UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10- QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission file number 0-12510
MARATHON BANCORP
(Exact name of registrant as specified in its charter)
California 95-3770539
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
11150 West Olympic Boulevard, Los Angeles, California 90064
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 996-9100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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
As of August 1, 1997, there were 3,811,819 shares of no par Common
Stock issued and outstanding.
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Consolidated Statements of Financial Condition
Marathon Bancorp and Subsidiary
June 30, December 31,
(Unaudited) 1997 1996
Assets
Cash and Due from Banks 7,005,000 4,789,000
Federal funds sold 6,000,000 2,500,000
Cash and cash equivalents 13,005,000 7,289,000
Interest-bearing deposits with financial institutions
498,000 996,000
Securities available for sale 1,133,000 1,031,000
Securities held to maturity (aggregate market value of
$5,579,000 and$5,823,000 at June 30, 1997 and December 31, 1996
respectively) 5,949,000 6,089,000
Loans 46,469,000 47,696,000
Reserve for credit losses (785,000) (1,088,000)
Net Loans 45,684,000 46,608,000
Other real estate owned, net 1,281,000 3,085,000
Premises and equipment, net 433,000 453,000
Accrued interest receivable 454,000 432,000
Other assets 467,000 410,000
Total Assets 68,904,000 66,393,000
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $25,184,000 $25,840,000
Interest-bearing 39,384,000 37,041,000
Total deposits 64,568,000 62,881,000
Accrued interest payable 84,000 114,000
Other liabilities 343,000 355,000
Total liabilities 64,995,000 63,350,000
Shareholders' equity:
Preferred shares - no par value, 1,000,000 shares
authorized, no shares issued and outstanding
Common shares - no par value, 9,000,000 shares authorized,
1,835,151 and 1,284,764 shares issued and outstanding
at June 30,1997 and December 31, 1996 respectively
9,399,000 8,080,000
Deficit (5,493,000) (5,045,000)
Net unrealized gain (loss) on
securities available for sale
3,000 8,000
Total shareholders' equity 3,909,000 3,043,000
Total Liabilities and Shareholders' Equity
$68,904,000 $66,393,000
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
<TABLE>
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Consolidated Statements of Operations
Marathon Bancorp and Subsidiary
Three months ended Six months ended
June 30 June 30
(Unaudited) 1997 1996 1997 1996
Interest income:
Loans, including fees $920,000 1,029,000 $1,796,000 $2,100,000
Investment securities - taxable
115,000 118,000 224,000 254,000
Federal funds sold 92,000 167,000 144,000 328,000
Deposits with financial
institutions 10,000 11,000 24,000 19,000
Total interest income 1,137,000 1,325,000 2,188,000 2,701,000
Interest expense:
Deposits 315,000 289,000 572,000 585,000
Federal funds purchased 0 0 0 0
Total interest expense 315,000 289,000 572,000 585,000
Net interest income
before provisions for
loan losses 822,000 1,036,000 1,616,000 2,116,000
Provision for loan losses 0 0 150,000 0
Net interest income
after provisions for
loan losses 822,000 1,036,000 1,466,000 2,116,000
Other operating income:
Service charges on deposit
accounts 97,000 38,000 157,000 103,000
Other service charges
and fees 4,000 3,000 12,000 6,000
Tot other operating income 101,000 41,000 169,000 109,000
Other operating expenses:
Salaries and employee
benefits 390,000 425,000 762,000 884,000
Net operating cost of
other real estate owned 12,000 21,000 14,000 61,000
Occupancy 160,000 90,000 316,000 173,000
Furniture and equipment 38,000 31,000 75,000 62,000
Professional services 162,000 142,000 256,000 339,000
Business promotion 22,000 15,000 29,000 30,000
Stationery and supplies 26,000 18,000 54,000 32,000
Data processing service 128,000 105,000 243,000 238,000
Messenger
and courier services 22,000 82,000 59,000 150,000
Insurance
and assessments 89,000 96,000 185,000 195,000
Other expenses 30,000 30,000 88,000 60,000
Total other
operating expenses 1,079,000 1,055,000 2,081,000 2,224,000
Income (loss)
before income taxes $(156,000) $22,000 $(446,000) $1,000
Income taxes 0 0 2,000 0
Net Income (loss) $(156,000) $22,000 $(448,000) $1,000
Net income
(loss) per share: $ (0.10) $ 0.02 $( 0.31) $ 0.00
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
<TABLE>
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Consolidated Statements of Cash Flows
Marathon Bancorp and Subsidiary
(Unaudited) Six months ended
June 30,
Increase (decrease) in cash and cash equivalents 1997 1996
Cash flows from operating activities:
Interest received $2,219,000 $2,846,000
Service charges on
deposit accounts and other fees received 169,000 108,000
Interest paid (602,000) (583,000)
Cash paid to suppliers and employees (2,177,000) (2,247,000)
Net cash (used) provided by operating activities (391,000) 124,000
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits with other
financial institutions 498,000 (497,000)
Proceeds from maturities of
securities available for sale 0 2,231,000
Purchase of securities available for sale (102,000) 0
Proceeds from maturities of
securities held to maturity 128,000 257,000
Net decrease (increase)
in loans made to customers 978,000 (153,000)
Proceeds from sale of other real estate owned 1,645,000 587,000
Purchases of furniture, fixtures and equipment (46,000) (124,000)
Net cash provided by investing activities 3,101,000 2,301,000
Cash flows from financing activities:
Increase (decrease) in noninterest-bearing and interest-bearing
demand deposits and money market
and savings accounts 1,875,000 (2,594,000)
Net decrease in time certificates of deposits (188,000) (748,000)
Proceeds from the sale of common stock 1,319,000 0
Net cash provided (used) by
financing activities 3,006,000 (3,342,000)
Net increase (decrease) in cash
and cash equivalents 5,716,000 (917,000)
Cash and cash equivalents at beginning of year 7,289,000 22,850,000
Cash and cash equivalents at end of period $13,005,000 $21,933,000
See accompanying notes to unaudited consolidated financial
statements.
(Continued)
Consolidated Statements of Cash Flows (Continued)
Marathon Bancorp and Subsidiary
(Unaudited) Six months ended
June 30,
Reconciliation of net income (loss)
to net cash provided (used)by operating activities 1997 1996
Net income (loss) $(448,000) $1,000
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization expense 66,000 55,000
(Gain) loss on sale of other
real estate owned (3,000) 21,000
Provision for REO losses 0 0
Provision for loan losses 150,000 0
Amortization of premiums and discounts on securities,
net 12,000 9,000
Change in deferred loan origination fees, net 41,000 (8,000)
Change in accrued interest receivable (22,000) 143,000
Change in accrued interest payable (30,000) 2,000
Change in income tax receivable 0 0
Change in other assets (96,000) (365,000)
Change in other liabilities (61,000) 266,000
Total adjustments 57,000 123,000
Net cash (used) provided by operating activities (391,000) $124,000
Supplemental cash flow information:
Transfer from loans to other real estate owned $185,000 $243,400
Loans made to facilitate the sale of other real
estate owned $1,695,000 $88,000
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
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Consolidated Statements of Changes in Shareholders' Equity
Marathon Bancorp and Subsidiary
Net Unrealized
Gain (loss)
on Securities
Preferred Common Accumulated Available
Shares Shares Amount Deficit for Sale Total
Balance, December 31, 1996
--- 1,248,764 $8,080,000 $(5,044,700) $7,500 $3,042,800
Net Loss (448,000) (448,000)
Net change in unrealized
gain on securities
available for sale (4,700) (4,700)
Proceeds from the sale of
common stock 3/25/97
340,832 766,900 766,900
Proceeds from the sale of
common stock 6/30/97
245,555 552,500 552,500
Balance, March 31, 1997
---
1,835,151 $9,399,400 $(5,492,700) $2,800 $3,909,500
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of presentation and Management Representations
The unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all footnotes normally required for
complete financial disclosure. While the Company believes that
the disclosures presented are sufficient to make the information
not misleading, reference may be made to the consolidated
financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-KSB.
The accompanying consolidated statements of financial condition
and the related consolidated statements of operations and cash
flows reflect, in the opinion of management, all material
adjustments necessary for fair presentation of the Company's
financial position as of June 30, 1997 and December 31, 1996,
results of operations and changes in cash flows for the
three-month and six-month periods ended June 30, 1997 and 1996.
The results of operations for the six-month period ended June
30, 1997 are not necessarily indicative of what the results of
operations will be for the full year ending December 31, 1997.
(2) Income or loss per Share
Income or loss per share is computed using the weighted average
number of common shares outstanding during the period. Loss per
share calculations exclude common share equivalents (stock
options) since their effect would be to increase the income per
share and reduce the loss per share. Accordingly, the weighted
average number of shares used to compute the net income or loss
per share was 1,592,294 for the three-month and 1,434,660 for
the six-month period ended June 30, 1997 and 1,248,764 for the
three-month and six-month periods ended June 30, 1996.
(3) Sale of Common Stock
During the first quarter of 1997, the Company successfully
completed a private placement offering and issued 340,832 shares
of common stock at $2.25 per share and contributed the net
proceeds of $766,900 to the Company's wholly-owned subsidiary,
Marathon National Bank (the "Bank") as equity capital. During
the second quarter the Company began a public offering to sell
2,222,223 shares at $2.25 per share to raise $5,000,000 in new
capital. The additional capital will bring the Bank and
Caompany into compliance with its' regualtory agreements. At
June 30, 1997 $552,500 of the offering sales had been added to
capital.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion is intended to provide additional
information about Marathon Bancorp (the Company), its financial
condition and results of operations which is not otherwise
apparent from the consolidated financial statements. Since
Marathon National Bank (the Bank) represents a substantial
portion of the Company's activities and investments, the
following relates primarily to the financial condition and
operations of the Bank. It should be read in conjunction with
the Company's 1996 Annual Report on Form 10-KSB. Averages
presented are daily average balances.
Summary
Marathon Bancorp recorded a net loss for the six-month period
ended June 30, 1996 of $156,000, or $0.31 per common share,
compared with net income of $22,000, or $0.2 per common share,
for the same period in 1996. The major reasons for the decrease
in earnings were a decrease in net interest income and a
provision for loan loss.
As summarized in Table 1 and discussed more fully below, the
Bank's operations for the first six months of 1997 resulted in a
23.6 percent decrease in net interest income, a 100% increase in
the provision for loan losses and a 55 percent increase in other
operating income.
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Table 1 Summary of Operating Performance
Six-month Period Increase/
(decrease)
(Dollars in thousands) 1997 1996 Amount Percent
Net interest income $1,616 $2,116 $(500) (23.6)%
Provision for loan losses 150 0 150 100.0%
Other operating income 169 109 60 55.0%
Other operating expenses 2,081 2,224 (143) (6.4)%
Net loss $(446) $1 $(447) N/A
At June 30, 1997, the Company had total assets of $68,904,000,
total loans of $46,469,000 and total deposits of $64,568,000.
This compares to total assets of $66,393,000, total loans of
$47,696,000 and total deposits of $62,881,000 at December 31,
1996.
On September 20, 1995, the Bank entered into a formal agreement
with the Office of the Comptroller of Currency (OCC) under which
the Bank agreed to submit a six 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 was accepted by the OCC on January 30, 1996.
The agreement increased the 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 June 30,
1997, the Company and the Bank had a Tier 1 risk based capital
ratio of 7.4 percent, and a Tier 1 capital leverage ratio of
5.8 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
receiver.
On December 16, 1996, the Company entered into a formal
agreement with the Federal Reserve Bank (FRB) under which the
Company agreed, among other things, to refrain from paying cash
dividends except with the prior approval of the FRB, submit an
acceptable plan to increase and maintain an adequate capital
level, submit annual statements of planned sources and uses of
cash, and submit annual progress reports.
Operating Performance
The following discussion explains in greater detail the
consolidated financial condition and results of operations of
the Company. This discussion should be read in conjunction with
the accompanying consolidated financial statements and noted
thereto as well as the Company's 1996 Annual Report on Form
10-KSB .
Net Interest Income: Net interest income (the amount by which
interest generated from earning assets exceeds interest expense
on interest-bearing liabilities) is the most significant
component of Marathon's earnings. The Company's diverse
portfolio of earning assets is comprised of its core business of
loan underwriting, augmented by liquid overnight federal funds
sold, short term interest-bearing deposits with other financial
institutions and investment securities. These earning assets
are financed through a combination of interest-bearing and
noninterest-bearing sources of funds.
Interest income for the first six months of 1997 decreased
$513,000, or 19% as compared to the first six months of 1996.
The reasons for this decline were decreases in the rate of
interest earned on loans due to non-accruals and a decrease in
the rate of interest earned on earning assets. Interest paid on
deposits decreased $13,000 from the same period in 1996, which
did not offset the decrease in income. Loans earned at an
average rate of 7.8% percent in 1997 as compared to 8.5% in 1996
as we moved to a lower interest rate environment. In addition,
average loans outstanding declined $3,483,000 or 6.9 percent
between 1996 and 1997. Average interest-bearing liabilities
decreased $3,855,000 or 9.2 percent. The amounts of these
increases and reductions may be seen in Table 2.
The Bank analyzes its performance using the concepts of
interest rate spread and net yield on earning assets. The
interest rate spread represents the difference between the yield
on earning assets and the interest rate paid on interest-bearing
liabilities. The net yield on earning assets is the net
interest income divided by the earning assets.
The Company's interest rate spread for the six-month period of
1997 was 4.2 percent compared to 4.9 percent in 1996. The 1997
decrease was due to an decrease in the yield on interest-earning
assets while the cost of interest-bearing liabilities slightly
increased. The net yield on earning assets was 5.3% percent in
the six-month period of 1997 and 6.0 percent in 1996.
For the second quarter of 1997 net interest income was down
$214,000, or 21%. This again was attributable mainly to
interest loss on nonaccruing assets and the shrinkage in total
earning assets. With the additional $5,000,000 in capital the
Company is now raising through its' public offering, the Company
will be able to begin increasing the deposits and assets and
leveraging the new capital to increase profits.
The Bank's net yield on earning assets remains high in
comparison with the Company's interest rate spread due to the
significant volume of noninterest-bearing demand deposits
relative to total funding sources (represented by total deposits
and shareholders' equity). While these deposits are
noninterest- bearing, they are not without cost. However, the
Bank believes that they remain the lowest cost source of funds
available in the marketplace (see "Liquidity and Interest Rate
Sensitivity Management").
</TABLE>
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Table 2
Net Interest Income Analysis
Interest Weighted Change from prior yr
Average income/ average due to change in:
($ in thousands) balance expense yield/cost Volume Rate Total
Six months ended 6/30/97
Loans $46,584 $1,796 7.8% $(146) $(158) $(304)
Other earning
assets 14,390 392 5.5 ( 185) (24) (209)
Interest-earning
assets 60,974 2,188 7.2 (331) (182) (513)
Interest-bearing
liabilities 38,258 572 3.0 (57) 44 (13)
Total $22,716 $1,616 4.2% $(274) $(226) (500)
Net yield on earning assets 5.3%
Six months ended 6/30/96
Loans $50,067 $2,100 8.5% $(214) $(197) $(411)
Other earning
assets 20,705 601 5.9 (89) 34 (55)
Interest-earning
assets 70,772 2,701 7.9 (303) (163) (466)
Interest-bearing
liabilities 42,113 585 2.8 (151) 23 (128)
Total $28,659 $2,116 4.9% $(152) $(186) $(338)
Net yield on earning assets 6.0%
</TABLE>
Other Operating Income : Other operating income increased 55
percent in the six-month period of 1997 to $169,000 from
$109,000 in the six-month period ended 1996. The increase is
the result of higher service charge income generated on deposit
accounts.
For the quarter ended June 30 , 1997 other income increased
$60,000, or 146% over the like period of 1996. Service charges
on deposit accounts increased with the Bank's emphasis on
collection of charges on commercial checking accounts that are
under service charge analysis programs.
Provision for Loan Losses: Implicit in lending activities is
the fact that losses will be experienced and that the amount of
such losses will vary from time to time, depending upon the risk
characteristics of the portfolio as affected by economic
conditions and the financial experience of borrowers.
Management of the Bank has instituted stringent credit policies
designed to minimize the level of losses and nonaccrual loans.
These policies require extensive evaluation of new credit
requests and continuing review of existing credits in order to
identify, monitor and quantify evidence of deterioration of
quality or potential loss in a timely manner. Management's
reviews are based upon previous loan loss experience, current
economic conditions, 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 experienced adverse economic conditions over
the last several years, including declining real estate values.
These factors have adversely affected some borrowers' ability to
repay loans.
Excluding loans which have been classified loss and charged off
by the Bank, the Bank's classified loans consisted of $6,356,000
of loans classified as substandard at June 30, 1997 as compared
to $5,883,000 of substandard and $44,000 of loans classified as
doubtful at December 31, 1996.
With the exception of these classified loans, management is
not aware of any loans as of June 30, 1997 where the known
credit problems of the borrower would cause it to have serious
doubts as to the ability of such borrowers to comply with their
present loan repayment terms and which would result in such
loans being considered nonperforming loans in the near future.
Management cannot, however, predict the extent to which the
current economic environment may persist or worsen or the full
impact such environment may have on the Bank's loan portfolio.
Furthermore, management cannot predict the results of any
subsequent examinations of the Bank's loan portfolio by its
primary regulators. Accordingly, there can be no assurance that
other loans will not become 90 days or more past due, be placed
on nonaccrual or become restructured loans, in-substance
foreclosures or other real estate owned in the future.
The allowance for loan losses, which provides a financial
buffer for the risk of losses inherent in the lending process,
is increased by the provision for loan losses charged against
income, decreased by the amount of loans charged off and
increased by recoveries. There is no precise method of
predicting specific losses which ultimately may be charged off
and the conclusion that a loan may become uncollectible, in
whole or in part, is a matter of judgment. Similarly, the
adequacy of the allowance and accompanying provision for loan
losses can be determined only on a judgmental basis after full
review, including consideration of economic conditions and their
effects on specific borrowers, borrowers' financial data, and
evaluation of underlying collateral for secured lending.
Based upon management's assessment of the overall quality of
the loan portfolio, and of external economic conditions, the
Bank made a provision for loan losses of $150,000 in the first
half of 1997 and no provision in the second quarter compared to
no provision in the first six months of 1996. Loans totaling
$492,000 were charged off during the first six months of 1997
and $39,000 was recovered. Loans charged off amounted to
$176,000 in the six-month period of 1996, while recoveries
totaled $10,000. The allowance for loan losses reflects
management's perception of the lending environment in which it
operates. Although management believes that the allowance for
possible loan losses is adequate, there can be no reasonable
assurance that further deterioration will not occur. As a
result, future provisions will be subject to continuing
evaluation of inherent risk in the loan portfolio.
financial position of the Bank.
At June 30, 1997, nonaccrual loans totaled $2,431,000, or 5.2
percent of gross loans, compared with $568,000, or 1.2 percent
at December 31, 1996. Other real estate owned (OREO),
consisting of properties received in settlement of loans totaled
$1,281,000 at June 30, 1997, a decrease of $1,804,000 or 58.5%
from December 31, 1996.
Other Operating Expenses: Other operating expenses totaled
$2,081,000 for the six-month period of 1997, a decrease of
$143,000 or 6 percent from $2,224,000 in 1996. For the second
quarter operating expenses were up $24,000, or 2% over that
reported for 1996. Employment compensation, OREO expenses,
professional fees, courier services and insurance decreased for
the six-months of 1997. The category that showed the largest
increase was occupancy expense which increased $143,000, or 83%
with the Company's move back to its' permanent quarters after
the repairs from the Northridge earthquake.
Expenses for the second quarter also were reflective of the
move back into the Company's offices and the expense related
thereto. Employment compensation for both periods of 1997 were
decreased from 1996 levels and reflect the reductions in staff
made over the last six months to reduce expenses.
Income Taxes: Deferred income taxes are computed using the
liability method based on differences between the financial
reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. A
valuation allowance is established to reduce the deferred tax
asset to the level at which it is "more likely than not" that
the tax asset or benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss
carryforwards depends on having sufficient taxable income of an
appropriate character within the carryforward periods
The Company had income tax expense of $2,000 and no benefit at
June 30, 1997. At December 31, 1996 for federal income tax
purposes, the Company has a net operating loss carryforward of
approximately $3,727,000 beginning to expire in 2008 - 2011.
For state income tax purposes, the Company has incurred a net
operating loss of approximately $5,252,000 which is available as
a carryforward through 2001 to offset future taxes payable,
adjusted for the fifty percent reduction, as required by state
tax law.
Assets and Liabilities
Assets increased during the first six months of 1997 by
$2,511,000, or 4%. This growth was invested mainly in federal
funds sold for liquidity purposes. The loan portfolio decreased
by $1,227,000 during 1997. The Company was able to make
significant progress in the reduction of other real estate owned
reducing the outstanding balance to $1,281,000 which represents
only two properties.
The increase in assets was funded by an increase in the
interest bearing deposits of $2,343,000, or 6% over the December
31, 1996 balances. Most of the growth was in the money market
and now accounts. The noninterest bearing deposits showed a
decline of $656,000 from yearend 1996.
Liquidity and Interest Rate-Sensitivity Management
The primary function of asset liability management is to ensure
adequate liquidity and to maintain an appropriate balance
between rate sensitive assets and rate sensitive liabilities.
Liquidity management involves matching sources and uses of the
Company's funds in order to effectively meet the cash flow needs
of our customers, as well as the cash flow requirements of the
Company itself. Interest rate sensitivity management seeks to
stabilize net interest income during periods of changing
interest rates.
Liquidity: Management monitors its liquidity position
continuously in relation to trends of loans and deposits, and
relates the data to short and long term expectations. In order
to serve Marathon's customers effectively, funds must be
available to meet their credit needs as well as their
withdrawals of deposited funds. Liquidity from assets is
provided by the receipt of loan payments and by the maturity of
other earning assets as further described below. Liquidity from
liabilities is attained primarily by obtaining new deposits.
Liquid assets are defined to include federal funds sold,
interest-bearing deposits with other financial institutions,
unpledged investment securities and cash and due from banks.
The Company's liquidity ratio (the sum of liquid assets divided
by total deposits) was 30 percent at June 30, 1997 and 23
percent at December 31, 1996. The loan to deposit ratio was 72
percent and 75 percent for June 30, 1997 and December 31, 1996,
respectively.
On the liability side, Marathon's liquidity position is
enhanced by sizable core deposits. As stable core deposits
(which include all deposits except time certificates of deposit)
are generated, the need for other sources of liquidity
diminishes. This derives from the fact that the Bank's primary
liquidity requirement generally arises from the need to meet
maturities of time certificates of deposit. Absent
extraordinary conditions, the bulk of stable core deposits do
not require significant amounts of liquidity to meet the net
short or intermediate term withdrawal demands of customers.
While demand deposits are noninterest-bearing, the account
relationships are not without cost as the Bank provides
messenger, courier, accounting and data processing services in
connection with some of its commercial customers.
Interest Rate-Sensitivity Management: Interest rate sensitivity
management focuses, as does liquidity management, on the
maturities of earning assets and funding sources. In addition,
interest rate sensitivity management takes into consideration
those assets and liabilities whose interest rates are subject to
change prior to maturity. Net interest income can be vulnerable
to fluctuations arising from a change in the general level of
interest rates to the extent that the average yield on earning
assets responds differently to such a change than does the
average cost of funds. In an effort to maintain consistent
earnings performance, Marathon manages the repricing
characteristics of its assets and liabilities to control net
interest sensitivity.
The Company measures interest rate sensitivity by distributing
the rate maturities of assets and supporting funding liabilities
into interest sensitivity periods, summarizing interest rate
risk in terms of the resulting interest sensitivity gaps. A
positive gap indicates that more interest sensitive assets than
interest sensitive liabilities will be repriced during a
specified period, while a negative gap indicates the opposite
condition.
Balance sheet items are categorized according to contractual
maturity or repricing dates, as appropriate. Reference rate
indexed loans, federal funds sold and money market deposits
constitute the bulk of the floating rate category. Determining
the interest rate sensitivity of noncontractual items is arrived
at in a more qualitative manner. Demand deposits are considered
to be a mix of short and long term funds, based upon historical
behavior. Savings deposits are viewed as susceptible to
competitive factors brought on by deregulation and, therefore,
classified as intermediate funds.
It is the Bank's policy to maintain an adequate balance of rate
sensitive assets as compared to rate sensitive liabilities. Due
to the fact that the Bank has a large portfolio of noninterest
bearing demand deposits the Company has historically been asset
sensitive with a positive gap. Currently the Company is still
asset sensitive which means the Company will have increased
income in a rising rate environment and decreased income in a
falling rate scenario.
Capital Resources And Dividends
The Bank is required to meet certain minimum risk-based capital
guidelines and leverage ratios promulgated by the bank
regulatory authorities. The risk based capital standards
establish capital requirements that are more sensitive to risk
differences between various assets, consider off balance sheet
activities in assessing capital adequacy, and minimize the
disincentives to holding liquid, low risk assets. The leverage
ratio consists of tangible Tier 1 capital divided by average
total assets.
On September 20, 1995, the Bank entered into a formal agreement
with the Office of the Comptroller of Currency (OCC) under which
the Bank agreed to submit 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 was accepted by the OCC on January 30, 1996.
The agreement increased the 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 June 30,
1997, the Company and the Bank had a Tier 1 risk based capital
ratio of 7.4 percent, and a Tier 1 capital leverage ratio of
5.8 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
receiver.
The Company has raised additional capital during the period of
June 25, 1997 through July 31, 1997 which it has invested in the
Bank. The total capital raised was $5,000,000 of which $552,500
was invested in the Bank prior to June 30, 1997. The remaining
capital less expenses of approximately $250,000 will be invested
in the Bank during the third quarter.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 19, 1997, proxy materials for the
1996 Annual Meeting of Shareholders of Marathon Bancorp ("the
meeting"), were mailed to all shareholders of record on May 5,
1997. The meeting took place on June 16, 1997. Shareholders
were asked to vote on the matter shown below. Of the total
1,589,596 shares outstanding and entitled to vote, 1,589,596
shares were represented either in person or by properly executed
proxies. The results of the voting on the matter are shown
below:
Matter 1. To elect seven persons to the Board of Directors to
serve until the next Annual Meeting of Shareholders or until
their successors are elected or have qualified.
FOR AGAINST ABSTAIN
Robert J. Abernethy 1,415,309 28,812 0
Frank W. Jobe 1,415,309 28,812 0
C. Thomas Mallos 1,415,309 28,812 0
John J. Maloney 1,415,309 28,812 0
Robert L. Oltman 1,415,309 28,812 0
Ann Pappas 1,415,309 28,812 0
Nick Patsaouras 1,415,309 28,812 0
Matter 2. Other Business. There was none.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MARATHON BANCORP
Date: August 14, 1997 Craig D. Collette
Craig D. Collette
President and Chief
Executive Officer
Howard J. Stanke
Howard J. Stanke
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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