Fidelity Federal, Parent Restricted in Dealings

Federal regulators slapped restrictions on Fidelity Federal Bank after credit card losses drained the thrift’s financial cushion, Fidelity said Thursday.

Fidelity Federal and its parent, Los Angeles-based Bank Plus Corp., said a $59.8-million third-quarter loss depleted Fidelity’s risk-based capital, a key measure of financial strength, from 11.22% of total assets as of June 30 to 8.66% as of Sept. 30.

As a result, Fidelity Federal said it has been forbidden from increasing its assets, making new contracts with outside companies or adding senior officers without approval from the Office of Thrift Supervision, the federal regulator that monitors savings and loans. The OTS might also require Fidelity Federal to give it 30 days’ notice before making any transactions with Bank Plus, and the thrift is required to present regulators with a business plan showing how it will boost its capital levels. The OTS refused to comment.

Bank Plus announced Nov. 2 that it was severing ties with two credit card marketing companies after delinquencies soared to 16.9% of its card portfolio. The company said then that the losses would hurt both earnings and the thrift’s capital levels used to protect against future losses.

In a lawsuit filed last month, investors charged that Bank Plus had been hiding problems in its credit card portfolio and bolstering its earnings by reporting uncollectable credit card fee income.

On Thursday, Bank Plus said it had written off $8.2 million in credit card fees and suffered credit card loan losses of $51.8 million. Net income for the year-earlier period was $3.4 million.

The loss moved Fidelity Federal from the “well-capitalized” category--which requires risk-based capital of 10% of assets and core capital of 6%--to the “adequately capitalized” category, which requires risk-based capital of 8% and core capital of 4%. The thrift’s core capital ratio is 4.22%.