<PAGE>
 
                                                                   EXHIBIT 10.18

                              EMPLOYMENT AGREEMENT


          THIS AGREEMENT is made as of August 1, 1997, by and between Fidelity
Federal Bank, A Federal Savings Bank (the "Bank"), and Richard M. Greenwood (the
"Executive").


                              W I T N E S S E T H:

          WHEREAS, the Bank and the Executive have previously entered into an
executive severance agreement, dated as of May 1, 1997 (the "Severance
Agreement"), which governs the terms of the Executive's employment in the event
of a termination in connection with a Change in  Control (as defined in Section
3 of such Agreement);

          WHEREAS, the Bank and the Executive have previously entered into an
employment agreement, dated as of June 2, 1995 (the "Prior Agreement"), which
governs the terms of the Executive's employment with the Bank; and

          WHEREAS, the Bank and the Executive desire to amend and restate the
Prior Agreement in its entirety;

          NOW THEREFORE, in consideration of the foregoing premises and the
mutual agreements herein contained, the parties hereto agree that the Prior
Agreement is amended and restated to read as follows, effective as of August 1,
1997:

     1.   Term of Employment.
          ------------------ 

          (a) The Bank hereby employs the Executive and the Executive accepts
employment with the Bank, in the position and with the duties and
responsibilities set forth in Section 2 below for the Term of Employment (as
defined below), subject to the terms and conditions of the Agreement.

          (b) The term of employment (the "Term of Employment") under this
Agreement shall commence on August 1, 1997 and shall continue until July 31,
2000; provided, however, that commencing on August 1, 2000 and on each August 1
      --------  -------                                                        
thereafter, the Term of Employment shall be extended for an additional year,
unless either the Bank or the Executive notifies the other Party at least 90
days prior to such August 1 date that the Term of Employment shall not be so
extended.

          (c) Notwithstanding anything in this Agreement to the contrary:
<PAGE>
 
          (i)  The obligations of the Bank hereunder shall terminate for so long
as the Executive is suspended and/or temporarily prohibited from participating
in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. (S) 1818(e)(3) and
(g)(1)) as of the date of service of such notice unless stayed by appropriate
proceedings; provided that if the charges in the notice are dismissed, the Bank
             --------                                                          
may in its discretion (A) pay the Executive all or part of any payments within
the terms of this Agreement withheld while its obligations under this Agreement
was suspended and (B) reinstate (in whole or in part) any of its obligations
which were suspended;

          (ii)  The obligations of the Bank hereunder shall terminate if the
Executive is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. (S) 1818(e)(4) or (g)(1));

          (iii)  The obligations of the Bank hereunder shall terminate if the
Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit
Insurance Act); and

          (iv)   The obligations of the Bank hereunder shall be terminated by
the Director of the Office of Thrift Supervision or his or her designee (the
"Director"), except to the extent that the Director determines that continuation
of this Agreement is necessary for the continued operation of the Bank, (A) at
the time the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act or (B) at the time the Director approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director to be in unsafe or unsound condition.

In the case of paragraphs (ii), (iii) and (iv) of this Section 1(c), vested
rights hereunder held by the Bank or the Executive shall not be affected by such
termination.

     2.   Position; Duties and Responsibilities
          -------------------------------------

          Subject to the terms and conditions of this Agreement, during the Term
of Employment the Executive shall be employed as the President and Chief
Executive Officer of the Bank at its principal office, and he will promote the
business affairs and business interests of the Bank

                                       2
<PAGE>
 
faithfully and diligently. The Executive shall serve in such other executive
positions with the Bank or its affiliates or subsidiaries as the Bank may direct
or to which he may be elected from time to time. The titles, reporting
responsibilities and duties of such other executive positions may be changed or
eliminated at any time. The Executive will perform the usual and customary
duties of President and Chief Executive Officer and any additional positions he
may hold, and he is granted the usual and customary power and authority
associated with each such office, subject to the respective provisions of the
Amended and Restated Charter S and Bylaws of the Bank. The Bank will not assign
to the Executive any duties or responsibilities that are inconsistent with the
position, duties, responsibilities or status of President and Chief Executive
Officer, change his title as President and Chief Executive Officer, require him
to relocate his principal office from the location in Los Angeles County where
the executive offices of the Bank are located, or materially change his
reporting responsibilities or materially diminish his authority or status.

     3.   Compensation.
          ------------ 

          During the Term of Employment, the Executive shall be entitled to the
following compensation.

          (a) Base Salary.  Until August 31, 1997, the Bank shall pay the
              -----------                                                
Executive, in accordance with the Bank's normal payroll practices for
executives, an annual base salary of $415,000 ("Base Salary"), which Base Salary
may not be reduced unless the base salaries of all other members of the Bank's
Executive Management Committee ("Senior Executives") of the Bank are
proportionally reduced.  The Base Salary shall be increased to $520,000
effective as of September 1, 1997 and may be further increased in the discretion
of the Board of Directors of the Bank (the "Board").

          (b) Annual Bonus.  The Executive shall be entitled to participate in
              ------------                                                    
the annual incentive plans and arrangements available to Senior Executives of
the Bank from time to time.

          (c) Long-Term Incentive Compensation.  The Executive shall be entitled
              --------------------------------                                  
to participate in the long-term incentive plans available to Senior Executives
of the Bank from time to time, including the Bank Plus Corporation Stock Option
and Equity Incentive Plan.

                                       3
<PAGE>
 
     4.   Benefits.
          -------- 

          During the Term of Employment, the Executive shall be entitled to the
following benefits.

          (a) Benefit Plans.  The Executive shall be entitled to participate in
              -------------                                                    
all benefit programs now made available generally to the executives of the Bank
or which may be made available in the future, subject to, and on a basis
consistent with, the terms, conditions and administration of each such plan.
Such plans include, without limitation, medical, dental, life insurance,
retirement, profit-sharing, savings and disability plans. It shall not
constitute a breach of this Agreement if the Board modifies, reduces or
eliminates the benefits under any benefit plans if such modification, reduction
or elimination applies equally to all similarly situated eligible participants
in such plans.  The Executive shall also be entitled to participate in an
additional medical plan that provides up to $25,000 per year for benefits not
covered by the Bank's general medical plan.  Executive shall be required to
undergo an annual physical examination by a licensed physician of his choice,
the cost of which shall be included in the annual medical plan referred to in
the preceding sentence.

          (b) Tax Preparation.  The Executive shall be entitled to receive such
              ---------------                                                  
reimbursement for tax preparation services as have previously been furnished by
the Bank to the Executive.

          (c) Vacation and Sick-Leave.  The Executive may take annual vacations
              -----------------------                                          
aggregating four weeks in accordance with the Bank's vacation policy and will be
eligible for the Bank's standard sick-leave benefits; provided, however, that
                                                      --------  -------      
the Executive shall not earn any additional vacation days in any year in which
the Executive at any time has 280 or more hours of accrued but unused vacation
time.

     5.   Expenses and Allowances.
          ----------------------- 

          During the term of this Agreement, the Bank shall reimburse the
Executive for the following expenses and provide the following allowances.

          (a) Travel and Entertainment.  The Bank shall pay or reimburse the
              ------------------------                                      
Executive for all reasonable travel, business entertainment and other expenses
reasonably and necessarily incurred by the Executive in the performance of his
obligations under this Agreement.  The Chairman of the Board shall have the sole
authority to determine whether an 

                                       4
<PAGE>
 
expense incurred by the Executive is reasonable and necessary, which
determination shall in any event be consistent with the Bank's usual and
customary reimbursement policies.

          (b) Automobile.  The Bank shall pay the Executive the costs for
              ----------                                                 
gasoline, maintenance, repair, license and appropriate casualty and liability
insurance for the use of an automobile for business purposes.

          (c) Clubs.  The Bank shall reimburse the Executive for all initiation
              -----                                                            
fees and dues associated with the Executive's membership in those professional
and social clubs which are approved by the Compensation Committee of the Board.
All equity memberships will be the property of and will be in the name of the
Bank if permitted by the club.  If not so permitted, upon the termination of the
Executive's employment, the Executive will pay to the Bank the then fair market
value of such equity membership should the Executive decide to retain such
membership, or alternatively, the Executive immediately will seek to sell such
membership at fair market value and pay the proceeds of such sale, if any, to
the Bank.

     6.   Termination of Employment.
          ------------------------- 

          (a) Right to Terminate.  The Bank or the Executive may terminate the
              ------------------                                              
Executive's employment at any time, subject to the Bank's providing the benefits
hereinafter specified in accordance with the terms of this Agreement.  For
purposes of this Agreement, the failure by the Bank to renew this Agreement
pursuant to Section 1(b) is deemed to be a termination by the Bank of the
Executive's employment.

          (b) Termination by the Bank for Cause or by the Executive Without Good
              ------------------------------------------------------------------
Reason.  If the Bank terminates the Executive's employment for Cause or the
------                                                                     
Executive terminates employment with the Bank other than for Good Reason, the
Executive shall forfeit all rights to non-vested long-term incentive
compensation and the Bank shall be liable to the Executive only for (i) earned
but unpaid salary, (ii) any unpaid annual bonus that was earned in the Bank's
fiscal years prior to the fiscal year in which the Executive's employment
terminates ("Termination Year"), (iii) unreimbursed business expenses or other
allowances that are incurred prior to the date on which the Executive's
employment terminates ("Termination Date") and (iv) the Executive's vested
benefits under any program described in Section 4 in accordance with the terms
of any such program. For purposes of the preceding sentence, expenses or

                                       5
<PAGE>
 
allowances are incurred as of the date such expenses are payable by the
Executive or Bank.  If the Executive challenges such termination, and the
arbitrator appointed pursuant to Section 18 of this Agreement determines that a
purported termination for Cause was without Cause, the termination, at the
Executive's or the Bank's election, nonetheless will be effective, but the
Executive will promptly receive all payments, benefits and property, if any, as
if the termination had originally been denominated as one without Cause.

          (c)  Termination by the Bank Other than for Cause or by the Executive
               ----------------------------------------------------------------
for Good Reason.  If the Bank terminates the Executive's employment other than
---------------                                                               
for Cause, death of the Executive, Retirement, or Disability or the Executive
terminates his employment with the Bank for Good Reason, the Bank shall be
liable for the payments and benefits described in Section 6(b) and shall provide
the Executive with the additional payments and benefits described below.

          (i)  Base Salary.  The Bank shall continue to pay the Executive the
               -----------                                                   
higher of (y) his Base Salary as of the Termination Date or (z) his Base Salary
as of the date of this Agreement, as specified in Section 3(a) hereof, for two
years following the Termination Date.

          (ii)  Annual Bonus.  Within thirty days following the Termination
                ------------                                               
Date, the Bank shall make a lump-sum cash payment to the Executive in an amount
equal to two times the average of the annual bonus to which the Executive was
entitled during the Bank's two fiscal years ended prior to the Termination Date.

          (iii)  Long-Term Incentive Compensation.  Any awards made to the
                 --------------------------------                         
Executive pursuant to any long-term incentive compensation plan maintained by
the Bank shall remain in effect, subject to the terms and conditions applicable
to such awards.

          (iv)  Benefit Programs and Allowances.  The Bank shall continue to
                -------------------------------                             
make available to the Executive benefits and allowances comparable to those
provided pursuant to Sections 4 and 5 as of the Termination Date for two years
following the Termination Date; provided, however, that during the second year
                                --------  -------                             
following the Termination Date, the Bank shall only make available to the
Executive benefits and allowances comparable to those provided pursuant to
Sections 4 and 5 as of the Termination Date to the extent the Executive does not
receive such comparable benefits or allowances from other employers.
Notwithstanding the preceding sentence, the Executive shall not be entitled to

                                       6
<PAGE>
 
accrue further benefits in any tax-qualified pension or retirement plan
maintained by the Bank following the Termination Date to the extent not already
accrued as of such date; provided, however, that upon distribution of benefits
                         --------  -------                                    
to the Executive from the Bank's retirement or pension plans, the Executive
shall receive a cash payment from the Bank equal to the value of the additional
benefits that the Executive would have received if he had two additional years
of credited service under such retirement or pension plans at his rate of base
salary on the Termination Date.  Prior to the second year following the
Termination Date, the Executive shall provide to the Board a list of the
benefits and allowances the Executive expects to receive from other employers
during such year and a copy of each agreement or other document describing the
terms of such benefits and allowances, which list shall be updated by the
Executive promptly following any change in the Executive's benefits or
allowances during such period.

               (v) No Mitigation Required.  The Executive has no duty to seek
                   ----------------------                                    
employment or mitigate damages under this Section 6(c).

          (d)  Termination Upon Death.  If the Executive's employment terminates
               ----------------------                                           
as a result of the Executive's death, the Bank shall be liable for the payments
and benefits described in Section 6(b) and a lump sum cash payment equal to the
Executive's base salary at the time of his death, which amounts shall be paid to
the beneficiary or beneficiaries lawfully designated by the Executive in a
written instrument dated and executed by him and delivered to the Bank or, if no
beneficiary is so designated, to the Executive's surviving spouse or, if the
Executive shall have no surviving spouse, to the Executive's estate.

          (e) Termination Upon Retirement.  If the Executive's employment
              ---------------------------                                
terminates on or after the attainment by the Executive of age sixty-five (65)
("Retirement"), the Bank shall have no liability to the Executive other than for
the payments and benefits described in Section 6(b) and those retirement
benefits to which the Executive is entitled under the retirement and pension
plans of the Bank as of the Termination Date.

          (f) Termination Upon Disability.  If the Executive's employment
              ---------------------------                                
terminates as a result of the Executive's partial or total inability to perform
his duties hereunder because of any physical or mental Disability, the Executive
shall receive the benefits described in Section 6(b) and, through the end of the
Termination Year, salary payments which, when aggregated with any income
replacement

                                       7
<PAGE>
 
benefits (e.g., state disability insurance, workers' compensation or
          ----                                                      
long-term disability payments), equal to the balance of his base salary for the
Termination Year.  The Executive will remain a participant in all of the Bank's
benefit and compensation plans through the end of the Termination Year, in
accordance with and to the extent permitted under the terms of any such plans.
During the year following the Termination Year the Executive shall be entitled
to the income replacement benefits only.  In the event of a partial Disability,
and if requested by the Bank, through the end of the Termination Year, the
Executive will provide such part-time services as may be consistent with the
nature and extent of such Disability and his position as President and Chief
Executive Officer of the Bank.  As used herein, "Disability" means a temporary
or permanent condition which, in the opinion of a competent medical professional
selected by the Bank, and, upon written notice to the Executive, not objected to
by the Executive or his representative, reasonably would prevent or prohibit the
Executive from performing or attempting to perform his duties hereunder
substantially as performed prior to the occurrence of such disability.  If the
Executive objects and the parties cannot agree, the question of disability may
be submitted to arbitration as provided in Section 18 below; the prevailing
party in such arbitration on this issue shall be entitled to reasonable
attorneys' fees and costs. Notwithstanding the foregoing, should the Executive
be disabled for a consecutive four-month period or for five months out of six,
or if in the opinion of the medical professional selected by the Bank as
provided above, the Executive will be disabled for at least that period of time,
the Bank may replace the Executive in his position as President and Chief
Executive Officer and in any other position; such replacement, however, will in
no way affect Executive's rights to receive the salary and benefits set forth in
this paragraph.  If, and to the extent the Executive recovers from any such
Disability and has not been so replaced, he will resume his duties and
responsibilities hereunder for the remainder of the term of this Agreement.

          (g)  Termination Upon or Following a Change in Control.
               -------------------------------------------------  
Notwithstanding Sections 6(b) or 6(c), if the Executive's employment terminates
upon or following a Change in Control (as defined in Section 3 of the Severance
Agreement), the Bank's obligations to the Executive shall be governed by the
terms of the Severance Agreement.

                                       8
<PAGE>
 
     7.   Definitions.
          ----------- 

          For purposes of this Agreement, the following terms shall be defined
as set forth below:

          (a) Cause.  Termination for cause shall include (i) the intentional
              -----                                                          
failure by the Executive to perform stated duties (other than any such failure
resulting from the Executive's incapacity due to physical or mental illness),
which failure continues for more than five days after a written demand for
substantial performance is delivered to the Executive by the Chairman of the
Board, which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his duties, or (ii) the
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order, or material breach of any provision of this Agreement.  For purposes of
this paragraph (a), no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by the Executive in bad
faith and without reasonable belief that his action or omission was in, or not
opposed to, the best interests of the Bank.  Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel for the Bank shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the best
interests of the Bank.  The Executive's attention to matters not directly
related to the business of the Bank shall not provide a basis for termination
for Cause so long as the Board has approved the Executive's engagement in such
activities.  The Executive's employment with the Bank shall be deemed to have
been terminated for Cause immediately upon delivery to the Executive of a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with counsel for the Executive, to be
heard before the Board), finding that in the good faith opinion of the Board the
Executive was guilty of the conduct set forth above in (i) or (ii) of this
paragraph (a) and specifying the particulars thereof in detail.  Nothing in this
paragraph (a) shall prevent the Executive from challenging such termination
pursuant to the provisions of Section 18 hereof.

                                       9
<PAGE>
 
          (b) Good Reason.  The Executive will be treated as having terminated
              -----------                                                     
his employment for "Good Reason" if the Executive terminates his employment with
the Bank within 180 days of:

          (i) any adverse change in the Executive's status or position(s) as
President and Chief Executive Officer of the Bank as in effect on the date of
this Agreement, including, without limitation, any adverse change in the
Executive's status or position as a result of a diminution in the Executive's
duties or responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Bank is no longer publicly owned) or the
assignment to the Executive of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of the Executive
from or any failure to reappoint or reelect the Executive to such position(s)
(except in connection with the termination of the Executive's employment for
Cause, Disability or Retirement or as a result of the Executive's death or by
the Executive other than for Good Reason);

          (ii)  the failure of the Executive to be elected to the Board other
than as a result of any decision by the Executive not to stand for election to
the Board;

          (iii)  a reduction by the Bank in the Executive's base salary as then
in effect, unless the salaries of all other Senior Executives of the Bank are
proportionally reduced;

          (iv)  the failure by the Bank to provide and credit the Executive with
the number of paid vacation days to which the Executive is then entitled in
accordance with the provisions of this Agreement and the Bank's vacation policy
as in effect on the date of this Agreement;

          (v)  the requirement by the Bank that the Executive be based at an
office that is greater than 35 miles from where the Executive's office is
located on the date of this Agreement except for required travel on the business
of the Bank to an extent substantially consistent with the business travel
obligations which the Executive undertook on behalf of the Bank prior to the
date of this Agreement; or

          (vi) prompt written notice by the Executive to the Bank of any
material breach by the Bank of this Agreement.

                                       10
<PAGE>
 
     8.   Full-Time Employment; Confidentiality.
          ------------------------------------- 

          (a) Full-Time Employment.  The Executive will devote his full time,
              --------------------                                           
energies and attention to perform all of his duties to the Bank under this
Agreement.  In addition, except as disclosed to and approved by the Board, the
Executive will not engage in any business, civic or other activities that would
interfere with the performance of his duties hereunder.  The Executive will not
perform services, whether or not for compensation, for any person or entity
which competes directly or indirectly with the Bank.

          (b) Confidentiality.  Except as may be required in the ordinary course
              ---------------                                                   
of performing his duties hereunder, the Executive at no time, whether during his
employment or after the termination of his employment (other than to promote and
advance the business of the Bank), will reveal to any person or entity any trade
secrets or confidential business information concerning the Bank, including but
not limited to its research results and activities, marketing plans and
strategies, pricing and costing policies, customer lists and accounts, business
or financial information of the Bank which have come to the Executive's
knowledge as a result of his employment with the Bank.  These restrictions do
not apply to:  (i) information that has been or is disclosed generally or is in
the public domain through no fault of the Executive; (ii) information received
by the Executive from a third party outside this confidentiality obligation; or
(iii) information that is required to be disclosed by law or an order of any
court, agency or proceeding.

          (c) Return of the Bank's Property and Documents. Upon the termination
              -------------------------------------------                      
of the Executive's employment, the Executive immediately will return to the Bank
all property of the Bank or any of its subsidiaries including, without
limitation, all documents and information, however maintained (including
computer files, tapes and recordings), concerning the Bank or acquired by the
Executive in the course and scope of his employment with the Bank (excluding
only those documents relating to the Executive's own salary and benefits), Bank-
owned automobile(s), keys and credit cards.

          (d) The Bank's Right to Equitable Relief.  If the Executive commits a
              ------------------------------------                             
breach, or threatens to commit a breach, of any of the provisions of this
Section, the Bank will have the right to have such provisions specifically
enforced by any court having competent equity jurisdiction, and nothing in
Section 18 shall be interpreted to the contrary.

                                       11
<PAGE>
 
     9.   Witness Fees.
          ------------ 

          If, at any time after the termination of this Agreement, Executive is
requested by the Company or any affiliate of the Company, or is required, to
testify or to provide evidence or otherwise to perform services in relation to
litigation or similar proceedings (civil, administrative, arbitral or otherwise)
in which the Company or any affiliate of the Company, but not Executive, is a
named party or is otherwise involved,

          (a)  Executive shall be paid by the Company

          (i) with respect to each day that Executive appears as a witness or is
deposed, at the rate of $2,000 per day, and

         (ii) with respect to each day that Executive is involved in the
preparation therefor, at the rate of $1,000 per day, and

          (b) Executive shall be reimbursed by the Company for reasonable travel
and accommodation expenses if such services are required to be performed outside
of the city of Executive's domicile.

     10.  Limitations on Payments.
          ----------------------- 

          Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
(S) 1828(k) and any regulations promulgated thereunder.

     11.  Assignability.
          ------------- 

          This Agreement is personal to the Bank and the Executive and may not
be assigned or delegated by any party without the written consent of the other
party.

     12.  Withholding Taxes.
          ----------------- 

          Payroll taxes will be withheld from the amounts payable to the
Executive hereunder in accordance with applicable law as determined by the Bank.

     13.  Entire Agreement.
          ---------------- 

          Other than as specified in Section 6(g), this Agreement contains the
entire agreement between the Bank and the Executive concerning the subject
matter hereof and supersedes all prior agreements, understandings,

                                       12
<PAGE>
 
discussions, negotiations and undertakings, whether written or oral, between
them with respect thereto, including the Prior Agreement.

     14.  Amendment or Waiver.
          ------------------- 

          This Agreement cannot be changed, modified or amended without the
consent in writing of both the Executive and the Bank.  No waiver by either the
Bank or the Executive at any time of any breach by the other party of any
condition or provision of this Agreement shall be deemed a waiver of a similar
or dissimilar condition or provision at the same or at any prior or subsequent
time.  Any waiver must be in writing and signed by the Executive or an
authorized officer of the Bank, as the case may be.

     15.  Severability.
          ------------ 

          In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.

     16.  Survivorship.
          ------------ 

          The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.

     17.  Governing Law.
          ------------- 

          This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the state of California without reference to
principles of conflict of laws.

     18.  Review of this Agreement.
          ------------------------ 

          The Bank shall pay the legal expenses (up to a cumulative amount of
$2,000) incurred by the Executive in connection with the negotiation and
documentation of this Agreement.

     19.  Disputes under this Agreement.
          ----------------------------- 

          Any controversy, dispute or claim arising out of, relating to or
concerning this Agreement, the breach of this Agreement, the employment of the
Executive, or the

                                       13
<PAGE>
 
termination of Executive's employment will be resolved pursuant to this Section.

          (a) Agreement to Negotiate.  Prior to submitting any controversy,
              ----------------------                                       
dispute or claim to arbitration, the parties hereto will observe the following
procedures:

          (i)  The party desiring to submit any such controversy, dispute or
claim to arbitration ("Claimant") first will give written notice thereof to the
other party or parties ("Recipient") setting forth in detail the pertinent facts
and circumstances relating to such controversy, dispute or claim.

          (ii)  Recipient will have a period of fifteen (15) days in which to
consider the controversy, dispute or claim which is the subject of the notice
and to furnish in writing to Claimant a written statement of the position of
Recipient.

          (iii)  Within seven (7) days after Claimant's receipt of the written
statement of Recipient or the expiration of the fifteen (15) day period set
forth in subsection (ii), whichever is first, the parties will meet (with
counsel, in the discretion of each party) in an effort to resolve amicably all
differences which may exist and, failing such resolution, either party will have
the right to submit the matter to arbitration.

          (iv)  All communications between the parties under this Section shall
be deemed communications concerning settlement (including, without limitation,
pursuant to California Evidence Code Section 1152) and shall not be admissible
in any subsequent arbitration or litigation.

          (b)  Procedure for Arbitration.
               ------------------------- 

          (i)  Any controversy, dispute or claim arising out of, relating to or
concerning this Agreement, the breach of this Agreement, the employment of the
Executive, or the termination of the Executive's employment will be settled by
arbitration in Los Angeles, California in accordance with the Labor Arbitration
Rules of the American Arbitration Association (the "AAA") then existing.
(Should the AAA publish rules designed to accomplish the arbitration of
employment disputes between employees not represented by a union and their
employers or recommend the use of other rules, then those rules will be utilized
in lieu of the Labor Arbitration Rules.)  This agreement to arbitrate will be
specifically enforceable.

                                       14
<PAGE>
 
          (ii)  Subject to paragraph (a) of this Section, any demand for
arbitration may be filed with the AAA and served on the other party at any time
within the period covered by the applicable statute of limitations.

          (iii)  One arbitrator will be appointed by both parties in the
following manner:  the AAA will furnish the parties with a list of potential
arbitrators.  All such arbitrators must be attorneys who are current members in
good standing of the State Bar of California.  If either party objects to all of
the names on the list, the AAA will provide the parties with an alternative list
of potential arbitrators.  In no event may a party reject more than one list.
Notice of rejection must be given to the AAA within seven (7) business days of
receipt of the list.  Once a particular list has been accepted by both parties,
the parties alternatively will eliminate the names of the arbitrators until only
one name remains.  That remaining person will be appointed the arbitrator.  The
parties will draw lots to decide which party will eliminate the first name from
the list.  Either party may have the proceedings recorded by a reported at that
party's expense.  If both parties request a transcript, the cost of the reporter
will be shared equally by the parties.  The cost of the arbitrator will be
shared equally by the parties.

          (iv)  The arbitrator will have no authority to extend, modify or
suspend any of the terms of this Agreement.  The arbitrator will make his award
in writing and shall accompany it with an opinion discussing the evidence and
setting forth the reasons for his award.

          (v)  The arbitrator shall have the power to make all factual
determinations and rule on all issues of law.  Any award rendered by the
arbitrator shall be final and binding upon each party to the arbitration and
unreviewable for error of law or legal reasoning of any kind and any such award
may be confirmed, and judgment on such award may be entered, in any court of
competent jurisdiction.

        (vi)  If the rules of the AAA differ from those of this paragraph, the
provisions of this Agreement will control.

       (vii) It is agreed that the Office of Thrift Supervision ("OTS") may,
at its option, appear in any arbitration proceeding and present its position
with respect to the matter(s) before the arbitrator, including, without
limitation, its position with respect to any award of

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<PAGE>
 
damages. It is further agreed that the decision of the arbitrator will not bind
the OTS.

     20.  Notices.
          ------- 

          Any notice given to either party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned, if to the Bank, at its principal office, and, if to the
executive, at the address of the Executive shown on the Bank's records.

     21.  Headings; Construction.
          ---------------------- 

          The headings of the paragraphs contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.  Where appropriate, all
references in this Agreement to the masculine pronoun shall include the
feminine.

     22.  Counterparts.
          ------------ 

          This Agreement may be executed in two or more counterparts.

          IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

                    FIDELITY FEDERAL BANK,
                       A FEDERAL SAVINGS BANK


                    By: /s/ James E. Stutz
                       -------------------

                    /s/ Richard M. Greenwood
                    ------------------------ 
                    Richard M. Greenwood

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