Annual Report (Form 10-K), fiscal year 1994

Item 1: "Business of Citadel Holding Corporation--The Dillon Litigation."
The Company, Hecco Ventures I and James J. Cotter are defendants in a civil action filed in 1990 by Alfred Roven in the United States District Court for the Central District of California. The complaint alleges fraud by the Company in a proxy solicitation relating to the Company's 1987 annual meeting of stockholders and breach of fiduciary duty. The complaint seeks compensatory and punitive damages in an amount alleged to exceed $40,000,000. The complaint grew out of and was originally asserted as a counter-claim in an action brought by the Company against Roven for illegal short-swing profits. The Company's motion for summary judgment was granted in the spring of 1991 and all federal claims were dismissed. However, the Court retained jurisdiction over pendent state law claims for breach of fiduciary duty. Roven was granted summary judgment on the short swings profits claim. Roven has now filed a motion to amend the complaint against the Company for malicious prosecution in connection with the short swings profit litigation. The proposed amendment names certain former individual directors of Citadel and its counsel of record. The motion to amend is scheduled to be heard on May 1, 1995. The Company believes that it has meritorious defenses to these claims, and has not reserved any amounts with respect thereto. However, costs of defense could be material, particularly given the Company's limited cash flow and operating profits.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1994. The 1994 annual meeting of stockholders (the "1994 Meeting") was held on January 10, 1995. At the 1994 Meeting, each of the current directors was elected to serve on the Board until the next annual meeting and until successors are elected.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Citadel's common stock is listed and quoted on the American Stock Exchange ("AMEX"). The following table sets forth the high and low closing bid prices of the common stock of Citadel as reported by AMEX for each of the following quarters:
HOLDERS OF RECORD
The number of holders of record of Citadel's common stock at April 14, 1995 was 272.
DIVIDENDS
While Citadel has never declared a dividend on its common stock and has no current plan to declare such a dividend, Citadel will review this matter on an ongoing basis.
ITEM 6: SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
The tables below set forth certain historical financial data regarding the Company. This information is derived in part from, and should be read in conjunction with, the consolidated financial statements of the Company.
- -------- (1) Net of treasury shares, where applicable. (2) 1993 data includes 3,297,912 shares issued in March 1993 in connection with a stock rights offering, which produced net proceeds to the Company of $31.4 million. (3) Excluding the writedowns of core deposit intangibles of $5.2 million, interest rate margins at and for the year ended December 31, 1993, would have been 23.2% and 2.39%. (4) All retail branch offices are located in Southern California.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")
RESULTS OF OPERATIONS
Prior to the Restructuring, Citadel was a financial services holding company engaged primarily in the savings bank business through Fidelity. It conducted virtually no operations at the holding company level. In the Restructuring, Citadel's interest in Fidelity was reduced from 100% to 16.2% and Citadel transferred the stock of its other subsidiary, Gateway, to Fidelity, leaving Citadel with no historical operating business. As a result, effective January 1, 1994 Citadel ceased including the results of Fidelity in its consolidated financial statements and began accounting for its investment in Fidelity on the cost basis. Since the Restructuring, Citadel has been engaged primarily in the ownership and management of commercial and residential real property. Therefore, Citadel's results of operations for the year ended December 31, 1994 are not comparable to its results of operations for prior years.
The Company reported a loss of $174.8 million ($26.45 per share) in 1994, comprised of (i) a $112.1 million loss from the operations of its former subsidiary, Fidelity, through the date of the Restructuring, (ii) writedowns of $59.9 million on the Company's investment in Fidelity at and following the Restructuring, (iii) a $900,000 administrative charge paid to Fidelity prior to the Restructuring and (iv) a $1.9 million loss from continuing operations.
Of the $1.9 million loss from continuing operations, $1.1 million related to the contested proxy solicitation, litigation defense and settlement costs. See Item 1: "Business of Citadel Holding Corporation--The Dillon Litigation." In addition, the Company spent approximately $200,000 on deferred maintenance on its real estate holdings.
The Company continues to make progress in the leasing of its apartment properties. At December 31, 1994, the Parthenia property was 70% leased; in the first quarter of 1995, the Parthenia property had achieved over 90% occupancy. Changes made by the Company in the management of the Veselich property appear to be stabilizing the high turnover which had caused additional operating costs. Occupancy at the Veselich property is in the 90-95% range.
The Arboleda property has maintained full occupancy with low turnover of tenants. However, American Express has publicly announced that it will vacate the property at the end of its lease in February 1997. While the Phoenix office leasing market continues to strengthen, it is anticipated that significant capital expenditures will be necessary to re-lease this space and the space might remain vacant for some time. See Item 2:










ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Citadel Holding Corporation:
We have audited the consolidated financial statements and financial statement schedule listed at Item 8 of Citadel Holding Corporation (the "Company"). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1994 and 1993, and the results of its consolidated operations and cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California March 15, 1995 (April 12, 1995 as to the fourth paragraph of Note l3)
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS) (NOTE 1)
See notes to consolidated financial statements.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1--BASIS OF PRESENTATION
On August 4, 1994 ("the Closing"), Citadel Holding Corporation ("Citadel") completed a restructuring (together with the other transactions described below, the "Restructuring") in which, among other things, Citadel's ownership interest in Fidelity Federal Bank, a Federal Savings Bank ("Fidelity"), was reduced from 100% to approximately 16%. The reduction was a result of Fidelity issuing and selling to investors in a public offering shares of Class A and Class C common stock. Citadel's investment in Fidelity was reclassified into 4,202,243 shares of Class B common stock of Fidelity. As a result, effective January 1, 1994, Citadel no longer consolidates Fidelity in its financial statements; rather it accounts for its investment on the cost basis. In addition, several other significant events occurred in the Restructuring, including:
a. Citadel sold to Fidelity all of the stock of Gateway Investment Services, Inc., previously a wholly owned subsidiary of Citadel ("Gateway").
b. A newly-formed subsidiary of Citadel, Citadel Realty, Inc. ("CRI") purchased four real properties from Fidelity for a purchase price of $19.8 million (Fidelity's book value) of which $13.9 million was financed by Fidelity on a secured basis and the balance of which was financed by Craig Corporation ("Craig"), a significant stockholder of Citadel, under a short- term line of credit (Citadel and CRI are referred to herein as the "Company").
c. Citadel received from Fidelity by way of dividend (i) one-year transferable options (subsequently contributed to CRI) to acquire two office buildings in Sherman Oaks and Glendale, California (the "Office Buildings") used in the operations of Fidelity (including its headquarters buildings) for an aggregate exercise price of $9.3 million (the "Office Building Options"), portions of which buildings would be leased back by Fidelity upon purchase by the Company (see Note 13), and (ii) Fidelity's interest in a lawsuit filed against the former carrier of Fidelity's directors' and officers' insurance policies, involving certain coverage and indemnity issues, which resulted in Citadel collecting $2.5 million.
d. Citadel and Fidelity entered into a Stockholders' Agreement (the "Stockholders' Agreement"), under which Citadel must reimburse Fidelity for certain losses that may be incurred by Fidelity as a result of certain environmental and other representations made by Fidelity in connection with the bulk sale of loans and other assets to certain third parties in connection with the Restructuring. Subject to a $4 million limit, the Stockholders' Agreement requires Citadel to reimburse Fidelity for losses incurred by Fidelity, in either repurchasing assets (sold in connection with the bulk sale) in the event of breached representations, or curing such breaches.
The information for the year ended December 31, 1994 presents the Company's results of operations for the five months subsequent to the Restructuring separate from the results of operations of Citadel (including Fidelity and Gateway) prior to the Restructuring, which have been included in the loss of and write-down of investment in Fidelity in the statement of operations (see Note 4).
For the period prior to the closing of the Restructuring, administrative expenses have been recorded consistent with previous allocations made to Citadel by Fidelity.
Notes 1 through 13 relate to the Company on a restructured basis while Notes 14 through 27 relate to Citadel, as the holding company of Fidelity, prior to the restructuring, with the exception of Notes 25 and 26 which relate to the Company both prior and subsequent to the restructuring.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2--SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.
Deferred Financing Cost--Costs incurred in connection with obtaining financing are amortized over the terms of the respective loans on a straight- line basis.
Depreciation and Amortization--Depreciation and amortization are computed principally on the straight-line method over the estimated useful lives of the assets which range from 27 to 39 years. Leasehold improvements are amortized over the lives of the respective leases or the useful lives of the improvements, whichever is shorter.
Investment in Common Stock--The Company's investment in common stock of Fidelity is classified as "available for sale" under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115 and is reported at fair value. Under SFAS No. 115, fluctuations in fair value are included as a separate component of stockholders' equity. If there is a decline in fair value judged to be other than temporary, the amount of the write down is included in net income (loss).
Earnings (Loss) per Share--The earnings (loss) per share was computed on the weighted average number of shares outstanding. The 3% cumulative voting convertible preferred stock is a common stock equivalent but was anti-dilutive.
3--RENTAL PROPERTIES
Rental properties consist of the following:
Rental properties consist of three apartment buildings and one commercial building. Subsequent to December 31, 1994, one of the apartment buildings was sold (see Note 13).
4--INVESTMENT IN FIDELITY FEDERAL BANK
As of December 31, 1994, the investment in Fidelity consists of 4,202,243 shares of Class B Common Stock received in the Restructuring at a fair value estimated by management to be $3.19 per share, or a total value of $13,405,000. Such valuation was based on management's consultation with financial advisors and securities brokers, recent operating results of Fidelity and giving effect to the consideration to be received from the Dillion Investors, L.P. to acquire 1,295,000 shares in April 1995 (see Note 13).
Fidelity suffered losses of $14,800,000 and $128,400,000 for the fourth quarter and year ended December 31, 1994 respectively. As of December 31, 1994, Fidelity had stockholders' equity of $156,500,000, or $6.03 per share. Although Fidelity met its numerous regulatory capital requirements at December 31, 1994, Fidelity's ability to meet the prescribed capital requirements in the future is uncertain.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The loss of and write-down of investment in Fidelity for the year ended December 31, 1994 consisted of the following;
Included in the write-down of the investment in Fidelity as of the Closing Date is the effect of the proceeds received from the settlement of the D&O Litigation, the write-down on uncollectible loans, and the deferral of a portion of the proceeds received from the Bulk Sale Asset agreement relating to a sale of Fidelity loans (see Note 1). The loss from operations through August 4, 1994 was partially offset by an income tax benefit of $16,524,000.
Pursuant to a Registration Rights Agreement entered into between Fidelity and Citadel, Citadel and any person who acquires shares of Class B Common Stock or Class A Common Stock issuable upon conversion of the shares of Class B Common Stock (the "Registrable Securities") will be entitled to certain registration rights with respect to such shares. At any time before March 31, 1998, the holder or holders of more than 50% of the Registrable Securities may require Fidelity to register all or a portion of the Registrable Securities under OTS regulations, subject to certain restrictions. Furthermore, if, at any time before March 31, 1999, Fidelity proposes to register any of its Common Stock under the OTS regulations for purposes of an offering or sale in a primary or secondary offering, Fidelity may be required to include any or all of the Registrable Securities as directed by the holders thereof. Subject to certain limitations, Fidelity is required to bear all registration and selling expenses in connection with the registration of the Registrable Securities. However, after consultation with Fidelity, Citadel has determined that its shares of Fidelity Class B Common Stock may be freely sold without registration under the regulations of the OTS, and, when such shares convert to Fidelity Class A Common Stock, such shares will cease to be eligible for the foregoing registration rights.
The Stockholders' Agreement provides restrictions on the transfers of shares of Class B Common Stock. Except pursuant to the exercise of registration rights as described above, no holder of Fidelity Class B Common Stock may sell publicly shares of Class B Common Stock representing more than 5% of the total outstanding Fidelity Common Stock on a fully diluted basis during any 30-day period without the prior approval of Fidelity. In addition, if shares of Class B Common Stock representing more than 5% of the total outstanding Fidelity Common Stock on a fully diluted basis are proposed to be sold privately to any person or, if after giving effect to such private sale, the transferee (including any of the transferee's affiliates or any "group" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of which the transferee is a member) would own more than 5% of the outstanding Fidelity Common Stock on a fully diluted basis, then except in connection with distributions by Citadel of such shares to its stockholders, Fidelity will have an assignable right of first refusal with respect to the shares of Class B Common Stock proposed to be sold. Upon any distribution of Class B Common Stock by Citadel to its stockholders, by dividend or otherwise, any Citadel stockholder shall be entitled to convert all or a portion of the shares of Class B Common Stock so distributed to the extent that such shares when added to all other shares of Class B Common Stock owned immediately prior to the distribution by such stockholder and any shares of Class B Common Stock owned immediately prior to the distribution by all other members of any "group" (as so defined) of which such stockholder is a member, do not exceed 5% of all outstanding shares of Fidelity Common Stock.
In addition, for a period commencing six months after the Closing and ending 18 months after the Closing, Fidelity will have the right to redeem, subject to the approval of the OTS and the approval of the
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stockholders of Citadel, any outstanding shares of Class B Common Stock owned by Citadel, in excess of the number of shares of Class B Common Stock held by the then largest stockholder of Fidelity (other than Citadel), at a redemption price (the "Redemption Price") equal to either (a) 110% of the market price of the Class A Common Stock, assuming it is then listed on a national securities exchange or admitted for quotation on the NASDAQ, or (b) if the Class A Common Stock is not so listed or quoted, 100% of the book value per share of Fidelity Common Stock as of the most recent quarterly balance sheet date; provided that no such redemption shall be made in anticipation of any merger, consolidation, sale of all or substantially all of Fidelity's assets, distribution (other than any ordinary cash dividend), or any other transaction involving the receipt by holders of any class of Fidelity Common Stock of any cash or other property.
5--OTHER ASSETS
Other assets are summarized as follows:
6--DEFERRED PROCEEDS FROM BULK SALES AGREEMENT
Under the Stockholders' Agreement (see Note 1), Citadel will be required to reimburse Fidelity for certain losses incurred by Fidelity in either curing breached representations or repurchasing assets sold under a bulk sales agreement, subject to a $4 million aggregate limit, in the event Fidelity is determined to have breached certain representations made in connection with certain Bulk Sales which were part of the Restructuring. To date, claims totaling $3.9 million have been asserted. Citadel has been informed that Fidelity is contesting these claims. Proceeds of $4 million have been included in the balance sheet as deferred proceeds.
7--MORTGAGE NOTES PAYABLE
Mortgage notes payable to Fidelity at December 31, 1994 are as follows:
Aggregate future principal payments as of December 31, 1994 are as follows:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1994, the LIBOR interest rate was 7.75% and the 1-year Treasury rate was 6.7%. Management believes that the carrying value of these variable rate mortgages approximates their fair value.
8--SHORT-TERM LINE OF CREDIT
The Company has a line of credit with Craig in the amount of $950,000 all of which has been drawn. The line of credit matures and all borrowed amounts are due on August 5, 1995. If certain conditions are met, the maturity date may be extended an additional six months. The Company pays interest, on all borrowed amounts at a rate equal to prime plus 3%. A 0.5% annual fee is charged on any undrawn balance. In connection with the restructuring, the Company borrowed $6,200,000 on this Line of Credit. The amount was reduced to $950,000 through the issuance of 1,329,114 shares of Preferred Stock (see Note 9). The line of credit is guaranteed by Citadel, which guarantee is collateralized by the common stock of CRI. The line of credit contains restrictions as to the payment of dividends by CRI. Management believes that the carrying value of the borrowings under the line of credit approximates its fair value. During the year ended December 31, 1994, the average balance outstanding was $4,391,000 and the effective interest rate was 11%.
9--3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of $3.95 per share. The sales price of the 1,329,114 shares sold was $5,250,000 which was paid through conversion of existing indebtedness on the Craig line of credit (see Note 8). Dividends are payable quarterly commencing on January 15, 1995. Each share of Preferred Stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. The Preferred Stock is convertible at the option of the holder into common stock. The conversion ratio is one share of Preferred Stock for a fraction of a share of common; the numerator of which is the sum of $3.95 per share plus any accrued but unpaid dividends, and the denominator of which is the average of the closing prices per share of the Company's common stock, as defined ("Market Price"). If the Market Price exceeds $5.00 per share the conversion ratio will be calculated using $5.00.
The Company does not have the right to redeem shares of Preferred Stock prior to November 1997. Thereafter, the Company has the right, at its sole option, to redeem at the sum of (1) $3.95 per share, (2) any unpaid dividends, and (3) a premium at the redemption date equal to an accrual on the Stated Value ranging from 9% per annum during the period from November 1994 to November 1998 and thereafter reducing over time during the period from November 1998 to November 2006 at the rate of 1% per year. If the redemption date is after November 2006, there is no premium. The Company can redeem Preferred Stock tendered for conversion at a price based upon the above redemption provisions if the Market Price is below $3.00. In the event of a change of control of the Company (as defined), the Company is required to redeem the Preferred Stock, if demanded by the holder, at a price based upon the above provisions. Further, each holder of Preferred Stock is entitled to a preemptive right to purchase or subscribe for any unissued voting stock. Such preemptive rights shall allow such holder to maintain its proportionate share of the outstanding voting stock of the Company.
If a court prohibits Craig from voting the Preferred shares, or invalidates any such vote, the debt under the line of credit that was cancelled would be reinstated and would bear interest as though it had been outstanding on a continuous basis.
10--COMMON STOCK
On January 10, 1995, the Company authorized an additional 10,000,000 shares of $.01 par value common stock.
In 1993, Citadel granted an option to purchase 20,000 shares of common stock at a price of $21.90 per share to one of its former executives. As of December 31, 1994, all options are exercisable.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has agreed to grant an option to its President to purchase 33,000 shares of common stock at a price of $2.69 per share. The option has vested as to 11,000 shares and will vest as to 11,000 shares on each of August 4, 1995 and 1996.
11--FUTURE MINIMUM RENT
The Company has operating leases, at its commercial property, with tenants that expire at various dates through 1999 and are either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Future minimum rent under operating leases, excluding tenant reimbursements of certain costs, is summarized as follows:
Leases related to the Company's residential properties have been excluded from the above schedule as they are generally six months or less in length.
12--COMMITMENTS AND CONTINGENCIES
There are several legal actions and claims against the Company. Based on advice of legal counsel management believes that the ultimate liability, if any, which may result from any of these lawsuits will not materially affect the financial position or results of operations of the Company (see Note 13 for the settlement of certain litigation).
13--SUBSEQUENT EVENTS
Subsequent to December 31, 1994, the Company sold its rental property located in Harbor City for $5.9 million in cash, net of expenses. The sale resulted in a gain of approximately $980,000 for financial statement purposes. As a result of the sale, $3,696,000 of its mortgage notes payable to Fidelity were assumed by the purchaser.
On February 2, 1995, the Company exercised its office building options to purchase the two buildings (see Note 1) and on March 22, 1995, purchased and immediately sold the Sherman Oaks building for a gain of $560,000. The purchase price for the Glendale Building is $7.1 million. Fidelity has given Citadel a conditional commitment to provide $5.38 million of mortgage financing on the Glendale Building on the following terms and conditions: a 5 year mortgage, amortized on a 20 year basis with interest payable monthly at LIBOR plus 4.5%. These terms have been approved by the Board of Directors of Fidelity subject to advice from the OTS on the issues of affiliate transactions, completion of required documentation, and the equity portion of the purchase will be funded from internal sources. This transaction has not yet been finalized and an extension of the closing date has been agreed to by both Citadel and Fidelity while certain financing issues are resolved.
The Glendale building is the headquarters building of Fidelity. Upon completion of Citadel's purchase of the Glendale building, scheduled for no later than May 17, 1995, Citadel and Fidelity will enter into a 10-year, full service gross lease for four of the six floors of the Glendale building. The rental rate for the first five years of the lease term will be approximately $26,600 per month (including parking) for the ground floor and approximately $75,000 per month (including parking) for the fourth, fifth and sixth floors. This lease will provide for annual rental increases at a rate equal to the lower of the increase in the Consumer Price Index
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("CPI") or 3%. After the first five years of the lease term, the rental rate for the ground floor will be adjusted to the higher of the then current market rate or the prevailing rental rate in the fifth year of the lease and the rental rate for the upper floors will be adjusted to the higher of the then current market rate or $1.50 per square foot increased by the annual rental rate increase applied during the first five years of the lease as described in the preceding sentence. Fidelity will have the option to extend the lease of the ground floor for two consecutive five year terms at a market rental rate and will have the option to purchase the Glendale building at a market rate at the expiration of the lease term, provided that Citadel then owns the building.
On November 7, 1994, a stockholder, Dillon Investors, L.P. ("Dillon"), filed a lawsuit against the Company, its directors and Craig Corporation alleging that the 74,300 shares of Citadel Common Stock issued to Craig at $3.85 per share in October, 1994, and the Preferred Stock were issued at unfair prices in order to entrench the Board of Directors in power in the face of an announced proxy contest and possible consent solicitation by Dillon to take over control of the Board of Directors. The suit sought recission of the issuance of the Preferred Stock and the reinstatement of borrowings from Craig under a line of credit (see Note 8). As of April 12, 1995, the Company entered into a Stock Exchange and Settlement Agreement with Dillon pursuant to which Dillon will purchase from Citadel 1,295,000 shares of Fidelity Class B Common Stock in consideration of $2.22 million in cash and the surrender of 666,000 shares of Citadel Common Stock (the "Surrendered Shares"). Further, Craig has agreed not to exercise the conversion feature of its Preferred Stock prior to February 4, 1996, without the prior approval of the holders of the majority of the Citadel common shareholders. Citadel has (a) granted Craig a two year option to purchase the Surrendered Shares at a purchase price of $3.00 per share and (b) agreed to reimburse Craig for its litigation costs in an amount not to exceed $75,000 which has been included in accounts payable and accrued liabilities.
As noted in Note 1, Notes 14 through 27 related to the Company, as the holding company of Fidelity, prior to Restructuring, with the exception of Notes 25 and 26 which relate to the Company both prior to and subsequent to the Restructuring.
14--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRIOR TO RESTRUCTURING
Principles of Consolidation--The consolidated financial statements include the accounts of Citadel Holding Corporation ("Citadel") and subsidiaries. Until August 4, 1994 Citadel was the holding company of Fidelity Federal Bank, a Federal Savings Bank ("Fidelity") and Gateway Investment Services, Inc. ("Gateway"). Unless otherwise indicated, references to the "Company" include Citadel, Fidelity, Gateway, and all subsidiaries of Fidelity and Citadel. All significant intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents--For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds sold are one-day periods. Fidelity is required by the Federal Reserve System to maintain noninterest-earning cash reserves against certain of its transaction accounts. At December 31, 1993, the required reserves totaled $28.6 million including vault cash.
Investment Securities and Mortgage-backed Securities--U.S. Government and agency obligations, commercial paper, mortgage-backed securities and other corporate debt securities identified as held for investment are recorded at cost, with any discount or premium recognized over the life of the related security by using a methodology which approximates the interest method. Fidelity's portfolio of mortgage-backed securities consists of pools of mortgage loans exchanged for mortgage-backed securities and those purchased. Securities held for investment are those securities which the Company has the intent and ability to hold until maturity, and are carried on an amortized cost basis. Securities to be held for indefinite periods of time, including securities that management intends to use as part of its asset/liability strategy, or that may be sold
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital or other similar factors, are classified as held for sale and are carried at the lower of cost or market value. Any gains or losses incurred on sales of securities are calculated based upon the specific identification method. Any investment securities held for trading are carried at market value.
Loans--Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrued interest is fully reserved on loans over 90 days contractually delinquent and on other loans which have developed inherent problems prior to being 90 days delinquent. Discounts and premiums on loans are included with loans receivable and are credited or charged to operations over the estimated life of the related loans using the interest method. The Bank charges fees for originating loans. Loan origination fees, net of direct costs of originating the loan are recognized as an adjustment of the loan yield over the life of the loan by the interest method, which results in a constant rate of return. When a loan is sold, net loan, origination fees and direct costs are recognized in operations. Other loan fees and charges representing service costs for the prepayment of loans, for delinquent payments or for miscellaneous loan services are recognized when collected. Loan commitment fees received are deferred to the extent they exceed direct underwriting costs.
Fidelity has designated certain of its loans receivable as being held for sale. In determining the level of loans held for sale, Fidelity considers whether loans (a) would be sold as part of its asset/liability strategy, or (b) may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital or other similar factors. Such loans are classified as held for sale and are carried at the lower of cost or market value.
Fidelity has sold loans which have generated gains on sale, a stream of loan servicing revenue and cash for lending or liquidity. Sales of loans are dependent upon various factors, including interest rate movements, investor demand for loan products, deposit flows. the availability and attractiveness of other sources of funds, loan demand by borrowers and liquidity and capital requirements. Due to the volatility and unpredictability of these factors, the volume of Fidelity's sales of loans has fluctuated. All loans sold during 1993 and 1992 were from the held for sale portfolio. Fidelity has the intent and ability to hold all of its loans, other than those designated as held for sale, until maturity.
Owned Real Estate--Real estate held for sale acquired in settlement of loans generally results when property collateralizing a loan is foreclosed upon or otherwise acquired by Fidelity in satisfaction of the loan. Real estate acquired through foreclosure is recorded at the lower of fair value or the recorded investment in the loan satisfied at the date of foreclosure. Fair value is based on the amount that the Company could reasonably expect to receive for the asset in a current sale between a willing buyer and a willing seller, that is, other than a forced or liquidation sale. Inherent in the computation of estimated fair value are assumptions about the length of time the Company may have to hold the property before disposition. The holding costs through the expected date of sale and estimated disposition costs are included in the valuations. Real estate held for investment or development is carried at the lower of cost or fair value. Adjustments to the carrying value of the assets are made through valuation allowances and charge-offs, through a charge to operations. Net cash receipts on real estate owned or on those loans designated as in-substance foreclosures and net cash payments are recorded in real estate operations on specific properties.
Loans meeting certain criteria are accounted for as "in-substance foreclosures." These substantially foreclosed assets are recorded at the lower of the loan's carrying amount or at the estimated fair value of the collateral at the date the loan was determined to be in-substance foreclosed. These assets are reported as "real estate owned" in addition to formally foreclosed real estate.
Allowances for Estimated Losses on Loans and Real Estate--The Company has established valuation allowances for estimated losses on specific loans and real estate ("specific reserves") and for the inherent risk in the loan and real estate portfolios which has yet to be specifically identified ("general valuation allowances"
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
or "GVA"). The internal asset review department reviews the quality and recoverability of the Company's assets on a quarterly basis in order to establish adequate specific reserves and general valuation allowances. The Bank utilizes the delinquency migration and the classification methods in determining the adequacy of its GVA. The delinquency migration method attempts to capture the potential future losses as of a particular date associated with a given portfolio of loans, based on the Bank's own historical migration experience over a given period of time. Under the classification method, a reserve factor is applied to each aggregate classification level by asset collateral type in an effort to estimate the loss content in the portfolio. The Bank calculates a range of loss by applying both methodologies and then applies judgment and knowledge of particular credits, economic trends, industry experience and other relevant factors to estimate the GVA amount. Additions to the allowances, in the form of provisions, are reflected in current operations. Charge-offs to the allowances are made when the loss is determined to be significant and permanent.
Depreciation and Amortization--Depreciation and amortization are computed principally on the straight-line method over the lives of the respective leases or the useful lives of the improvements, whichever is shorter.
Intangible Assets--In 1993, the Company reassessed the valuation of its intangible assets which resulted in a writedown of $14.0 million. See Note 20 for further information.
Until 1993, the excess of cost over the fair value of net assets acquired (goodwill) in connection with the acquisition of Mariners Savings and Loan in 1978, was included in intangible assets in the statements of financial condition and was being amortized to operations over forty years.
The cost of core deposits purchased from various financial institutions is amortized over the average life of the deposits acquired, generally five to ten years.
Financial Instruments--In the normal course of business, the Company enters into off-balance sheet instruments to enhance yields and to alter its exposure to interest rate risk. These financial include interest rate swaps and swap option agreements and puts and calls. The differences to be paid or received on swaps are included in interest expense as payments are made or received. The swap options are held as trading positions during the option period and are carried at market value and gains and losses are reflected in operations.
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition, for which it is practicable to estimate that value. Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument.
Much of the information used to determine fair value is highly subjective. When applicable, readily available market information has been utilized. However, for a significant portion of Fidelity's financial instruments, active markets do not exist. Therefore, considerable judgment was required in estimating fair value for certain items. The subjective factors include, among other things, the estimated timing and amount of cash flows, risk characteristics, credit quality and interest rates, all of which are subject to change. Since the fair value is estimated as of December 31, 1993, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments which are contained in the notes to the consolidated financial statements that describe each financial instrument.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and cash equivalents: The book value amounts reported in the statement of financial condition for cash and cash equivalents approximate the fair value of such assets, because of the short maturity of such investments.
Investment securities and mortgage-backed securities: Estimated fair values for investment and mortgage-backed securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.
Loans: The estimated fair values of real estate loans held for sale are based on quoted market prices. The estimated fair values of loans receivable are based on quoted market prices, when available, or an option adjusted cash flow valuation ("OACFV"). The OACFV includes forward interest rate simulations and the credit quality of performing and nonperforming loans. Such valuations may not be indicative of the value derived upon a sale of all or part of the portfolio. The book value of accrued interest approximates its fair value.
Investment in FHLB stock: The book value reported in the statement of financial condition for the investment in FHLB stock approximates fair value as the stock may be sold back to the Federal Home Loan Bank at face value to the extent that it exceeds the amount of FHLB stock which Fidelity is required to hold.
Deposits: The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand. The fair value of fixed rate certificates of deposits is estimated by using an OACFV analysis.
Borrowings (including FHLB Advances, other borrowings and subordinated notes): The estimated fair value is based on an OACFV model.
Off-balance sheet instruments: The estimated fair value for Fidelity's off- balance sheet instruments are based on quoted market prices, when available, or an OACFV analysis.
15--INVESTMENT SECURITIES
The following maturity table shows the book value and market value of investment securities held for sale at December 31, 1993:
Investment Securities Held for Investment--Proceeds from sales of securities held for investment during 1993 were $26.9 million, with a resulting gain of $1,946,000.
During 1993, the Company changes its investment strategy and as a result, moved its entire portfolio of investment securities from the investment portfolio to the held for sale portfolio. The Company had no outstanding investment securities held for investment at December 31, 1993.
16--MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities Held for Trading--The Company had no outstanding mortgage-backed securities held for trading at December 31, 1993. Proceeds from sales of mortgage-backed securities held for trading during 1993 totaled $51.3 million. Gross gains of $54,000 were realized from those sales and are reported in the statement of operations as a component of gains/losses on sales of mortgage-backed securities, net.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage-Backed Securities Held for Sale--Summarized below are mortgage- backed securities held for sale at December 31, 1993:
During the year ended December 31, 1993, the Company had gross gains of $1,500,000 and gross losses of $1,000 on the sale of mortgage-backed securities held for investment.
17--LOANS RECEIVABLE AND LOANS HELD FOR SALE
Total loans include loans receivable and loans held for sale and are summarized as follows:
Included above are $56.3 million of amounts drawn under home equity lines of credit at December 31, 1993.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Also included above are loans held for sale, consisting of the following at the dates indicated:
Fidelity's portfolio of mortgage loans serviced for others amounted to $888.4 million at December 31, 1993.
18--REAL ESTATE OWNED
Owned real estate consists of the following:
The following summarizes the results of real estate operations:
19--ALLOWANCE FOR ESTIMATED LOAN AND REAL ESTATE LOSSES
The following summarizes the activity in the Company's allowance for estimated loan and real estate losses:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fidelity's percentage of nonperforming assets to total assets increased to 5.37% at December 31, 1993 from 4.99% at December 1992.
20--INTANGIBLE ASSETS
In 1993, Fidelity reassessed the valuation of its intangible assets. Based upon the results of a branch profitability analysis and an analysis of the recoverability of its core deposit intangible assets, Fidelity wrote down the carrying value of its core deposit intangible assets in an amount of $5.2 million (which writedown is included in interest expense). The net unamortized balance of core deposit intangibles was $2.1 million at December 31, 1993. Also in 1993, an analysis was performed of the recoverability of the goodwill related to the acquisition of Mariners Savings and Loan ("Mariners") in 1978. This analysis indicated that the expected future net earnings from the branches or assets acquired did not support the carrying value of the goodwill. As a result, Fidelity wrote down the remaining $8.8 million balance of goodwill related to the Mariners acquisition (which writedown is included in operating expense).
The amortization and writedown of core deposit intangibles, resulting from purchases of deposits and goodwill acquired in the acquisitions of other financial institutions for the two years ended December 31, 1993, are summarized as follows:
21--DEPOSITS
Deposits consist of the following:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fidelity had noninterest-bearing checking amounts of $52.9 million at December 31, 1993.
At December 31, 1993, certificate accounts were scheduled to mature as follows:
At December 31, 1993, loans totaling $98.3 million were pledged as collateral for $5.9 million of public funds on deposit with Fidelity and potential future deposits.
Certificates of deposits of $100,000 or more accounted for $593 million and represented 18% of all deposits at December 31, 1993.
The Bank also utilizes brokered deposits as a short-term means of funding. These deposits ($92,196 or 2.74% of total deposits) are obtained or placed by or through a deposit broker and are subject to certain regulatory limitations. The following table summarizes Fidelity's outstanding balance of brokered deposits at the dates indicated:
The carrying amounts and the estimated fair values of deposits consisted of the following at December 31, 1993:
SFAS No. 107 defines the fair value of demand deposits as the stated amount of passbook, checking and certain money market accounts. Although SFAS No. 107 specifically prohibits including a deposit-based intangible element as part of the fair value disclosure for deposit liabilities, it does allow supplemental disclosure, which is unaudited. The core deposit intangible is the excess of the fair value of demand deposits over recorded amounts and represents the benefit of retaining these deposits for an expected period of time. Fair value is based on a discounted cash flow analysis using Fidelity's alternative funding costs for similar maturities and assumed retention rates for each type of deposit. The core deposit intangible is estimated to be $63.0 million at December 31, 1993, and is not included in the above fair values or recorded as an asset in the balance sheet.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22--FEDERAL HOME LOAN BANK ADVANCES
FHLB Advances are summarized as follows:
- -------- (1) Includes pledged loans available for use under the letter of credit securing commercial paper (available unused balance was $96 million at December 31, 1993).
The maturities and weighted average interest rates on FHLB Advances are summarized as follows:
The estimated fair value of FHLB Advances at December 31, 1993, was $328 million.
23--OTHER BORROWINGS AND SUBORDINATED NOTES
Other borrowings consist of the following:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowings other than the mortgage-backed bonds and notes are summarized as follows:
Fidelity entered into a Subordinated Loan Agreement dated as of May 15, 1990 (the "Subordinated Loan Agreement") pursuant to which $60 million in subordinated notes (the "Notes") are outstanding, which Notes were guaranteed by the Company. The Notes were approved by the OTS as additional regulatory capital. The Notes were issued to institutional investors in the amount of $60.0 million, interest payable semiannually at 11.68% per annum, and are repayable in five equal annual installments commencing May 15, 1996.
The Subordinated Loan Agreement, among other covenants, contains a provision requiring Fidelity to maintain a consolidated tangible net worth at least equal to the greater of (a) $170 million plus 50% of consolidated net earnings since January 1, 1990, or (b) 3.25% of consolidated assets.
The carrying and estimated fair value of other borrowings and subordinated notes consisted of the following at December 31, 1993:
24--EMPLOYEE BENEFIT PLANS
Postretirement Benefits--Fidelity provided certain health and life insurance postretirement benefits for all eligible retired employees. In connection with the restructuring, all postretirement benefit Plans were retained by Fidelity.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" for its unfunded postretirement health care and life insurance program. This statement requires the cost of postretirement benefits to be accrued during the service lives of employees. The Company's previous practice was to expense these costs on a cash basis.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefit costs for 1993 included the following components:
The following table sets forth the postretirement benefit liability at December 31, 1993:
The APBO as of December 31, 1993, was determined using a 7.25% weighted- average discount rate. The health care cost trend rates were assumed to be 9.5% at December 31, 1993, gradually declining to 5.25% after ten years and remaining at that level thereafter.
25--INCOME TAXES
Income tax expense benefit for the years ended December 31, 1993 and 1992 was comprised of the following:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation from the statutory income tax expense/benefit to the consolidated effective income tax expense/benefit follows:
As stated in Note 4, an income tax benefit of $16,524,000 was recorded during the year endedDecember 31, 1994 relating to the loss from operations of Fidelity.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax liability/asset are as follows:
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1994, the Company has for income tax purposes a net operating loss carryforward of approximately $1.5 million. These carryforwards will expire in the year 1999 through 2004. Realization of such tax benefits is unlikely as a result of recent history of operating losses, accordingly, a full valuation reserve has been provided for in 1994.
In 1993, no valuation allowance was required for federal purposes. Federal deferred tax assets would be fully realized as an offset against reversing temporary differences which create net future tax liabilities, and/or through loss carrybacks. Therefore, even if no future income was expected, federal deferred tax assets would still be fully realized. However, a valuation allowance was required for state purposes, as certain state deferred tax assets would not be realized as an offset against reversing temporary differences which create net future state tax liabilities.
The tax sharing agreement between Citadel and Fidelity was terminated prior to the Closing. In connection with such termination, Citadel and Fidelity agreed that certain amounts, estimated to be approximately $3.2 million, that would otherwise become payable by Citadel to Fidelity under the terms of such agreement as a result of losses recognized by Fidelity during the second quarter of 1994, would not be payable.
Citadel and Fidelity entered into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement") which sets forth each party's rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Closing and related matters such as the filing of tax returns and the conduct of Internal Revenue Service and other examinations.
In general, under the Tax Disaffiliation Agreement, Fidelity is responsible for (a) all adjustments to the tax liability of Fidelity and its subsidiaries for periods before the Closing relating to operations of Fidelity, (b) any tax liability of Fidelity and its subsidiaries for the taxable year that begins before and ends after the Closing in respect to that part of the taxable year through the date of the Closing, and (c) any tax liability of Fidelity and its subsidiaries for periods after the Closing. For this purpose, any liability for taxes for periods ending on or before the Closing shall be measured by Fidelity's actual liability for taxes after applying tax benefits attributable to periods prior to the Closing otherwise available to Fidelity. With certain exceptions, Fidelity is entitled to any refunds relating to those liabilities.
In general, Citadel is responsible for all tax liabilities of Citadel and its subsidiaries (other than Fidelity and its subsidiaries) for all periods. Citadel is entitled to any refunds relating to those liabilities.
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- -------- (1) Due to worsening operating results of Fidelity during the fourth quarter an additional write-down, which was deemed to be other than temporary, in the value of Fidelity stock was recorded.
27--PARENT COMPANY CONDENSED FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to the consolidated financial statements.
CITADEL HOLDING CORPORATION STATEMENTS OF FINANCIAL CONDITION
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CITADEL HOLDING CORPORATION STATEMENTS OF OPERATIONS
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CITADEL HOLDING CORPORATION STATEMENTS OF CASH FLOWS
ITEM 9.

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by this reference is the information set forth in the sections entitled "ELECTION OF DIRECTORS" and "MANAGEMENT" contained in the Company's Proxy Statement to be filed for its 1995 Annual Meeting of Stockholders (the "1995 Proxy Statement").
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by this reference is the information set forth in the section entitled "EXECUTIVE COMPENSATION" contained in the 1995 Proxy Statement to be filed.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by this reference is the information set forth in the sections entitled "ELECTION OF DIRECTORS" and "PRINCIPAL HOLDERS OF CITADEL COMMON STOCK" contained in the 1995 Proxy Statement to be filed.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by this reference is the information set forth in the section entitled "RELATED PARTY TRANSACTIONS" contained in the 1995 Proxy Statement to be filed.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
(i) The Company filed a Report on Form 8-K on October 20, 1994, reporting on Item 7, "Financial Statements and Exhibits."
(ii) The Company filed a Report on Form 8-K on October 25, 1994, reporting on Item 7, "Financial Statements and Exhibits."
(iii) The Company filed a Report on Form 8-K on November 14, 1994, reporting on Item 5, "Other Events," and Item 7, "Financial Statements and Exhibits."
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(C) EXHIBITS
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II-3
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Citadel Holding Corporation
/s/ Steve Wesson By __________________________________ Steve Wesson President and Chief Executive Officer
Date: April 17, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
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