1UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
1
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee required)
1
For the fiscal year ended
December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period from _______ to _________
Commission file number 0-12510
MARATHON BANCORP
(Name of small business issuer in its charter)
California
95-3770539
(State or other jurisdiction of incorporation or origination)
(I.R.S. Employer
Identification No.)
11150 West Olympic Boulevard, Los Angeles,
California 90064
(Address of principal executive
offices)
(Zip Code)
Issuer's telephone number: (310) 996-9100
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
1
Common Stock, no
par value
(Title of Class)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year.
$5,400,000
State the aggregate market value of the voting stock held
by non-affiliates computed by reference to the price at which
the stock was sold, or the average bid and asked prices of such
stock, as of March 1, 1997. $3,278,000 . Solely for
the purpose of this calculation, all directors and officers are
regarded as affiliates.
As of March 1, 1997, there were 1,248,764 shares of no par
Common Stock issued and outstanding.
,
Documents incorporated by reference include: (1) portions
of the registrant's 1996 Annual Report to Shareholders,
incorporated herein by reference to Parts II and III; and, (2)
portions of the registrant's Proxy Statement for the Annual
Meeting of Shareholders, to be held on June 16, 1997, are
incorporated herein by reference to Parts II and III.<PAGE>
PART I
ITEM 1. BUSINESS
General
Marathon Bancorp (the Company) is a California corporation
organized on October 12, 1982, and, as a bank holding company,
is subject to the Bank Holding Company Act of 1956, as amended
(the BHC Act). The Company commenced business on August 29,
1983 when the Company acquired all of the issued and outstanding
shares of Marathon National Bank (the Bank), which is the sole
active subsidiary of the Company and its principal asset. The
Company has not engaged in any other activities to the date of
this filing. All references herein to the Company include the
Bank, unless the context requires otherwise.
The Bank
The Bank was organized on November 8, 1982 as a national
banking association. The application to organize the Bank was
accepted for filing by the Office of the Comptroller of the
Currency (the Comptroller) on March 11, 1982, and preliminary
approval was granted on September 8, 1982. On August 29, 1983,
the Bank received from the Comptroller a Certificate of
Authority to Commence the Business of Banking. The Bank is a
member of the Federal Reserve System, and its deposits are
insured under the Federal Deposit Insurance Act to the extent of
applicable limits.
The Bank is located at 11150 West Olympic Boulevard, Los
Angeles, California. The Bank's primary marketing area rests
principally within the counties of Los Angeles (including the
San Fernando Valley and South Bay areas) and Orange. The Bank
markets its services mainly to commercial and wholesale
businesses, professionals and discerning individuals living or
working in the west Los Angeles area.
Bank Services
The Bank offers a wide range of commercial banking services to
individuals, businesses and professional firms located in its
primary marketing area. These services include personal and
business checking, interest-bearing money market and savings
accounts (including interest-bearing negotiable order of
withdrawal accounts) and both time certificates of deposit and
open account time deposits. The Bank also offers night
depository and bank by mail services, as well as traveler's
checks (issued by an independent entity) and cashier's checks.
The Bank acts as an authorized depository for deposits of the
U.S. Bankruptcy Court for the Southern, Central and Northern
districts of California. The Bank also acts as a merchant
depository for cardholder drafts under both VISA and MasterCard.
In addition, the Bank provides note and collection services and
direct deposit of social security and other government checks.
In 1995, the Bank also began offering investment products to
customers primarily in the form of government securities.
The Bank engages in a full complement of lending activities,
including revolving lines of credit, working capital and
accounts receivable financing, short term real estate
construction financing, mortgage loans, home equity lines of
credit and consumer installment loans, with particular emphasis
on short and medium term obligations. In addition, in 1995, the
Bank began offering overdraft lines of credit to businesses and
individuals as well as loans to homeowners associations. The
Bank's commercial lending activities are directed principally
toward businesses whose demand for funds falls within the Bank's
lending limit of $624,100, such as small to medium sized retail
and wholesale outlets, light manufacturing concerns and
professional firms. The Bank's consumer lending activities
include loans for automobiles, recreational vehicles, home
improvements and other personal needs. The Bank issues VISA
credit cards primarily to those customers with other borrowing
and deposit relationships with the Bank.<PAGE>
Competition
The banking business in California generally, and in the Bank's
market areas specifically, is highly competitive with respect to
both making loans and attracting deposits. The Bank competes
for loans and deposits with other commercial banks, savings and
loan associations, industrial loan companies, finance companies,
money market funds, credit unions and other financial
institutions, including a number of institutions that are much
larger than the Bank. There has been increased competition for
loan and deposit business over the past several years as a
result of changes in the financial services industry. Recent
years have seen an unprecedented consolidation in the financial
institutions industry as large numbers of banks have merged and
combined, resulting in greater concentration of assets and
lending ability, a trend which is expected to continue. In
addition, the enactment of interstate banking legislation in
California makes it easier for bank holding companies with
headquarters outside of California to enter the California
market, presenting an additional source of competition for the
Bank. In addition, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 may impact the competitiveness
of the Bank. See "Part I., Item 1 - Business - Recent
Legislation and Other Changes" below. Many of the major
commercial banks operating in the Bank's market areas offer
certain services that the Bank does not offer directly. In
addition, banks with greater capitalization have larger lending
limits and are thereby able to serve larger borrowing customers.
The Company competes for loan and deposit business by providing
innovative and responsive service to its customers.
Yields Earned and Rates Paid
Banking is a business that depends to a large part on rate
differentials. The difference between the interest rate
received by the Bank on its earning assets and the interest rate
it pays on its deposits and other borrowings comprises the most
significant component of the Bank's earnings. These interest
rates are sensitive to many factors beyond the Bank's control.
Accordingly, the earnings and growth of the Company are affected
by economic conditions, including inflation, recession and
unemployment.
Recent Legislation and Other Changes
From time to time, legislation is enacted which has the effect
of increasing the cost of doing business, limiting or expanding
permissible activities or affecting the competitive balance
between banks and other financial institutions. Proposals to
change the laws and regulations governing the operations and
taxation of banks and other financial institutions are
frequently made in Congress, in the California legislature and
before various bank regulatory agencies. The likelihood of any
major changes and the impact such changes might have on the
Bancorp and Bank are impossible to predict. Certain of the
potentially significant changes which have been enacted recently
by Congress or various regulatory or professional agencies are
discussed below.
The Economic Growth and Regulatory Paperwork Reduction Act (the
"1996 Act") as part of the Omnibus Appropriations Bill was
enacted on September 30, 1996 and includes many banking related
provisions. The most important banking provision is the
recapitalization of the Savings Association Insurance Fund
("SAIF"). The 1996 Act provides for a one time assessment of
approximately 65 basis points per $100 of deposits of SAIF
insured deposits including Oakar deposits payable on November
30, 1996. For the years 1997 through 1999 the banking industry
will assist in the payment of interest on FICO bonds that were
issued to help pay for the clean up of the savings and loan
industry. Banks will pay approximately 1.3 cents per $100 of
deposits for this special assessment, and after the year 2000,
banks will pay approximately 2.4 cents per $100 of deposits
until the FICO bonds mature in 2017. There is a three year
moratorium on conversions of SAIF deposits to Bank Insurance
Fund ("BIF") deposits. The 1996 Act also has certain regulatory
relief provisions for the banking industry. Lender liability
under the Superfund is eliminated for lenders who foreclose on
property that is contaminated provided that the lenders were not
involved with the management of the entity that contributed to
the contamination. There is a five year sunset provision for
the elimination of civil liability under the Truth in Savings
Act. The FRB and Department of Housing and Urban Development
are to develop a single format for Real Estate Settlement
Procedures Act and Truth in Lending Act ("TILA") disclosures.
TILA disclosures for adjustable mortgage loans are to be
simplified. Significant revisions are made to the Fair Credit
Reporting Act ("FCRA") including requiring that entities which
provide information to credit bureaus conduct an investigation
if a consumer claims the information to be in error. Regulatory
agencies may not examine for FCRA compliance unless there is a
consumer complaint investigation that reveals a violation or
where the agency otherwise finds a violation. In the area of
the Equal Credit Opportunity Act, banks that self-test for
compliance with fair lending laws will be protected from the
results of the test provided that appropriate corrective action
is taken when violations are found.
On September 28, 1995, Governor Pete Wilson signed Assembly
Bill 1482 (known as the Caldera, Weggeland, and Killea
California Interstate Banking and Branching Act of 1995 and
referred to herein as the "CIBBA") which allows for early
interstate branching in California. Under the federally enacted
Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("IBBEA"), discussed in more detail below, individual
states could "opt-out" of the federal law that would allow banks
on an interstate basis to engage in interstate branching by
merging out-of-state banks with host state banks after June 1,
1997. In addition under IBBEA, individual states could also
"opt-in" and allow out-of-state banks to merge with host state
banks prior to June 1, 1997. The host state is allowed under
IBBEA to impose certain nondiscriminatory conditions on the
resulting depository institution until June 1, 1997. California
in enacting CIBBA authorizes out-of-state banks to enter
California by the acquisition of or merger with a California
bank that has been in existence for at least five years.
Section 3824 of the California Financial Code ("Section 3824")
as added by CIBBA provides for the election of California to
"opt-in" under IBBEA allowing interstate bank merger
transactions prior to July 1, 1997 of an out-of-state bank with
a California bank that has been in existence for at least five
years. The early "opt in" has the reciprocal effect of allowing
California banks to merge with out-of-state banks where the
states of such out-of-state banks have also "opted in" under
IBBEA. The five year age limitation is not required when the
California bank is in danger of failing or in certain other
emergency situations.
Under IBBEA, California may also allow interstate branching
through the acquisition of a branch in California without the
acquisition of an entire California bank. Section 3824 provides
an express prohibition against interstate branching through the
acquisition of a branch in California without the acquisition of
the entire California bank. IBBEA also has a provision allowing
states to "opt-in" with respect to permitting interstate
branching through the establishment of de novo or new branches
by out-of-state banks. Section 3824 provides that California
expressly prohibits interstate branching through the
establishment of de novo branches of out-of-state banks in
California, or in other words, California did not "opt-in" this
aspect of IBBEA. CIBBA also amends the California Financial
Code to include agency provisions to allow California banks to
establish affiliated insured depository institution agencies out
of state as allowed under IBBEA.
Other provisions of CIBBA amend the intrastate branching laws,
govern the use of shared ATM's, and amend intrastate branch
acquisition and bank merger laws. Another banking bill enacted
in California in 1995 was Senate Bill 855 (known as the State
Bank Parity Act and is referred to herein as the "SBPA"). SBPA
went into effect on January 1, 1996, and its purpose is to allow
a California state bank to be on a level playing field with a
national bank by the elimination of certain disparities and
allowing the California Superintendent of Banks
("Superintendent") authority to implement certain changes in
California banking law which are parallel to changes in national
banking law such as closer conformance of California's version
of Regulation O to the FRB's version of Regulation O and certain
other changes including allowing the repurchase of stock with
the prior written consent of the Superintendent.
On September 29, 1994, IBBEA was enacted which has eliminated
many of the current restrictions to interstate banking and
branching. The IBBEA permits full nationwide interstate banking
to adequately capitalized and adequately managed bank holding
companies beginning September 29, 1995 without regard to whether
such transaction is expressly prohibited under the laws of any
state. The IBBEA's branching provisions permit full nationwide
interstate bank merger transactions to adequately capitalized
and adequately managed banks beginning June 1, 1997. However,
states retain the right to completely "opt out" of interstate
bank mergers and to continue to require that out-of-state banks
comply with the states' rules governing entry.
The states that opt out must enact a law after September 29,
1994 and before June 1, 1997 that (i) applies equally to all
out-of-state banks and (ii) expressly prohibits merger
transactions with out-of-state banks. States which opt out of
allowing interstate bank merger transactions will preclude the
mergers of banks in the opting out state with banks located in
other states. In addition, banks located in states that opt out
are not permitted to have interstate branches. States can also
"opt in" which means states can permit interstate branching
earlier than June 1, 1997.
The laws governing interstate banking and interstate bank
mergers provide that transactions, which result in the bank
holding company or bank controlling or holding in excess of ten
percent of the total deposits nationwide or thirty percent of
the total deposits statewide, will not be permitted except under
certain specified conditions. However, any state may waive the
thirty percent provision for such state. In addition, a state
may impose a cap of less than thirty percent of the total amount
of deposits held by a bank holding company or bank provided such
cap is not discriminatory to out-of-state bank holding companies
or banks.
On September 23, 1994, the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "1994 Act") was enacted
which covers a wide range of topics including small business and
commercial real estate loan securitization, money laundering,
flood insurance, consumer home equity loan disclosure and
protection as well as the funding of community development
projects and regulatory relief.
The major items of regulatory relief contained in the 1994 Act
include an examination schedule that has been eased for the top
rated banks and will be every 18 months for CAMEL 1 banks with
less than $250 million in total assets and CAMEL 2 banks with
less than $100 million in total assets (the $100 million amount
was amended to $250 million by the 1996 Act discussed above).
The 1994 Act amends Federal Deposit Insurance Corporation
Improvement Act of 1991 with respect to the Section 124, the
mandate to the federal banking agencies to issue safety and
soundness regulations, including regulations concerning
executive compensation allowing the federal banking regulatory
agencies to issue guidelines instead of regulations.
Further regulatory relief is provided in the 1994 Act, as each
of the federal regulatory banking agencies including the
National Credit Union Administration Board is required to
establish an internal regulatory appeals process for insured
depository institutions within 6 months. In addition, the
Department of Justice 30 day waiting period for mergers and
acquisitions is reduced by the 1994 Act to 15 days for certain
acquisitions and mergers.
In the area of currency transaction reports, the 1994 Act
requires the Secretary of the Treasury to allow financial
institutions to file such reports electronically. The 1994 Act
also requires the Secretary of the Treasury to publish written
rulings concerning the Bank Secrecy Act, and staff commentary on
Bank Secrecy Act regulations must also be published on an annual
basis.
On December 17, 1993, the President signed into law the
Resolution Trust Corporation Completion Act to provide
additional funding for failed savings associations under the
jurisdiction of the Resolution Trust Corporation. In addition
to providing such funding, the legislation, among other things,
makes it more difficult for the federal banking agencies to
obtain prejudgment injunctive relief against depository
institutions and parties affiliated with such institutions,
extends the moratorium on depository institutions converting
from Savings Association Insurance Fund insurance to Bank
Insurance Fund insurance or vice versa, and prohibits the FDIC
from using any deposit insurance funds to benefit the
shareholders of a failed or failing depository institution.
The Omnibus Budget Reconciliation Act of 1993 (the "Budget
Act"), which was signed into law on August 10, 1993, contains
numerous tax and other provisions which may affect financial
institutions and their businesses. The Budget Act contains a
provision that establishes a priority for depositors, or the
FDIC as subrogee thereof, in the event of a liquidation or other
resolution of an insured depository institution for which a
receiver is appointed after August 10, 1993. In addition, under
the existing cross-guarantee provisions of federal banking law,
the FDIC has the power to estimate the cost of the failure of an
insured depository institution and assess a charge against any
financial institution affiliated with the failed institution.
On December 19, 1991, the FDIC Improvement Act of 1991 (the
"1991 Act") was signed into law. The 1991 Act provides for the
recapitalization and funding of the Bank Insurance Fund of the
FDIC. In addition, the 1991 Act includes many changes to
banking law. Supervisory reforms provided under the 1991 Act
include annual on-site full scope examinations of most insured
institutions, additional audit and audit report requirements
imposed on most insured institutions and a new annual report
requirement for most insured institutions. Accounting reforms,
including the prescription of accounting principles no less
stringent than generally accepted accounting principles, and
prescription of standards for the disclosure of off-balance
sheet items, market value information and capital adequacy, are
also provided for in the 1991 Act. In addition, the 1991 Act
provides for a new rating system for insured institutions based
on capital adequacy. Institutions will be categorized as
critically undercapitalized, significantly undercapitalized,
undercapitalized, adequately capitalized and well capitalized.
The FDIC has adopted definitions of how institutions will be
ranked for prompt corrective action purposes. These definitions
are as follows: (i) a well capitalized institution is one that
has a leverage ratio of 5%, a Tier 1 risk-based capital ratio of
6%, a total risk-based capital ratio of 10% and is not subject
to any written order or final directive by the FDIC to meet and
maintain a specific capital level; (ii) an adequately
capitalized institution is one that meets the minimum required
capital adequacy levels but not that of a well capitalized
institution; (iii) an undercapitalized institution is one that
fails to meet any one of the minimum required capital adequacy
levels but not as undercapitalized as a significantly
undercapitalized institution; (iv) a significantly
undercapitalized institution is one that has a total risk-based
capital ratio of less than 6% and/or a leverage ratio of less
than 3%; and (v) a critically undercapitalized institution is
one with a leverage ratio of less than 2%.
The banking regulators will have broad powers to regulate
undercapitalized institutions. Undercapitalized institutions
must file capital restoration plans and are automatically
subject to restrictions on dividends, management fees and asset
growth. In addition, the institution is prohibited from opening
new branches, making acquisitions or engaging in new lines of
business without the approval of its appropriate banking
regulator.
Holding companies with undercapitalized institutions will be
prohibited from capital distributions without the prior approval
of the FRB. Definite drop dead dates are mandated under the
1991 Act for when critically undercapitalized insured
institutions must go under receivership or conservator-ship.
The 1991 Act also requires the regulators to issue regulations
in many areas of banking including prescribing safety and
soundness standards as to internal controls, asset quality,
earnings, stock valuation and executive compensation. Least
cost resolution is mandated by the 1991 Act which will require
the FDIC to use the least cost method case resolution.
Beginning in 1995, the FDIC generally will not be permitted to
cover uninsured depositors or creditors unless the President,
Secretary of Treasury and the FDIC jointly determine that such
is necessary to avoid systemic risk.
The 1991 Act also contains miscellaneous provisions including
additional regulation of foreign banks, notification of branch
closures, reduced assessments for lifeline account products,
FDIC affordable housing program, Truth in Savings disclosure
provisions, limitations on brokered deposits, restrictions on
state bank nonbanking activities, risk-based assessments and
deposit insurance limitations for certain accounts. The FDIC
also adopted a risk-based assessment system for purposes of
determining the insurance premium to be paid by a bank for FDIC
deposit insurance. In addition, the 1991 Act requires that
federal banking regulators take into account risks other than
credit risks with respect to capital standards. On September 1,
1995, the federal banking regulators (other than the Office of
Thrift Supervision ("OTS")) issued a final rule to take into
account interest rate risk in calculating risk based capital.
On June 26, 1996, a joint agency policy statement was issued by
all of the federal banking regulators except the OTS to provide
guidance on sound practices for managing interest rate risk.
The agencies did not in the policy statement elect to implement
a standardized measure and quantitative capital charge, though
the matter was left open for future implementation. Rather the
policy statement provided standards for the banking agencies to
evaluate the adequacy and effectiveness of a bank's interest
rate risk management and guidance to bankers for managing
interest rate risk. Specifically, effective interest rate risk
management requires that there be (i) effective board and senior
management oversight of the bank's interest rate risk
activities, (ii) appropriate policies and practices in place to
control and limit risks, (iii) accurate and timely
identification and measurement of interest rate risk, (iv) an
adequate system for monitoring and reporting risk exposures and
(v) appropriate internal controls for effective interest rate
risk management.
It is likely that other bills affecting the business of banks
may be introduced in the future by the United States Congress or
California legislature.
Accounting Changes
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must
pay to acquire the stock. The pro forma effects of the adoption
of SFAS No. 123 are disclosed in Note 8 of "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" on page 19 of the Company's
1996 Annual Report to Shareholders, which is attached as Exhibit
No. 13.
In June 1996, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended
in December 1996 by SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of SFAS No. 125." This Statement
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities.
SFAS No 125 applies prospectively to financial statements for
fiscal years beginning after December 31, 1996. However, SFAS
No. 127 defers for one year the effective date of certain
provisions within SFAS No. 125. SFAS No. 125 does not permit
early or retroactive application. The Bank does not believe the
impact on its operations and financial position will be material
upon adoption of SFAS No. 125, as amended by SFAS No. 127.
Supervision and Regulation
Bank holding companies and banks are extensively regulated
under both federal and state law.
Marathon Bancorp: Marathon Bancorp is a registered bank
holding company and is subject to regulation under the BHC Act.
The Company files quarterly and annual reports with the FRB, as
well as other information which the FRB may require under the
BHC Act. The FRB is empowered to conduct examinations of the
Company and its subsidiaries.
The FRB has the power to require the Company to terminate
activities, and to terminate control of or liquidate or divest
certain subsidiaries or affiliates when it believes that the
activity or subsidiary or affiliate constitutes a risk to the
financial safety, soundness or stability of the Company's
banking subsidiaries. The FRB also has the authority to
regulate provisions of certain holding company debt, such as the
authority to impose interest rate ceilings and reserve
requirements on such debt. The Company may, under certain
circumstances, be required to file written notice with and
obtain approval from the FRB prior to purchasing or redeeming
its equity securities.
Under the BHC Act and regulations adopted by the FRB, bank
holding companies and their nonbanking subsidiaries are
prohibited from requiring certain tie-in arrangements in
connection with any extension of credit, lease or sale of
property or furnishing of services. Further, the Company is
required by the FRB to maintain certain levels of capital.
The Company must obtain approval from the FRB prior to
acquiring more than 5% of the outstanding shares of any class of
voting securities or substantially all of the assets of any bank
or bank holding company. The Company must also obtain FRB
approval prior to any merger or consolidation of the Company
with another bank holding Company.
The BHC Act prohibits the Company, except in particular
circumstances, from acquiring direct or indirect control of more
than 5% of the outstanding voting shares of any company that is
not a bank or a bank holding company. The BHC Act also
generally prohibits the Company from engaging, either directly
or indirectly, in activities other than those of banking,
managing or controlling banks or furnishing related services.
The Company may, however, subject to obtaining prior approval
from the FRB, engage in activities or acquire interests in
companies which engage in activities which are deemed by the
Federal Reserve Board to be so closely related to banking.
Under FRB regulations, a bank holding company is required to
serve as a source of strength to its subsidiary banks and must
conduct its operations in a safe and sound manner. It is the
FRB's policy that a bank holding company must stand ready to use
available resources to assist its subsidiary banks during times
of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain
additional resources to assist its subsidiary banks. The FRB
generally considers the failure by a bank holding company to
meet its obligations to serve as a source of strength to be an
unsafe and unsound banking practice, or a violation of the FRB's
regulations, or both. Although this policy, known as the
"source of strength" doctrine, was declared invalid by the
United States Court of Appeals in 1990, that decision was
recently reversed by the United States Supreme Court on
procedural grounds. The FRB has continued to assert the
validity of this doctrine, and it is likely to be the subject of
continued controversy until definitively resolved by the courts
or by Congress.
In addition to regulation and supervision by the FRB, the
Company is subject to the periodic reporting requirements with
the Securities and Exchange Commission under the Exchange Act,
including but not limited to filing annual, quarterly and other
current reports with the Commission, and related substantive and
procedural requirements.
The Bank: The Bank, as a national banking association
chartered by the Comptroller, is subject to primary supervision,
examination and regulation by the Comptroller. It is also a
member of the Federal Reserve System and, as such, is subject to
applicable provisions of the Federal Reserve Act and regulation
by the FRB. The Bank is also subject to applicable provisions
of California law, insofar as they do not conflict with or are
not preempted by Federal banking law.
Deposits in the Bank are insured by the FDIC, which currently
insures deposits of each member bank to a maximum of $100,000
per depositor. For this protection, the Bank and all other
insured banks pays statutory assessments and is subject to the
rules and regulations of the FDIC.
Various requirements and restrictions affect the operations of
the Bank, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends and locations of branch
offices. In addition, the Bank is required to maintain certain
levels of capital. Management seeks to maintain adequate
capital to support its size and credit risks, and to ensure that
the Company and the Bank are within established regulatory and
industry standards.
Formal Agreement; Restrictions on Transfers of Funds to the
Company by the Bank
On September 30, 1995, the Bank entered into a formal
agreement with the Comptroller under which the Bank agreed to
submit to the Comptroller a three year strategic plan by
November 1, 1995. The plan included, among other things, action
plans to accomplish the following: a) achieve and maintain the
desired capital ratios, as set forth below; b) attain
satisfactory profitability; and c) reduce other real estate
owned. The plan submitted in a timely manner and was accepted
by the Comptroller on January 30, 1996. The agreement increased
the Bank's minimum Tier 1 risk based capital ratio to 8.5
percent from 4.0 percent and the Tier 1 capital leverage ratio
to 6.0 percent from 4.0 percent. At December 31, 1996, the
Bank had a Tier 1 capital ratio of 6.1 percent and a Tier 1
leverage ratio of 4.1 percent. Failure on the part of the Bank
to meet all of the terms of the formal agreement may subject the
Bank to significant regulatory sanctions, including restrictions
as to the source of deposits and the appointment of a
conservator or a receiver.
As of December 31, 1996, the Bank is categorized as
undercapitalized under the regulatory framework for prompt
corrective action. As such, the Bank may not issue dividends or
make other capital distributions, and may not accept brokered or
high rate deposits, as defined, due to the level of its
risk-based capital. In addition, under prompt corrective
action, the Bank's capital status may preclude the Bank from
access to borrowings from the Federal Reserve System through the
discount window. However, the Company completed a successful
private placement offering on March 24, 1997 which resulted in
$766,900 of new capital for the Bank. Had the Bank received the
additional capital at December 31, 1996, management believes
that the Bank would have met the capital requirements for an
adequately capitalized bank.
Under California and federal banking law, dividends paid by the
Bank in any calendar year may not, without the approval of the
Comptroller, exceed its net income, as defined, for that year
combined with its retained net income for the preceding two
years. At December 31, 1996, the Bank could only have declared
and paid dividends with the prior regulatory approval.
Federal banking law also restricts the Bank from extending
credit to the Company in excess of twenty percent of the Bank's
capital stock and surplus, as defined. Any such extensions of
credit are subject to strict collateral requirements. At
December 31, 1996, the net assets of the Bank were $3,042,800,
none of which could be lent or paid as dividends to the Company
without regulatory approval.
The Comptroller has the authority, under the Financial
Institutions Supervisory Act, to prohibit the Bank from engaging
in activities which the Comptroller regards as unsafe or unsound
in conducting its business. It is possible that, depending on
the financial condition of the Bank and other factors, the
Comptroller could assert that payment of dividends or other
payments is, under some circumstances, an unsafe and unsound
practice.
Employees
At December 31, 1996, the Company employed 33 personnel.
STATISTICAL DISCLOSURE
The following tables and data set forth, for the respective
years indicated, selected statistical information relating to
the Company.
The Company's operating results depend primarily on the level
of the Bank's net interest income, which is the difference
between interest income on interest earning assets and interest
expense on interest bearing liabilities. The Bank's net
interest income is determined by the average outstanding
balances of loans, investments, deposits and borrowings, and the
respective average yields on interest-earning assets and the
average costs on interest bearing liabilities, and the relative
amount of loans and investments compared to deposits and
borrowings. The Bank's volumes and rates on interest earning
assets and interest bearing liabilities are affected by market
interest rates, competition, the demand for bank financing, the
availability of funds, and by management's responses to these
factors.
The following tables set forth the Company's daily average
balances for each principal category of asset and liability and
shareholders' equity. The tables also present the amounts and
average rates of interest earned and paid on each category of
interest earning asset and interest bearing liability, along
with the net interest income and net yield on earning assets for
the periods indicated.
In addition, the tables set forth changes in the components of
net interest income for the periods indicated. The total change
is segmented into the change attributable to variations in
volume and the change attributable to variations in interest
rates. The changes in interest due to both rate and volume have
been allocated to the changes due to volume and rate in
proportion to the relationship of the absolute dollar amounts of
the change in both. Interest foregone on loans in nonaccrual
status is not included in the tables, while the average balance
of loans in nonaccrual status is included.
Changes in Net Interest Income
Year Ended December 31, 1996
(Dollar amount in thousands) YTD Interest Average Change from prior year
Average Income/ Yield/ due to change in:
Net Interest Income Analysis Balance Expense Rate Volume Rate Total
Loans $49,670 $4,035 8.1% $(309) $(468) $(777)
Other earning assets:
Interest bearing deposits
with financial institutions 832 47 5.7% 10 ( 3 ) 7
Investment Securities 7,775 476 6.1% (410) 37 (373)
Fed funds sold 11,206 623 5.6% 262 (14) 248
Other earning assets 19,813 1,145 5.8% (138) 20 (118)
Total int. earning assets 69,483 $5,180 7.5% ($447) ($448) ($895)
Non earning assets:
Cash & due from banks 6,247
Other assets 3,666
Allowance for loan loss (602)
$78,794
Interest bearing liabilities:
Deposits:
Demand $6,628 $62 0.9% ($11) ($1) ($12)
Money market and savings 27,566 723 2.6% (82) (11) (93)
Time certificate of deposit 8,463 392 4.6% (53) 22 (31)
Federal funds purchased 0 0 0 (5) (5) (10)
Total interest bearing liab. 42,657 $1,177 2.8% $(151) $5 ($146)
Noninterest-bearing liabilities
and shareholders equity:
Non interest bearing demand 31,762
Other liabilities 261
Shareholders' equity 4,114
$78,794
Net interest income $4,003
Net interest spread 4.7%
Net yield on earning assets 5.8%
Changes in Net Interest Income
Year Ended December 31, 1995
(Dollar amounts in thousands)
YTD Interest Average Change from prior year
Average Income/ Yield/ due to change in
Net Int. Income Analysis Balance Expense Rate Volume Rate Total
Loans $53,237 $4,812 9.0% ($652) $340 ($312)
Other earning assets:
Interest-bearing deposits
with financial inst. 648 40 6.2% 29 1 30
Investment securities 14,497 848 5.8% 48 70 118
Mort. sec. held for sale 0 0 0.0% (87) (86) (173)
Federal funds sold 6,505 375 5.8% 200 54 254
Other earning assets 21,650 1,263 5.8% 190 39 229
Total int.-earning assets 74,887 $6,075 8.1% ($462) $379 ($83)
Non-earning assets:
Cash and due from banks 5,065
Other assets 6,871
Allowance for loan losses (711)
$86,112
Interest-bearing liabilities:
Deposits:
Demand $7,771 $73 0.9% $12 $1 $13
Money market/savings 30,669 816 2.7% (52) 58 6
Time cert. of deposit 9,623 423 4.4% (194) 82 (112)
Federal funds purchased 178 10 5.3% (16) 4 (12)
Total int.-bearing liab. 48,241 $1,322 2.7% ($250) $145 ($105)
Non-interest bearing liab.
and Shareholders' equity:
Non-int. bearing demand 32,229
Other liabilities 398
Shareholders' equity 5,244
$86,112
Net interest income $4,753
Net interest spread 5.4%
Net yield on earning assets 6.3%
Investment Securities
The following table shows the carrying amount of the portfolio
of investment securities at the end of each of the past two
years:
Total Estimated
Amortize Gross Unrealized Market
Cost Gains Losses Value
1996
Securities available for sale:
US. Treasury and agency securities $1,004 $3 $0 $1,007
Mortgage-backed securities 19 5 0 24
Total $1,023 $8 $0 $1,031
Securities held to maturity:
Federal Reserve Bank stock $120 $0 $0 $120
Mortgage-backed securities 5,969 0 (266) 5,703
Total $6,089 $0 $(266) $5,823
1995
Securities available for sale:
US. Treasury and agency securities $3,002 $6 $0 $3,008
Mortgage-backed securities 300 0 (5) 295
Total $3,302 $6 $(5) $3,303
Securities held to maturity:
Federal Reserve Bank stock $148 $0 $0 $148
Mortgage-backed securities 6,463 0 (304) 6,159
Total $6,611 $0 $(304) $6,307
The following table shows the maturities of investment
securities at December 31, 1996 and the weighted average yields
of those securities.
Over 1 Over 5
Year Years
1 Year through through Over Average
(Dollars in thousands) or less 5 Years 10 Years 10 Years Total Yield
Sec. available for sale:
US Treas & agency sec. $1,007 $0 $0 $0 $1,007 5.7%
Mortgage-backed sec. 0 24 0 0 24 6.5%
Total $1,007 $24 $0 $0 $1,031 5.7%
Securities held to maturity:
Mortgage-backed sec. $0 $5,969 $0 $0 $5,969 6.3%
Fed. Reserve Bank Stock 0 0 0 120 120 6.0%
Total $0 $5,969 $0 $120 $6,089 6.3%
Loan Portfolio
The following table sets forth the amount of loans outstanding
at the end of the past two years:
% of % of
(Dollars in Thousands) 1996 Total 1995 Total
Commercial Loans $14,056 29.6% $15,488 30.9%
Real Estate Loans:
Interim Construction 457 1.0% 0 0.0%
Income Property 27,220 57.4% 24,987 49.8%
Residential 1-4 units 4,819 10.2% 8,517 17.0%
Total real estate loans 32,496 33,504
Installment loans 895 1.9% 1,179 2.3%
47,447 100.0% 50,171 100.0%
Deferred net loan origination costs 249 64
Allowance for Loan Losses (1,088) (720)
Net Loans $46,608 $49,515
The following table shows the amounts of commercial and real
estate construction loans outstanding at the end of the past
two years which, based on remaining scheduled repayments of
principal, are due in one year or less, more than one year but
less than five years, and more than five years. The amounts are
classified according to the sensitivity to changes in interest
rates.
Commercial and Construction Loans
December 31,
(Dollars in thousands) 1996 1995
COMMERCIAL LOANS
Aggregate maturities of loan balances due:
In one year or less:
Interest rates are floating or adjustable $10,039 $13,962
Interest rates are fixed or predetermined 0 1,035
After one year but within five years:
Interest rates are fixed or predetermined 4,012 491
After five years:
Interest rates are fixed or predetermined 5 0
Total commercial loans 14,056 15,488
REAL ESTATE CONSTRUCTION LOANS
Aggregate maturities of loan balances due
in one year or less and interest rates
are floating or adjustable 457 0
Total commercial and construction loans $14,513 $15,488
Risk Elements - Nonaccrual, Past Due and Restructured Loans
Nonaccrual loans are those for which the Bank has discontinued
accrual of interest because there exists reasonable doubt as to
the full and timely collection of either principal or interest
or such loans have become contractually past due ninety days
with respect to principal or interest. Under certain
circumstances, interest accruals are continued on loans past due
ninety days which, in management's judgment, are considered to
be well secured and fully collectible as to both principal and
interest. When a loan is placed in nonaccrual status, all
interest previously accrued but uncollected is reversed against
current period income. Income on such loans is then recognized
only to the extent that cash is received and where the future
collection of principal is probable. Accrual of interest is
resumed only when principal and interest are brought fully
current and when, in management's judgment, such loans are
estimated to be collectible as to both principal and interest.
Restructured commercial loans are those for which the Bank has,
for reasons related to borrowers' financial difficulties,
granted concessions to borrowers (including reductions of either
interest or principal) that it would not otherwise consider,
whether or not such loans are secured or guaranteed by others.
Loan restructurings involving only a modification of terms are
accounted for prospectively from the time of restructuring.
Accordingly, no gain or loss is recorded at the time of such
restructurings unless the recorded investment in such loans
exceeds the total future cash receipts specified by the new loan
terms.
At December 31, 1996, loans on nonaccrual totaled $568,400,
compared with $523,000 at year end 1995. The reduction in
interest income associated with nonaccrual loans was
approximately $147,100 during 1996, and $79,900 during 1995. At
December 31, 1996 and 1995, there were no loans past due ninety
days or more and still accruing interest. At December 31, 1996
and 1995, the Bank had classified $68,900 and $60,600,
respectively, of its loans as impaired and recorded the full
amount as specific reserve in the allowance for loan losses. In
addition, the Bank classified $499,500 and $2,354,900,
respectively, of its loans as impaired without a specific
reserve. The average recorded investment of impaired loans
during the year ended December 31, 1996 and 1995 was
approximately $2,433,400 and $2,422,900, respectively. Interest
income of $73,000 and $60,900, respectively, was recognized on
impaired loans during the years ended December 31, 1996 and
1995. There were no restructured loans at December 31, 1996.
However, at December 31, 1995, loans with restructured terms
totaled $1,253,900. The reduction in interest income associated
with restructured loan was approximately $25,000 in 1995. There
were no other loans at December 31, 1996, where the known credit
problems of a borrower caused the Bank to have serious doubts as
to the ability of such borrower to comply with the then present
loan repayment terms, and which would result in such loan being
included as a nonaccrual, past due or restructured loan at some
future date. The Bank has not made loans to borrowers outside
the United States. At December 31, 1996, the Company had no
loan concentrations exceeding ten percent of total gross loans
outstanding.
Summary of Loan Loss Experience
The allowance for loan losses is established by a provision for
loan losses charged against current period income. Losses are
charged against the allowance when, in management's judgment,
the collectability of a loan's principal is doubtful. The
accompanying financial statements require the use of management
estimates to calculate the allowance for loan losses. These
estimates are inherently uncertain and depend on the outcome of
future events. Management's estimates are based upon previous
loan loss experience, current economic conditions, volume,
growth, and composition of the loan portfolio, the value of
collateral and other relative factors. The Bank's lending is
concentrated in Los Angeles County and surrounding areas, which
have recently experienced adverse economic conditions, including
declining real estate values. These factors have adversely
affected borrowers' ability to repay loans. Although management
believes the level of the allowance as of December 31, 1996 is
adequate to absorb losses inherent in the loan portfolio,
additional decline in the local economy and increases in
interest rates may result in losses that cannot reasonably be
predicted at this date. Such losses may also cause
unanticipated erosion of the Bank's capital.
The following table summarizes the changes in the allowance for
loan losses arising from loan losses, recoveries on loans
previously charged off and provisions for loan losses charged to
operating expense.
Loan Charge-offs and Recoveries
(Dollars in thousands) 1996 1995
Balance of allowance for loan losses at beginning of year $720 $796
Loans charged off:
Commercial (297) (437)
Real estate 0 (233)
Installment (6) (70)
Total loans charged off (303) (740)
Recoveries of loans previously charged off:
Commercial 69 97
Real estate 0 3
Installment 1 3
Total loan recoveries 70 103
Net loans charged off (233) (637)
Provision charged to operating expense 601 561
Balance of allowance for loan losses at end of year $1,088 $720
1996 1995
Amount of loans outstanding at end of the year $47,447 $50,171
Average amount of loans outstanding $49,670 $53,237
Ratio of net charge-offs to average loans outstanding 0.47% 1.20%
Ratio of allowance for loan losses at the end of the
year to average loans outstanding 2.19% 1.35%
Ratio of allowance for loan losses at the end of the
year to loans outstanding at the end of the year 2.29% 1.44%
The following table sets forth the Company's allocation of the
allowance for loan losses to specific loan categories at the end
of the past two years. The allocations are based upon the same
factors as considered by management in determining the amount of
additional provisions to the allowance for loan losses and the
aggregate level of the allowance.
Allowance for Loan Losses ___________December 31,____________
1996 1995
(Dollars in thousands) Percent of Percent of
Loans in Loans in
Allowance Each Allowance Each
for Category to for Category to
Loan Losses Total Loans Loan Losses Total Loans
Commercial loans $158 14.5% $147 20.4%
Real estate loans:
Interim construction 0 0.0% 0 0.0%
Income property 445 40.9% 367 51.0%
Residential 1-4 0 0.0% 0 0.0%
Installment loans 56 5.1% 0 0.0%
Others 0 0.0% 39 5.4%
Unallocated 429 39.4% 167 23.2%
Total allowance for loan losses $1,088 100.0% $720 100.0%
The allowance for loan losses should not be interpreted as an
indication that future charge-offs will occur in these amounts
or proportions, or that the allocation indicates future
charge-off trends. Furthermore, the portion allocated to each
loan category is not the total amount available for future
losses that might occur within such categories, since even on
the above basis there is an unallocated portion of the allowance
and the total allowance is a general reserve applicable to the
entire portfolio.
Although management believes the level of the allowance for
loan losses as of December 31, 1996, is adequate to absorb
losses inherent in the loan portfolio, currently unanticipated
conditions and events, such as additional declines in the local
economy and increases in interest rates, may result in losses
that cannot reasonably be predicted at this date.
Sources of Funds
Deposits traditionally have been the primary source of the
Bank's funds for use in lending and other investments. The Bank
also derives funds from net earnings, receipt of interest and
principal on outstanding loans and other sources, including the
sale of investment securities. The Bank is a member of the
Federal Reserve System and may borrow through that system under
certain conditions. However, as described in section entitled
"Formal Agreement; Restrictions on Transfers of Funds to the
Company by the Bank," the Bank's capital status may preclude the
Bank from access to borrowings from the Federal Reserve System
through the discount window.
Deposits
The Bank's deposit products include noninterest-bearing demand
deposits, interest-bearing demand deposits, money market and
savings accounts, and time certificates of deposit. The
majority of the Bank's deposits are obtained from its primary
marketing area.
The distribution of average deposits and the average rates paid
thereon is summarized for the periods indicated below:
1996 1995
Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate
Demand, non-interest-bearing $31,762 $32,229
Demand, interest bearing 6,628 0.90% 7,771 0.90%
Money market and savings 27,566 2.70% 30,669 2.70%
Time certificates of deposit:
Under $100,000 5,776 4.30% 3,902 4.30%
$100,000 or more 2,687 4.50% 5,721 4.50%
Total Deposits $74,419 $80,292
The following is a maturity schedule of time certificates of
deposit of $100,000 or more at the end of the past two years:
Time Certificates of Deposit December 31,
(Dollars in thousands) 1996 1995
Three months or less $3,443 $2,156
Over three months through six months 2,360 2,242
Over six months through twelve months 2,298 3,693
Over twelve months 161 989
Total $8,262 $9,080
The Bank had no brokered deposits at December 31, 1996 and 1995.
Selected Financial Ratios
The following table sets forth the ratios of net loss to
average assets and to average shareholders' equity, and the
ratio of average shareholders' equity to average assets.
1996 1995
Return on average assets (1.2)% (1.6)%
Return on average shareholders' equity (22.8)% (26.8)%
Average shareholders' equity to average assets 5.2% 6.1%
Shareholders' equity to total assets at year end 4.6% 4.6%
ITEM 2. PROPERTIES
The Bank leases 14,900 square feet of office space and 5,600
square feet of retail banking space at 11150 West Olympic
Boulevard, Los Angeles, California under a noncancelable
operating lease, which expires on August 31, 2002. The lease
provides for annual rental payments of approximately $399,500
during 1997, $594,100 during 1998 - 2001 and $396,100 in 2002.
In addition, the Bank pays its proportionate share of increases
in common operating expenses.
ITEM 3. LEGAL PROCEEDINGS
Information concerning legal proceedings is incorporated herein
by reference from Note 10 in "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS" on page 26 of the Company's 1996 Annual Report to
Shareholders, which is attached as Exhibit No. 13.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED
SHAREHOLDER
MATTERS
Information concerning the market for the Company's common
shares and related shareholder matters is incorporated herein by
reference from the section entitled "MARKET PRICES FOR COMMON
SHARES" on page 31 of the Company's 1996 Annual Report to
Shareholders, which is attached as Exhibit No. 13.
Information concerning restrictions on the Bank's ability to
transfer funds to the Company in the form of cash dividends,
loans or advances is incorporated herein by reference from Note
11 in "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" on pages 26 and 27 of
the Company's 1996 Annual Report to Shareholders, which is
attached as Exhibit No. 13 and from "Item 1. Business --
Restrictions on Transfers of Funds to the Company by the Bank."
At February 28, 1997, there were approximately 271 holders of
record of the Company's common shares. The average of the bid
and asked prices of the Company's common shares at that date was
$2.625 as reported by principal market makers in the Company's
common shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is incorporated herein by reference from
the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS" on
Pages 5 through 13 of the Company's 1996 Annual Report to
Shareholders, which is attached as Exhibit No. 13. See also
"Financial Highlights" incorporated herein by reference from
page 4 of the Company's 1996 Annual Report to Shareholders,
which is attached as Exhibit No. 13.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of the Company and the "INDEPENDENT
AUDITORS' REPORT" are incorporated herein by reference from the
Company's 1996 Annual Report to Shareholders, which is attached
as Exhibit No. 13. See "Item 14. Exhibits, Financial
Statement Schedules and Reports on Form 8-K" below for financial
statements filed as a part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
No information is required in response to this item.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the
Company is incorporated herein by reference from the section
entitled "DIRECTORS AND EXECUTIVE OFFICERS -- Election of
Directors" of the Company's Proxy Statement, which is attached
as Exhibit No. 99.1.
As of March 31, 1997, the executive officers of the Company and
the Bank were:
Name Position Age
Craig D. Collette President of the Company and the Bank and
Chief Executive Officer of the Bank 54
Timothy J. Herles Executive Vice President and Senior Credit
Officer of the Bank 55
Daniel L. Erickson Senior Vice President and Chief Financial
Officer of the Bank 52
Adrienne Caldwell Senior Vice President, Cashier, Chief
Operating Officer and Chief Administrative
Officer of the Bank 54
CRAIG D. COLLETTE has been the President of the Company and the
Bank and Chief Executive Officer of the Bank since January 1997.
Mr. Collette has been a banker for 29 years in the Southern
California banking community. Prior to joining the Bank, Mr.
Collette was President. COO and Director of TransWorld Bank,
Sherman Oaks, CA and, for approximately 18 years, was President,
CEO and Director of Landmark Bank, La Habra, CA. Mr. Collette
began his career as an investment banker for Bier, Wilson & Co.
and later joined Bank of California as Vice President - Regional
Manager before helping to form Landmark Bank. Mr. Collette
received a Bachelor's Degree from Brigham Young University and a
MBA from the University of Southern California.
TIMOTHY J. HERLES has been Executive Vice President of the Bank
since April 1983, and has served in various positions including
Cashier, Chief Administrative Officer, Compliance Officer and
Senior Credit Officer, which position he currently holds. Prior
to joining the Bank, Mr. Herles was Vice President and Manager
of the Bank of Orange County, Los Angeles Regional Office (1982
to 1983) and Vice President and Manager of Century Bank, Los
Angeles, California (1979 to 1982). Mr. Herles received an
Associate of Arts degree from Los Angeles Valley College, an
Advanced Certificate from National Credit Manager's Association,
a Standard Certificate from the American Institute of Banking
and a Graduate Certificate from the Southwestern Graduate School
of Banking at Southern Methodist University.
DANIEL L. ERICKSON has been Senior Vice President and Chief
Financial Officer of the Bank since July 1993. Prior to joining
the Bank, Mr. Erickson was Senior Vice President and Chief
Financial Officer of Commercial Center Bank (1987 to 1992), and
Vice President and Controller of Central Bancorporation, Inc.
(1980 to 1987). Mr. Erickson is a Certified Public Accountant,
holds a Bachelor of Science degree in Accounting from the
University of South Dakota and Graduate Certificate from the
Stonier Graduate School of Banking at Rutgers University.
ADRIENNE CALDWELL has been Senior Vice President and Cashier of
the Bank since March 1986, in 1990 was appointed Chief Operating
Officer, and in 1992 was appointed Chief Administrative Officer.
Prior to joining the Bank, Mrs. Caldwell was Assistant Vice
President and Operations Administrator of South Bay Bank (1982
to 1986), Vice President and Operations Manager of American City
Bank (1974 to 1982), and held various positions with Barclays
Bank of California (1972 to 1974). Mrs. Caldwell is a member of
the Bankers Compliance Group and received a Standard Certificate
from the American Institute of Banking.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Information concerning management compensation and transactions
is incorporated herein by reference from the section entitled
"DIRECTORS AND EXECUTIVE OFFICERS -- Compensation of Executive
Officers and Directors" of the Company's Proxy Statement, which
is attached as Exhibit No. 99.1.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from
the sections entitled "Principal Shareholders" and "DIRECTORS
AND EXECUTIVE OFFICERS -- Election of Directors," of the
Company's Proxy Statement, which is attached as Exhibit No. 99.1.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
It is against Bank policy to make loans to directors, officers
or employees. Information concerning certain relationships and
related transactions with management and others is incorporated
herein by reference from the section entitled "DIRECTORS AND
EXECUTIVE OFFICERS -- Election of Directors" of the Company's
Proxy Statement, which is attached as Exhibit No. 99.1.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules
The following financial statements included in the Company's
1996 Annual Report to Shareholders are incorporated herein by
reference (page number references are to the 1996 Annual Report
to Shareholders).
Marathon Bancorp and Subsidiary Page
Consolidated Statements of Financial Condition
as of December 31, 1996 and 1995 14
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 15
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 16 - 17
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994 17
Notes to Consolidated Financial Statements 18 - 29
Independent Auditors' Report 30
All schedules are omitted because they are not applicable, not
material or because the information is included in the financial
statements or the notes thereto.
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the fourth
quarter of 1996.
(c) Exhibits
See Exhibit Index at Page 24 this Form 10-KSB.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 31st day of March 1997.
MARATHON BANCORP (Registrant)
Nikolas Patsaouras
Chairman of the Board
`Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
___________________________ Chairman of the Board March 31, 1997
Nikolas Patsaouras
___________________________ Director, Chief Financial March 31, 1997
Thomas Mallos Officer and Principal
Accounting Officer
___________________________ Director March 31, 1997
Robert J. Abernethy
___________________________ Director March 31, 1997
Frank W. Jobe, M.D.
___________________________ Director and President March 31, 1997
Craig D. Collette
___________________________ Director and Secretary March 31, 1997
Robert L. Oltman
___________________________ Director and Assistant March 31, 1997
Ann Pappas Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Articles of Incorporation (4) *
3.2 Bylaws (4) *
10.1 Company Office Lease - Suite 280 (3) *
10.2 Bank Office Lease - Suite 180 (3) *
10.3 Bank Office Lease - Suite 110 (5) *
10.4 Company and Bank Office Lease
commencing September 1, 1992 (6) *
10.5 Employment Agreement of J F. Morrow II (4) *
10.6 1983 Stock Incentive Plan (1) *
10.7 Form of Non-Qualified Stock Option Agreement
(1983 Stock Incentive Plan) (1) *
10.8 Amendments to the Marathon Bancorp 1983 Stock
Incentive Plan (5) *
10.9 Form of Incentive Stock Option Agreement (1) *
10.10 1986 Non-Qualified Stock Option Plan, as amended (2) *
10.11 Form of Non-Qualified Stock Option Agreement
(1986 Non-Qualified Stock Option Plan) (2) *
10.12 Form of 1990 Stock Option Plan (5) *
10.13 Form of Non-Qualified Stock Option Agreement -
Director Option (1990 Stock Option Plan) (5) *
10.14 Form of Non-Qualified Stock Option Agreement
(1990 Stock Option Plan) (5) *
10.15 Form of Incentive Stock Option Agreement
(1990 Stock Option Plan) (5) *
13. Annual Report to Shareholders for the year ended
December 31, 1996 (parts not incorporated by reference
are furnished for informational purposes and are not
filed herewith) 26
21. Subsidiaries of Company 27
23. Consent of Deloitte & Touche LLP 29
99.1 Proxy Statement for Annual Meeting of Shareholders
to be held on June 16, 1997 30
___________________
* Not Applicable
(1) These exhibits are contained in the registrants'
Registration Statement on Form S-1 (Registration No. 2-83674), declared
effective by the Commission on July 12, 1983, and are incorporated herein
by reference.
(2) These exhibits are contained in the registrants' Annual
Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission
File No.
2-83191), filed with the Commission on March 27, 1987, and are incorporated
herein by reference.
(3) These exhibits are contained in the registrants' Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 (Commission
File No.2-83191), filed with the Commission on March 28, 1988, and are
incorporated herein by reference.
(4) These exhibits are contained in the registrants' Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 (Commission
File No.0-012510), filed with the Commission
on March 20, 1989, and are incorporated
herein by reference.
(5) These exhibits are contained in the registrants' Annual
Report on Form 10-K for the fiscal year ended December 31, 1989
(Commission File No.0-012510), filed with the Commission on
March 19, 1990, and are incorporated herein by reference.
(6) These exhibits are contained in the registrants' Annual
Report on Form 10-K for the fiscal year ended December 31, 1991
(Commission File No.0-012510), filed with the Commission on
March 19, 1992, and are incorporated herein
by reference.
EXHIBIT 13.
EXHIBIT 21.
SUBSIDIARIES OF MARATHON BANCORP
Marathon National Bank, incorporated under the laws of the United States.
Marathon Bancorp Mortgage Corporation, (an inactive subsidiary),
incorporated under the laws of California.
EXHIBIT 23.
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
Marathon Bancorp
Los Angeles, California
We consent to the incorporation by reference in Registration Statement Nos.
2-90321 and 33-40408 on Form S-8 of Marathon Bancorp and subsidiary of our
report dated February 28, 1997 (March 24, 1997 as to Notes 11 and 13) which
report includes an explanatory paragraph relating to certain regulatory
matters discussed in footnote 11, incorporated by reference in the Annual
Report on Form 10-KSB for the year ended December 31, 1996.
Los Angeles, California
March 31, 1997
EXHIBIT 99.1
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