage servicing rights............................ (100) (100) (100) Nonincludable subsidiaries......... (100) (100) (100) General valuation reserves......... -- -- 24,900 Equity investments................. -- -- (200) ---------- ---------- ---------- Regulatory capital (2)............... 207,200 6.24% 207,500 6.25% 232,200 11.70% Required minimum..................... 49,800 1.50 99,600 3.00 158,800 8.00 ---------- ----- ---------- ---- ---------- ----- Excess capital....................... $ 157,400 4.74% $ 107,900 3.25% $ 73,400 3.70% - ------------------------------------- ========== ===== ========== ==== ========== ===== Adjusted assets (3).................. $3,319,400 $3,319,700 $1,984,900 ========== ========== ==========
- --------------- (1) The Bank's total stockholders' equity, in accordance with generally accepted accounting principles, was 6.23% of its total assets at September 30, 1996. (2) Both the OTS and the FDIC may examine the Bank as part of their legally prescribed oversight of the industry. Based on their examinations, the regulators can direct that the Bank's financial statements be adjusted in accordance with their findings. (3) The term "adjusted assets" refers to the term "adjusted total assets" as defined in 12 C.F.R. section 567.1(a) for purposes of tangible and core capital requirements, and refers to the term "risk-weighted assets" as defined in 12 C.F.R. section 567.1(bb) for purposes of risk-based capital requirements. CAPITAL RESOURCES AND LIQUIDITY Sales of Loans: There were no loans classified as held for sale in the nine months ended September 30, 1996 compared to $2.0 million for the nine months ended September 30, 1995. Sales of loans are dependent upon various factors, including volume of loans originated, interest rate movements, investor demand for loan products, deposit flows, the availability and attractiveness of other sources of funds, loan demand by borrowers, desired asset size and evolving capital and liquidity requirements. Due to the volatility and unpredictability of these factors, the volume of the Company's sales of loans has fluctuated significantly and no estimate of future sales can be made at this time. At September 30, 1996, the Company had no loans held for sale. Sales of loans from the held for investment portfolio would be caused by unusual events. The level of future sales, if any, is difficult to predict. During the first and second quarters of 1995, the Bank securitized $46.4 million and $66.4 million, respectively, of single-family adjustable rate mortgages through a swap of whole loans for mortgage-backed securities which are held in the Bank's available for sale portfolio. FHLB Advances: The Company increased its FHLB advances by $46.3 million for the nine months ended September 30, 1996. This compares to net repayments of $40.0 million for the nine months ended September 30, 1995. Commercial paper: Commercial paper outstanding was increased by $45.0 million for the nine months ended September 30, 1996 and reduced by $247.0 million for the nine months ended September 30, 1995. 26 Loan payments and payoffs: Loan principal payments, including prepayments and payoffs, provided $189.8 million for the nine months ended September 30, 1996 compared to $138.9 million for the same period in 1995. The Company expects that loan payments and prepayments will remain a significant funding source. Sales of securities: The sale of investment securities and MBS provided $182.9 million for the nine months ended September 30, 1996 compared to $264.4 million in sales during the same period in 1995. The Company held $326.1 million in its available for sale portfolio as of September 30, 1996, compared to $126.0 million at December 31, 1995, and $139.8 million at September 30, 1995. Undrawn sources: The Company maintains other sources of liquidity to draw upon, which at September 30, 1996 include (a) a line of credit with the FHLB with $22.8 million available (assuming all of the $500.0 million commercial paper capacity is used); (b) unused commercial paper facility capacity of $405.0 million; (c) $223.6 million in unpledged securities available to be placed in reverse repurchase agreements or sold; and (d) $668.6 million of unpledged loans, some of which would be available to collateralize additional FHLB or private borrowings, or be securitized. Deposits: At September 30, 1996, the Company had deposits of $2.5 billion. The following table presents the distribution of the Company's deposit accounts:
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ----------------------- -------------------- PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ----------- --------- --------- -------- (DOLLARS IN THOUSANDS) Money market savings accounts........... $ 69,443 2.8% $ 93,901 3.6% Checking accounts....................... 290,438 11.5 309,065 11.8 Passbook accounts....................... 55,606 2.2 62,934 2.4 ---------- ------ ---------- ------ Total transaction accounts............ 415,487 16.5 465,900 17.8 ---------- ------ ---------- ------ Certificates of Deposit $100,000 and 537,679 21.4 528,320 20.3 over................................... Certificates of deposit less than 1,563,603 62.1 1,606,649 61.9 $100,000............................... ---------- ------ ---------- ------ Total certificates of deposit......... 2,101,282 83.5 2,134,969 82.2 ---------- ------ ---------- ------ Total deposits....................... $2,516,769 100.0% $2,600,869 100.0% ========== ====== ========== ======
Repurchase Agreements: From time to time the Company enters into reverse repurchase agreements by which it sells securities with an agreement to repurchase the same securities at a specific future date (overnight to 30 days). The Company deals only with dealers perceived by management to be financially strong and who are recognized as primary dealers in U.S. Treasury securities by the Federal Reserve Board. There were no repurchase agreements outstanding at September 30, 1996 and 1995. In the nine months ended September 30, 1996 and 1995, the Company borrowed and repaid funds from repurchase agreements of $171.7 million and $46.5 million, respectively. Loan Fundings: The Company funded $1.4 million of gross loans (excluding the Company's refinancings) in the nine months ended September 30, 1996 compared to $17.2 million in the same period of 1995. The closing of the Company's wholesale and correspondent lending operations in the fourth quarter of 1994 resulted in reduced loan fundings in 1995 and a significant decrease in loan fundings during the first nine months of 1996. Contingent or potential uses of funds: The Company had no unfunded loans at September 30, 1996 and 1995. Liquidity: OTS regulations require the maintenance of an average regulatory liquidity ratio of at least 5% of deposits and short-term borrowings. the Bank's average regulatory liquidity ratio was 5.34% and 5.39% for the months ended September 30, 1996 and 1995, respectively. Holding Company Liquidity: Bank Plus has limited cash reserves and no material potential cash producing operations or assets other than its investments in Fidelity and Gateway. Both Gateway's and Fidelity's ability to pay dividends may be restricted by certain regulatory capital rules. As part of its compensation agreement with Richard M. Greenwood, the Company's President and Chief Executive Officer, Bank Plus made a loan in the 27 amount of $265,000 to Mr. Greenwood in July 1996 to refinance an existing loan made by the Bank's former holding company, Citadel Holding Corporation. The loan is interest free prior to maturity, and is payable upon demand, with interest thereon at the federal discount rate then in effect plus 4 percent. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Bank was named as a defendant in a purported class action lawsuit alleging violations of federal securities laws in connection with the offering of common stock by the Bank in 1994 as part of the Bank's previously reported 1994 Restructuring and Recapitalization. The suit was filed by Harbor Finance Partners ("Harbor") in an alleged class action complaint in the United States District Court-Central District of California on July 28, 1995 and originally named as defendants the Bank, Citadel Holding Co., Richard M. Greenwood (the Bank's chief executive officer and Citadel's former chief executive officer), J. P. Morgan Securities, Inc., and Deloitte & Touche. The suit alleged that false or misleading information was provided by the defendants in connection with the Bank's 1994 Restructuring and Recapitalization and stock offering and that the defendants knew and failed to disclose negative information concerning the Bank. A motion to dismiss the original complaint was filed by the Bank, and was granted without opposition. The amended complaint did not include J. P. Morgan Securities, Inc. and Deloitte & Touche as defendants and contained some factual and legal contentions which were different from those set forth originally. On May 21, 1996, the court granted the Bank's motion to dismiss the first amended complaint, but granted leave to amend. Following the filing of a second amended complaint, the Bank filed a motion to dismiss. At a hearing on July 22, 1996, the court ruled that the case should be dismissed with prejudice and a formal order to that effect was submitted to the court for execution. Harbor lodged certain objections to the proposed order, including objections that the state law claims in the second amended complaint should not be dismissed with prejudice. The court's Order of Dismissal was entered on August 5, 1996 and provided that all claims asserted in the second amended complaint under federal law were dismissed with prejudice and those under state law were dismissed without prejudice to their renewal in state court pursuant to 28 U.S.C. (S)1367(b)(3). Harbor has filed a Notice of Appeal to the Order of Dismissal and on August 30, 1996 filed an alleged class action complaint in state court containing allegations similar to those raised in the federal court action as well as claims for unfair business practices. Both the original complaint filed by Harbor and the amended complaints in the federal court action and the complaint in the state court action raise certain issues previously pleaded in a wrongful termination and defamation action brought by William Strocco ("Strocco") against the Bank and Citadel, which was filed in Los Angeles County Superior Court on March 9, 1995, although the nature and use of the same varies in the pleadings. Plaintiff in the Strocco case is a former manager of the Bank's REO department who alleged, among other things, that his employment was terminated in violation of public policy and was a result of breaches of his implied employment contract and the implied covenant of good faith and fair dealing based on the notion that he objected to various aspects of the Bank's 1994 Restructuring and Recapitalization, including the selling of REO properties in bulk sales, as not in the best interests of the Bank, and that he asserted that the same were not fully disclosed or were misrepresented to potential investors and to the OTS. Mr. Strocco also seeks damages for defamation and interference with contractual relationship. In July 1996, the Los Angeles Superior Court granted Citadel's motion for summary judgment to dismiss it as a defendant in the Strocco litigation. The Bank's motion for summary adjudication of issues was denied. The Strocco complaint seeks damages, including punitive damages, in an unspecified amount. The Bank believes that Mr. Strocco's claims are meritless and plans to vigorously contest them. In addition, the Bank is a defendant in several individual and purported class actions brought by several borrowers which raise similar claims with respect to the manner in which the Bank serviced certain adjustable rate mortgages which were originated during the period 1983 through 1988. The actions have been filed between July 1, 1992 and February of 1995. In one case the Bank won a summary judgement in Federal District Court. This judgment was appealed. On July 25, 1996, the Ninth Circuit Court of Appeals filed its opinion which affirmed in part, reversed in part and remanded back to the Federal District Court for further hearing. In three 28 Los Angeles Superior Court cases, judgment in favor of the Bank was recently entered. Plaintiff has appealed in all three cases. Two other cases are pending in the Los Angeles Superior Court. The plaintiffs' principal claim is that the Bank selected an inappropriate review date to consult the index upon which the rate adjustment is based that was one or two months earlier than what was required under the terms of the notes. In a declining interest rate environment, the lag effect of an earlier review period defers the benefit to the borrower of such decline, and the reverse would be true in a rising interest rate environment. The Bank strongly disputes these contentions and is vigorously defending these suits. The legal responsibility and financial exposure of these claims presently cannot be reasonably ascertained and, accordingly, there is a risk that the final outcome of one or more of these claims could result in the payment of monetary damages which could be material in relation to the financial condition or primarily results of operations of the Bank. At this point, the Bank does not believe the likelihood of such a result is probable and has not established any specific litigation reserves with respect to such lawsuits. In the normal course of business, the Company and certain of its subsidiaries have a number of other lawsuits and claims pending. An adverse outcome with respect to the foregoing claims could have a material adverse effect on the Company's financial condition, results of operations and the Bank's regulatory capital. The Company's management and its counsel believe that none of the lawsuits or claims pending will have a materially adverse impact on the financial condition or business of the Company. ITEM 2. CHANGES IN SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable 29 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. (incorporated by reference to Exhibit 2.1 to the Form 8-B of Bank Plus filed with the SEC on April 22, 1996 (the "Form 8-B")). 3.1 Certificate of Incorporation of Bank * Plus Corporation (incorporated by reference to Exhibit 3.1 to the Form 8-B). 3.2 Bylaws of Bank Plus Corporation * (incorporated by reference to Exhibit 3.2 to the Form 8-B). 4.1 Specimen of Common Stock Certificate * (incorporated by reference to Exhibit 4.1 to the Form 8-B). 4.2 Form of Indenture relating to senior * notes of Fidelity (incorporated by reference to Exhibit 4.2 of the Form 8-B). 10.1 Settlement Agreement between Fidelity, * Citadel and certain lenders, dated as of June 3, 1994 (the "Letter Agreement") (incorporated by reference to Exhibit 10.1 to the Form 8-B). 10.2 Amendment No. 1 to Letter Agreement, * dated as of June 20, 1994 (incorporated by reference to Exhibit 10.2 to the Form 8-B). 10.3 Amendment No. 2 to Letter Agreement, * dated as of July 28, 1994 (incorporated by reference to Exhibit 10.3 to the Form 8-B). 10.4 Amendment No. 3 to Letter Agreement, * dated as of August 3, 1994 (incorporated by reference to Exhibit 10.4 to the Form 8-B). 10.5 Mutual Release, dated as of August 4, * 1994, between Fidelity, Citadel and certain lenders (incorporated by reference to Exhibit 10.5 to the Form 8-B). 10.6 Mutual Release between Fidelity, * Citadel and The Chase Manhattan Bank, NA, dated June 17, 1994 (incorporated by reference to Exhibit 10.6 to the Form 8-B). 10.7 Loan and REO Purchase Agreement * (Primary), dated as of July 13, 1994, between Fidelity and Colony Capital, Inc. (incorporated by reference to Exhibit 10.7 to the Form 8-B). 10.8 Real Estate Purchase Agreement, dated * as of August 3, 1994, between Fidelity and CRI (incorporated by reference to Exhibit 10.8 to the Form 8-B). 10.9 Loan and REO Purchase Agreement * (Secondary), dated as of July 12, 1994, between Fidelity and EMC Mortgage Corporation (incorporated by reference to Exhibit 10.9 to the Form 8-B). 10.10 Loan and REO Purchase Agreement * (Secondary), dated as of July 21, 1994, between Fidelity and International Nederlanden (US) Capital Corporation, Farallon Capital Partners, L.P., Tinicum Partners, L.P. and Essex Management Corporation (incorporated by reference to Exhibit 10.10 to the Form 8-B). 10.11 Purchase of Assets and Liability * Assumption Agreement by and between Home Savings of America, FSB and Fidelity, dated as of July 19, 1994 (incorporated by reference to Exhibit 10.11 to the Form 8-B). 10.12 Promissory Note, dated July 28, 1994, * by CRI in favor of Fidelity and related loan documents (3943 Veselich Avenue) (incorporated by reference to Exhibit 10.12 to the Form 8-B). 10.13 Promissory Note, dated July 28, 1994, * by CRI in favor of Fidelity and related loan documents (23200 Western Avenue) (incorporated by reference to Exhibit 10.13 to the Form 8-B). 10.14 Promissory Note, dated August 3, 1994, * by CRI in favor of Fidelity and related loan documents (1661 Camelback Road) (incorporated by reference to Exhibit 10.14 to the Form 8-B).
30 10.15 Guaranty Agreement, dated August 3, * 1994, by Citadel in favor of Fidelity (incorporated by reference to Exhibit 10.15 to the Form 8-B). 10.16 Tax Disaffiliation Agreement, dated as * of August 4, 1994, by and between Citadel and Fidelity (incorporated by reference to Exhibit 10.16 to the Form 8-B). 10.17 Option Agreement, dated as of August 4, * 1994, by and between Fidelity and Citadel (incorporated by reference to Exhibit 10.17 to the Form 8-B). 10.18 Executive Employment Agreement, dated * as of June 2, 1995, between Richard M. Greenwood and Fidelity (incorporated by reference to Exhibit 10.18 to the Form 8-B). 10.19 Amended Service Agreement between * Fidelity and Citadel dated as of August 1, 1994 (incorporated by reference to Exhibit 10.19 to the Form 8-B). 10.20 Side letter, dated August 3, 1994, * between Fidelity and CRI (incorporated by reference to Exhibit 10.20 to the Form 8-B). 10.21 Placement Agency Agreement, dated July * 12, 1994, between Fidelity, Citadel and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 10.21 to the Form 8-B). 10.22 Stock Purchase Agreement, dated as of * August 3, 1994, between Fidelity and Citadel (incorporated by reference to Exhibit 10.22 to the Form 8-B). 10.23 Litigation and Judgment Assignment and * Assumption Agreement, dated as of August 3, 1994, between Fidelity and Citadel (incorporated by reference to Exhibit 10.23 to the Form 8-B). 10.24 1996 Stock Option Plan (incorporated by * reference to Exhibit 10.24 to Form 8-B. 10.25 Retirement Plan for Non-Employee * Directors (incorporated by reference to Exhibit 10.25 to the Form 8-B). 10.26 Form of Severance Agreement between the * Bank and each of Messrs. Johnson and Sanders (incorporated by reference to Exhibit 10.26 to the Form 8-B). 10.27 Form of Severance Agreement between the * Bank and each of Messrs. Osborne and Greenwood (incorporated by reference to Exhibit 10.27 to the Form 8-B). 10.28 Form of Severance Agreement between the Bank and each of Messrs. Condon, Evans, Mason, Stutz & Taylor (incorporated by reference to Exhibit 10.28 to the Form 8-B). 10.29 Form of Severance Agreement between the * Bank and each of Messrs. Michel and Renstrom (incorporated by reference to Exhibit 10.29 to the Form 8-B). 10.30 Form of Incentive Stock Option * Agreement between the Bank and certain officers (incorporated by reference to Exhibit 10.30 to the Form 8-B). 10.31 Form of Amendment to incentive Stock Option Agreement between the Bank and certain officers (incorporated by reference Exhibit 10.31 to the Form 8-B). 10.32 Form of Non-Employee Director Stock * Option Agreement between the Bank and certain directors (incorporated by reference to Exhibit 10.32 to the Form 8-B). 10.33 Form of Amendment to Non-Employee Director Stock Option Agreement between the Bank and certain directors (incorporated by reference to Exhibit 10.33 to the Form 8-B). 10.34 Loan and REO Purchase Agreement, dated * as of December 15, 1994 between Fidelity and Berkeley Federal Bank & Trust FSB (incorporated by reference to Exhibit 10.34 to the Form 8-B). 10.35 Standard Office Lease-Net, dated July * 15, 1994, between the Bank and 14455 Ventura Blvd., Inc. (incorporated by reference to Exhibit 10.35 to the Form 8-B). 10.36 Standard Office Lease - Modified Gross, dated July 15, 1994, between the Bank and Citadel Realty, Inc. (incorporated by reference to Exhibit 10.36 to the Form 8-B).
31 10.37 Loan Servicing Purchase and Sale * Agreement dated March 31, 1995 between the Bank and Western Financial Savings Bank, FSB (incorporated by reference to Exhibit 10.37 to the Form 8-B 10.38 Supervisory Agreement dated June 28, * 1995, between Fidelity and the OTS (incorporated by reference to Exhibit 10.38 to the Form 8-B 10.39 Form of Indemnity Agreement between the * Bank and its directors and senior officers (incorporated by reference to Exhibit 10.39 to the Form 8-B). 10.40 Letter from the OTS to the Bank dated * December 8, 1995, terminating the Supervisory Agreement as of the date of the letter (incorporated by reference to Exhibit 10.40 to the Form 8-B. 10.41 Loan Servicing Purchase and Sale * Agreement dated May 15, 1996 between Fidelity and Western Financial Savings Bank (incorporated by reference to Exhibit 10.37 to the quarterly report on Form 10-Q for the quarterly period ended June 30, 1996). 10.42 First Amendment to Standard Office Lease - Modified Gross, dated as of May 15, 1995 between the Bank and Citadel Realty, Inc. 10.43 Second Amendment to Standard Office Lease - Modified Gross, dated as of October 1, 1996, between the Bank and Citadel Realty, Inc. 10.44 Form of Indemnity Agreement between Bank Plus and its directors and senior officers. 27. Financial Data Schedule.
(b) Reports on Form 8-K A current report of Form 8-K was filed with the Securities and Exchange Commission on October 22, 1996 attaching the Annual Report on Form 10-K of the Bank for the fiscal year ended December 31, 1995 in anticipation of incorporating such Form 10-K by reference into a Registration Statement on Form S-8 to be filed by the Company. * Previously filed. 32 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. BANK PLUS CORPORATION Registrant Date: November 6, 1996 /s/ Richard M. Greenwood -------------------------------------- Richard M. Greenwood President and Chief Executive Officer; Vice Chairman of the Board Date: November 6, 1996 /s/ William L. Sanders -------------------------------------- William L. Sanders Executive Vice President and Chief Financial Officer 33 EX-10.42 2 1ST AMEND. TO STANDARD OFFICE LEASE DATED 05/15/96 FIRST AMENDMENT TO STANDARD OFFICE LEASE (MODIFIED GROSS) This First Amendment to Standard Office Lease (Modified Gross) is entered into as of this 15th day of May 1995 by and between CITADEL REALTY, INC., a Delaware corporation ("Lessor") and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally chartered savings association ("Lessee"). RECITALS A. Lessor and Lessee are parties to a Standard Office Lease (Modified Gross) dated for reference purposes only July 15, 1994 (the "Lease") relating to certain portions of the real property commonly described as 600 North Brand Boulevard, Glendale, California, all as more particularly described in the Lease (the "Premises"). B. Lessee, as lender, and Lessor, as borrower, are considering the consummation of a lending transaction pursuant to which Lessee, as lender (in such capacity, "Lender") would lend to Lessor, as borrower (in such capacity, "Borrower") the sum of $5,338,500 (the "Loan") and Borrower would execute, among other documents and instruments, a Promissory Note Secured by Deed of Trust in favor of Lender (the "Note") and would further execute a Deed of Trust encumbering certain real property, including that real property in which the Premises are located (the "Deed of Trust"). The Note, Deed of Trust and any other documents evidencing or securing the Loan are referred to as the "Loan Documents." C. In order to induce the Lender to make the Loan, Lessor has agreed to amend the Lease as set forth below. AGREEMENT On the basis of the foregoing recitals, the parties agree as follows: 1. Paragraph 1.6 of the Lease shall be amended to delete the word "first" and insert in lieu thereof the word "fourteenth." 2. A new paragraph 4.9 shall be added to the Lease, to read in its entirety as follows: 4.9 (a) Notwithstanding anything to the contrary in the Lease, if on the day any payment of monthly Base Rent is due from Lessee to Lessor under the Lease (a "Lease Payment Date"), Borrower has failed to pay in full an amount due under the Note, the Deed of Trust or any other Loan Document (the "Delinquent Amount"), then the original Lessee shall have the right to suspend ("Suspension Right") payment of the then monthly Base Rent (and no other amounts) to the extent of such Delinquent Amount, (the amount so suspended, the "Suspension Amount") provided that (i) Lessee is not in breach or default under the Lease, and (ii) Lessee pays to Lessor the amount, if any, by which the then monthly Base Rent exceeds the Suspension Amount. The Delinquent Amount shall be based upon the amount of payments due under the Note, Deed of Trust or other Loan Documents, without giving effect to the acceleration of principal and interest under the Note, except if the Note has matured by its own terms. The Suspension Amount shall be computed by Lessee; provided however that in the event of manifest error in the computation of the Suspension Amount which results in overstatement of such amount, Lessee shall pay to Lessor interest at the rate provided in Section 3.1 of the Note on the amount incorrectly suspended from the date of such suspension to the date such amount is paid to Lessor. (b) Lessee may, in its discretion, but shall have no obligation to, apply any Suspension Amount to the reduction of any amount owing under the Loan Documents. Lessee may, in its discretion, request waivers and other documentation which Lessee and its counsel determines to be appropriate, as a condition to application of such amounts. Lessee shall notify Lessor in the event, after any exercise of its Suspension Right, Lessee, in its discretion, determines not to apply any Suspension Amount to reduction of any amount owing under the Loan Documents. (c) Lessee shall, within five business days after the date all the Delinquent Amounts have been paid, pay to Lessor any and all Suspension Amounts (except to the extent such payment has been applied pursuant to subparagraph (b) above). Prior to such payment of the Delinquent Amounts and the expiration of such five-business-day period, Lessor shall not be entitled to exercise any right or remedy available to Lessor for nonpayment of the Suspension Amount including without limitation, application of the Security Deposit; provided, however, Lessor shall have the right to pursue all of Lessor's rights and remedies for any breach or default by Lessee other than payment of the Suspension Amount. 3. The first sentence of paragraph (c) of Section 13.1 is amended to read as follows: "The failure by Lessee (i) to make any payment of Base Rent as and when due (giving effect, where applicable, to the provisions of Section 4.9), where such failure shall continue for a period of ten (10) days after the due date thereof, or (ii) to make any payment required to be made by Lessee hereunder (other than payment of Base Rent), as and when due, where such failure shall continue for a period of ten (10) days after written notice thereof from Lessor to Lessee." 4. Sections 1 through 3 of this Amendment shall terminate and be of no further force and effect upon the occurrence of the earlier of any of the following: (i) the original Lessee is released of liability under the Lease, (ii) payment in full of all of the amounts due under the Note and other Loan Documents. 5. The first sentence of Section 39.6 of the Lease shall be amended to state as follows: Fidelity Federal Bank, a Federal Savings Bank, as Lessee, shall have an Option to purchase the Office Building Project upon expiration of the initial term of the Lease at fair market value, provided that Citadel Realty, Inc. as Lessor or any direct or indirect subsidiary of Citadel Realty, Inc. or Citadel Holding Corporation (all such persons or entities shall be collectively referred to as "Lessor" for purposes of this Section 39.6 and Section 1.14 only) then owns the Office Building Project, by delivering written notice of exercise of the Option (the "option notice") to Citadel Realty, Inc., as Lessor, at least six (6) months, but no more than nine (9) months before the expiration of the initial term of the Lease." 6. Except as modified in this Amendment, the terms of the Lease remain in full force and effect. IN WITNESS WHEREOF, we hereunto set our hands of the date first above written. CITADEL REALTY, INC. By: -------------------------------- FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK By: -------------------------------- EX-10.43 3 2ND AMEND. TO STANDARD OFFICE LEASE DATED 10/01/96 SECOND AMENDMENT TO STANDARD OFFICE LEASE (MODIFIED GROSS) This Second Amendment to Standard Office Lease (Modified Gross) is entered into as of this 1st day of October, 1996 by and between CITADEL REALTY, INC., a Delaware corporation ("Lessor") and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally chartered savings association ("Lessee"). RECITALS A. Lessor and Lessee are parties to a Standard Office Lease (Modified Gross) dated for reference purposes on July 15, 1994 (the "Lease") relating to certain portions of the real property commonly described as 600 North Brand Boulevard, Glendale, California (the "Building"), all as more particularly described in the Lease (the "Premises"). B. Lessor and Lessee are also parties to a First Amendment to Standard Office Lease (Modified Gross) ("First Amendment") dated for reference purposes only May 15, 1995, relating to certain amendments to the Lease executed in connection with certain Loan Documents entered into by and between Lessor and Lessee. C. Lessor has received a proposal from The Walt Disney Company and/or its affiliates ("Disney") to lease floors two through six of the Building. D. Contingent upon the execution of a lease between Lessor and Disney for floors two through six of the Building (the "Disney Lease"), Lessor and Lessee have agreed to modify the Lease to provide that Lessee relinquish and surrender that portion of the original premises which relate to office accommodations (floors four to six inclusive) (the "Office Floors"). E. This Second Amendment is intended to become effective on the date of execution of the Disney Lease (the "Disney Lease Date"). AGREEMENT On the basis of the foregoing recitals, the parties agree as follows: 1. Section 1.2 of the Lease is hereby deleted in full and replaced by the following: "1.2 PREMISES: The ground floor, consisting of approximately 11,688.70 BOMA rentable square feet (the "PREMISES"), as defined in paragraph 2 and as shown on Exhibit "A" hereto." 2. Section 1.4 of the Lease shall be deleted in full and replaced by the following: "1.4 PERMITTED USE: Retail bank branch, subject to paragraph 6." 3. Section 1.6 of the Lease shall be deleted in full and replaced by the following: 1 "1.6 BASE RENT: $26,602 per month, payable on the first day of each month, in advance, per paragraph 4.1." 4. Section 1.10 of the Lease is hereby deleted in full and replaced by the following: "1.10 LESSEE'S SHARE OF OPERATING EXPENSES: 12.75% (based on 91,669 total Building sq. ft.)." 5. Section 1.14 (Option to Purchase) of the Lease is hereby deleted in full. 6. Section 2.2 of the Lease is hereby deleted in full and replaced by the following: "2.2 VEHICLE PARKING: So long as lessee is not in default, and subject to the rules and regulations attached hereto as Exhibit C and as established by Lessor from time to time, Lessee shall be entitled to use 25 spaces in the parking garage located at 600 N. Maryland Avenue and 15 spaces in the surface parking lot adjacent to the Building, with the right to require the Lessor to mark as "reserved" the 15 spaces in the surface parking lot; provided that nothing in this sentence shall alter Lessor's rights to make changes to the Common Areas as set forth in paragraph 2.5. The garage and the surface parking are shown on the site plan attached hereto as Exhibit E. All of the above parking spaces are included in the rental rate; provided, however, that Lessee shall pay any and all taxes or surcharges applicable to such parking use which may be levied by any state or local governmental agency from time to time. Further, Lessee shall have the right to use, in conjunction with others, an additional 20 spaces within the adjacent surface parking lot for visitor purposes. Landlord reserves the right to monitor and control all such parking." 7. Section 2.2.2 of the Lease is hereby deleted in full. 8. Section 39.1 of the Lease is hereby deleted in full and replaced by the following: "39.1 DEFINITION: As used in this paragraph the word "Option" has the following meaning: the right or option to extend the term of this Lease or to renew this Lease." 9. Section 39.6 (Option to Purchase) of the Lease is hereby deleted in full. 10. Section 5 of the First Amendment is hereby deleted in full. 11. The second, third and fourth pages of Exhibit A to the Lease (showing the floor plans for the fourth, fifth and sixth floors of the Building) are hereby deleted, leaving only the first page of Exhibit A (showing the floor plan for the ground floor of the Building). 12. Except as modified hereby, the terms of the Lease and of the First Amendment remain in full force and effect; provided, however, that to the extent any provision of the Lease not modified hereby relates directly to the 4th, 5th and 6th floors of the Building, such provisions shall be deemed amended and adjusted so as to refer solely to the ground floor of the Building, defined by this Second Amendment to be the entire 2 Premises; and further provided, however, that the sections added as replacements for sections in the original Lease which have been deleted are intended to speak as of the date of the original Lease. By way of example, the Base Rent provided for in Section 1.6 would have been the Base Rent for the ground floor as of the date of the original Lease, July 15, 1994, and would, and is intended to be, adjusted pursuant to the provisions of, among others, Section 1.7 and 4.8 such that the Base Rent payable as of the date of this Second Amendment is the Base Rent set forth in Section 1.6, as increased as provided elsewhere in the original Lease. By way of further example, Section 1.9 (Security Deposit) is not modified hereby, but any Security Deposit held by Lessor in excess of the reduced rent payable by Lessee under this Second Amendment shall require Lessor to refund to Lessee such excess. 13. This Second Amendment is effective as of the Disney Lease Date. However, Lessee's obligations to continue to pay rent as provided in the original Lease for the Office Floors shall continue until the earlier of a) 120 days from the Disney Lease Date and b) the date upon which Disney is required to commence paying rent under the Disney Lease ("Disney Rent Commencement Date"); provided, however, that upon the Disney Rent Commencement Date, Lessor shall refund to Lessee all Base Rent paid by Lessee with respect to the Office Floors for the period between August 1, 1996 and Disney Rent Commencement Date. IN WITNESS WHEREOF, this Second Amendment to Lease is executed as of the date first above written. CITADEL REALTY, INC. By: ------------------------------- FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK By: ------------------------------- Executive Vice President Chief Financial Officer 3 EX-10.44 4 FORM OF INDEMNITY AGREEMENT INDEMNIFICATION AGREEMENT ------------------------- AGREEMENT, effective as of _______________ between Bank Plus Corporation, a Delaware corporation ("Bank Plus"), and _____________________ (the "Indemnitee"). WHEREAS, it is essential to Bank Plus to retain and attract as directors and officers the most capable persons available; WHEREAS, Indemnitee is a director/officer of Bank Plus; WHEREAS, Bank Plus and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment; WHEREAS, the Certificate of Incorporation (the "Certificate of Incorporation") and the By-laws (the "By-laws") of Bank Plus require Bank Plus to indemnify and advance expenses to its directors and certain of its officers to the full extent permitted by law, and the Indemnitee has been serving and continues to serve as director/officer of Bank Plus in part in reliance on the Certificate of Incorporation and By-laws; and WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to Bank Plus in an effective manner and Indemnitee's reliance on the Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to the Certificate of Incorporation or the By- laws or any change in the composition of Bank Plus' Board of Directors or acquisition transaction relating to Bank Plus), Bank Plus wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement and, to the extent insurance is obtained, for the continued coverage of Indemnitee under Bank Plus' directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the premises and in order to induce the Indemnitee to continue to serve Bank Plus directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Certain Definitions: ------------------- (a) Change in Control: shall be deemed to have occurred if (i) any ----------------- "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than (A) Bank Plus, (B) a trustee or other fiduciary holding securities under an employee benefit plan of Bank Plus or (C) a corporation owned directly or indirectly by the stockholders of Bank Plus in substantially the same proportions as their ownership of stock of Bank Plus, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bank Plus representing 20% or more of the total voting power represented by Bank Plus' then outstanding Voting Securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Bank Plus and any new director whose election by the Board of Directors or nomination for election by Bank Plus' stockholder was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the stockholders of Bank Plus approve a merger or consolidation of Bank Plus with any other corporation, other than a merger or consolidation which would result in the Voting Securities of Bank Plus outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of Bank Plus or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of Bank Plus approve a plan of complete liquidation of Bank Plus or an agreement for the sale or disposition by Bank Plus of (in one transaction or a series of transactions) all or substantially all of Bank Plus' assets. (b) Claim: any threatened, pending or completed action, suit or ----- proceeding, or any inquiry or investigation, whether instituted by Bank Plus or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (c) Expenses: include attorneys' fees and all other costs, expenses -------- and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event. (d) Indemnifiable Event: any event or occurrence related to the ------------------- fact that Indemnitee is or was a director, officer, employee or agent of Bank Plus, or is or was serving at the request of Bank Plus as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee -2- benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (e) Independent Legal Counsel: an attorney or firm of attorneys, ------------------------- selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for Bank Plus or Indemnitee within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement or of other indemnitees under similar indemnity agreements). (f) Reviewing Party: (i) the Board of Directors by a majority vote --------------- of the directors who are not parties to the subject Claim, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct or this Agreement provides, by Independent Legal Counsel. (g) Voting Securities: any securities of Bank Plus which vote ----------------- generally in the election of directors. 2. Basic Indemnification Arrangement. --------------------------------- (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, Bank Plus shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to Bank Plus, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by Indemnitee, Bank Plus shall advance (within two business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"). (b) Notwithstanding the foregoing, (i) the obligations of Bank Plus under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law and (ii) the obligation of Bank Plus to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, Bank Plus shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse Bank Plus) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination -3- made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse Bank Plus for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of Bank Plus' Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and Bank Plus hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on each of Bank Plus and Indemnitee. 3. Change in Control. Bank Plus agrees that if there is a Change in ----------------- Control of Bank Plus (other than a Change in Control which has been approved by a majority of Bank Plus' Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or By-laws of Bank Plus now or hereafter in effect relating to Claims for Indemnifiable Events, Bank Plus shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by Bank Plus (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to each of Bank Plus and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. Bank Plus agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant thereto. 4. Indemnification for Additional Expenses. Bank Plus shall indemnify --------------------------------------- Indemnitee against any and all expenses (including attorneys' fees) and, if requested by Indemnitee, shall (within two business days of such request) advance such expenses to Indemnitee which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by Bank Plus under this Agreement or any other agreement or Bank Plus by-law now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by Bank Plus, regardless of whether -4- Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 5. Partial Indemnity, Etc. If Indemnitee is entitled under any other ---------------------- provision of this Agreement to indemnification by Bank Plus for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, Bank Plus shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Burden of Proof. In connection with any determination by the --------------- Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on Bank Plus to establish that Indemnitee is not so entitled. 7. No Presumptions. For purposes of this Agreement, the termination of --------------- any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. 8. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be ------------------- in addition to any other rights Indemnitee may have under the Certificate of Incorporation or the By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Bank Plus' By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. 9. Liability Insurance. To the extent Bank Plus maintains an insurance ------------------- policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Bank Plus director or officer. -5- 10. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of Bank Plus against Indemnitee or Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of Bank Plus shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 11. Amendments, Etc. No supplement, modification or amendment of this --------------- Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. Subrogation. In the event of payment under this Agreement, Bank Plus ----------- shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable Bank Plus effectively to bring suit to enforce such rights. 13. No Duplication of Payments. Bank Plus shall not be liable under this -------------------------- Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, By-law or otherwise) of the amounts otherwise indemnifiable hereunder. 14. Binding Effect, Etc. This Agreement shall be binding upon and inure ------------------- to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Bank Plus), spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer of Bank Plus. 15. Severability. The provisions of this Agreement shall be severable in ------------ the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law. 16. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the laws of the State of Delaware applicable to contracts -6- made and to be performed in such state without giving effect to the principles of conflicts of laws. 17. Counterparts. This Agreement may be executed in counterparts each of ------------ which shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BANK PLUS CORPORATION By:________________________________ Name: Title: INDEMNITEE ___________________________________ Name: -7- EX-27 5 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS 9-MOS DEC-31-1996 DEC-31-1996 JUL-01-1996 JAN-01-1996 SEP-30-1996 SEP-30-1996 0 50,899 0 6,534 0 15,000 0 0 0 326,133 0 90,313 0 90,301 0 2,805,917 0 62,832 0 3,323,209 0 2,516,769 0 514,028 0 62,653 0 20,000 0 51,750 0 0 0 182 0 157,827 0 209,759 52,142 162,418 6,074 14,033 804 2,179 59,020 178,630 29,808 90,630 7,967 23,151 21,245 64,849 3,900 11,710 610 762 37,557 74,992 (17,557) (13,711) (17,557) (13,711) 0 0 0 0 (16,371) (12,618) (.98) (.95) (.98) (.95) 2.64 2.67 0 36,480 0 0 0 49,575 0 248,782 73,722 89,435 15,199 40,209 409 1,901 62,832 62,832 62,832 62,832 0 0 29,281 29,281
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