Fidelity Federal Warns About Capital Levels : Banking: The thrift’s parent, Citadel Holding, reports a 37% drop in earnings. The firm cautions that a hike in OTS requirements could mean trouble.
Citing continued weakness in the economy, Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, saw its earnings tumble 37% in its second quarter and cautioned that it may not be able to meet future federal capital requirements.
In the three months ended June 30, Citadel earned $4.5 million, down from $7.1 million a year earlier, primarily because it increased provisions for future loan and real estate losses. For the six months ended June 30, Citadel’s earnings dropped 9%, to $10.5 million, as it boosted loan-loss provisions to $19 million, compared with $12 million for the six-month period a year ago.
As a result, Citadel said Fidelity Federal might have trouble meeting future minimum capital levels if the Office of Thrift Supervision raises those standards, as it is expected to do.
Still, analysts said Citadel, with assets of $4.8 billion as of June 30, does not appear to face a serious or immediate threat of falling below capital requirements.
“It is a precautionary thing more than an actual warning,” said Sally McIver, a thrift analyst at SNL Securities, a banking research firm in Charlottesville, Va. “They’ve been able to sustain good earnings.”
In general, Fidelity Federal has performed better than most other thrifts in California, partly because its loan portfolio is made up mostly of residential properties, which are less risky than commercial real estate.
Albert Clemens, Fidelity Federal’s senior vice president and marketing director, said: “Right now, we’re in total and complete compliance. And we’re not one of those financial institutions that is being watched closely by the OTS.”
Federal capital requirements for most thrifts are currently 3% for “core” assets and 7.2% for real estate and other so-called “risk-based” assets. But the OTS has proposed increasing requirements to as much as 5% for core assets and 10% for risk-based assets. In some cases, it has already done that for ailing thrifts such Glenfed Inc., which is the nation’s fourth largest thrift.
As of June 30, Fidelity Federal’s capital ratios were 4.55% for core assets and 10.1% for risk-based assets.
Nonetheless, with the OTS increases looming and Citadel’s non-performing assets increasing sharply in the first half of 1992--to $189.8 million from $124.7 million a year earlier--Citadel is trying to shore up its capital.
So in June, the company’s board approved a common stocks offering intended to raise $30 million. If necessary, Citadel said it is prepared to further reduce Fidelity’s assets or seek additional equity to increase its capital ratios.
