Citadel spinoff thrift Fidelity Fed cuts staff by 100 as it posts $8 million loss for quarter.

Fidelity Federal Bank has laid off 100 employees since it was spun off from its parent Citadel Holding Corp. in August and will continue layoffs to reduce expenses in the coming months, an official of the thrift told the Business Journal last week.

Senior Vice President Neil Osborne said the Glendale-based thrift has cut its work force from 800 to 700 in the last three months. The cutbacks included the closing of its wholesale mortgage and multi-family mortgage operation, which employed 75.

Osborne added that management is combing every department for ways to increase efficiency and cut costs. "Yes, I think we will be letting people go (in the near future.) It may be one or two here, three or four there, but it won't be a whole function," he said.

Fidelity Federal reported a net loss of $8.2 million, or 32 cents a share, for the third quarter, its first quarter operating as an entity separate from Citadel. That compares to a loss of $14.4 million, or $3.42 a share on a pro forma basis, for third quarter 1993.

Glendale-based Citadel spun off financially ailing Fidelity Federal in August in a stock offering which raised $109 million in new capital for the thrift. Prior to that capital injection, Fidelity Federal was in danger of being seized by its regulators after losing millions on Southern California real estate loans which soured.

The per-share earnings figures have been affected by the August stock offering in which Fidelity Federal issued 22 million shares of new common stock at $5.25 a share. Prior to the offering, Fidelity Federal parent Citadel had about 4 million shares outstanding.

That $109 million was used to boost capital and pay for losses on a $400 million bulk sale of non-performing assets -- bad loans and foreclosed real estate and loans which were classified as being at risk of default in the future.

Non-performing loans were reduced from $274 million, or 6.78 percent of total assets, as of June 30 to $74.9 million, or 2.03 percent, as of Sept. 30.

Osborne said non-performing assets will be trimmed to about 1 percent of total assets by year-end, as the thrift intends to complete another bulk sale of $40 million next month. Bank and thrift experts consider a ratio of 2 percent or less as healthy.

Pursuing profits

Osborne said Fidelity Federal officials are "hopeful" it will post a profit in the fourth quarter. "We are extraordinarily nervous about trying to project future earnings," he added.

The thrift must reduce expenses and increase income to turn a profit, he said. It has been losing money on an operating basis, according to company statements.

During the third quarter, the thrift posted income of $22 million, but operating expenses tallied $24.7 million and it also took a $3 million provision for loan losses.

Osborne said the quarter was not the norm for expenses because the thrift was still paying a lot of "high-priced help" -- lawyers and investment bankers involved in the stock offering.

He added that income was low because the thrift was paying carrying costs on $400 million in assets sold in the bulk sale during the quarter but not receiving the interest from those assets.

Fidelity Federal also reported its net interest margin -- its profit on the difference between the interest it pays on deposits and receives on loans -- was 1.9 percent.

"That is low," said Campbell Chaney, California financial institutions analyst with Chicago-based investment firm Rodman & Renshaw Inc. He noted that Fidelity Federal's major competitors, Coast Federal Bank and California Federal Bank, had margins of 2.3 percent.

In a statement, Fidelity Federal President and Chief Executive Officer Rick Greenwood said rising interest rates could "continue to compress the bank's net interest margin."

He added that higher rates could also "put pressure on our multi-family borrowers' ability to make their loan payments" in the future, since loan payments rise on adjustable rate mortgages.

As of Sept. 30, Fidelity Federal was adequately capitalized and had a cushion of $13 million over federal minimum standards for capital.

Warren Heller, director of Veribanc Inc., a Wakefield, Mass.-based bank rating service, said $13 million was a "kind of skinny" capital cushion for a thrift with $3.7 billion in assets.