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, 2000
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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
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MARATHON BANCORP
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(Exact name of registrant as specified in its charter)
California 95-3770539
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification
No.)
11150 West Olympic Boulevard, Los Angeles, CA 90064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 996-9100
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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, 2000, there were 3,838,019 shares of no par Common Stock
issued and outstanding.
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
JUNE 30, December 31,
---------------- ----------------
ASSETS 2000 1999
---------------- ----------------
<S> <C> <C>
Cash and Due From Banks. . . . . . . . . . . . . . . . . . . . . $ 5,090,000 $ 7,891,000
Federal Funds Sold . . . . . . . . . . . . . . . . . . . . . . . 7,600,000 1,000,000
---------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . 12,690,000 8,891,000
Interest -Bearing Deposits With Financial Institutions . . . . . - 100,000
Investment Securities:
Securities Available for Sale . . . . . . . . . . . . . . . . 6,566,000 8,590,000
Securities Held to Maturity (Approx. market value:
2000 - $16,875,000; 1999 - $12,009,000): . . . . . . . . 17,242,000 12,878,000
---------------- ----------------
TOTAL INVESTMENT SECURITIES. . . . . . . . . . . . . . . 23,808,000 21,468,000
Federal Home Loan and Federal Reserve Bank stock, at cost. . . . 333,000 482,000
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,705,000 50,102,000
Less Allowance for Credit Losses. . . . . . . . . . . . . . . ( 921,000) ( 853,000)
---------------- ----------------
NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . 50,784,000 49,249,000
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . 294,000 325,000
Cash Surrender Value of Life Insurance . . . . . . . . . . . . . 3,576,000 1,559,000
Accrued Interest and Other Assets. . . . . . . . . . . . . . . . 1,075,000 1,045,000
---------------- ----------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $ 92,560,000 $ 83,119,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing . . . . . . . . . . . . . . . . . . . . . $ 29,170,000 $ 27,529,000
Interest-Bearing. . . . . . . . . . . . . . . . . . . . . . . 53,145,000 44,026,000
---------------- ----------------
TOTAL DEPOSITS. . . . . . . . . . . . . . . . . . . . . . 82,315,000 71,555,000
Accrued Interest and Other Liabilities . . . . . . . . . . . . . 751,000 553,000
Federal Home Loan Bank Advance . . . . . . . . . . . . . . . . . - 1,875,000
---------------- ----------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 83,066,000 73,983,000
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,
3,837,019 and 3,830,019 Shares Issued and Outstanding at
June 30, 2000 and December 31, 1999, respectively. . . . . 13,672,000 13,654,000
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . ( 3,956,000) ( 4,319,000)
Accumulated Other Comprehensive Income - Net Unrealized
Gains (Losses) on Available-for-Sale Securities. . . . . . ( 222,000) ( 199,000)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . 9,494,000 9,136,000
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . $ 92,560,000 $ 83,119,000
================ ================
</TABLE>
<PAGE>
Marathon Bancorp and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . . $ 1,218,000 $ 891,000 $ 2,361,000 $ 1,762,000
Interest on Investment Securities - Taxable. . . . . 345,000 255,000 629,000 506,000
Other Interest Income. . . . . . . . . . . . . . . . 105,000 75,000 193,000 141,000
--------------- --------------- --------------- ---------------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . 1,668,000 1,221,000 3,183,000 2,409,000
INTEREST EXPENSE
Interest on Demand Deposits. . . . . . . . . . . . . 8,000 9,000 16,000 17,000
Interest on Money Market and Savings . . . . . . . . 272,000 206,000 514,000 388,000
Interest on Time Deposits. . . . . . . . . . . . . . 256,000 127,000 495,000 275,000
Other Interest Expense . . . . . . . . . . . . . . . - - 1,000 -
TOTAL INTEREST EXPENSE. . . . . . . . . . . . . . 536,000 342,000 1,026,000 680,000
--------------- --------------- --------------- ---------------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . 1,132,000 879,000 2,157,000 1,729,000
Provision for Credit Losses. . . . . . . . . . . . . . . 30,000 - 60,000 -
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES. . . . . . . . . . 1,102,000 879,000 2,097,000 1,729,000
--------------- --------------- --------------- ---------------
NONINTEREST INCOME
Service Charges and Fees on Deposits . . . . . . . . 72,000 68,000 134,000 144,000
Dividends on Cash Surrender Value of Life Insurance. 51,000 18,000 94,000 39,000
Other Noninterest Income . . . . . . . . . . . . . . 23,000 18,000 47,000 39,000
TOTAL NONINTEREST INCOME. . . . . . . . . . . . . 146,000 104,000 275,000 222,000
--------------- --------------- --------------- ---------------
NONINTEREST EXPENSE
Salaries and Employee Benefits . . . . . . . . . . . 498,000 438,000 999,000 858,000
Occupancy Expenses . . . . . . . . . . . . . . . . . 140,000 134,000 277,000 266,000
Furniture and Equipment. . . . . . . . . . . . . . . 23,000 29,000 50,000 58,000
Professional Services. . . . . . . . . . . . . . . . 36,000 28,000 59,000 54,000
Business Promotion and Donations . . . . . . . . . . 21,000 16,000 37,000 37,000
Stationery and Supplies. . . . . . . . . . . . . . . 12,000 14,000 25,000 28,000
Data Processing Services . . . . . . . . . . . . . . 146,000 114,000 277,000 229,000
Messenger and Courier Services . . . . . . . . . . . 21,000 17,000 41,000 36,000
Insurance and Assessments. . . . . . . . . . . . . . 37,000 30,000 74,000 63,000
Legal Fees and Costs . . . . . . . . . . . . . . . . 38,000 16,000 50,000 61,000
Net Operating Cost of Other Real Estate Owned. . . . - 1,000 - 1,000
Other Expenses . . . . . . . . . . . . . . . . . . . 59,000 59,000 123,000 116,000
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . 1,031,000 896,000 2,012,000 1,807,000
--------------- --------------- --------------- ---------------
GAIN (LOSS) BEFORE INCOME TAXES. . . . . . . . . . . . . 217,000 87,000 360,000 144,000
Income Taxes (Benefit) . . . . . . . . . . . . . . . . . ( 1,000) ( 3,000) $( 3,000) ( 8,000)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 218,000 $ 90,000 $ 363,000 $ 152,000
=============== =============== =============== ===============
Per Share Data:
Net Income (Loss) - Basic . . . . . . . . . . . . $ 0.06 $ 0.02 $ 0.09 $ 0.04
Net Income (Loss) - Diluted . . . . . . . . . . . $ 0.06 $ 0.02 $ 0.09 $ 0.04
Book Value $ 2.47 $ 2.27
Return on Average Assets . . . . . . . . . . . . . . . . 0.98% 0.48% 0.83% 0.41%
Return on Average Equity . . . . . . . . . . . . . . . . 9.39% 4.15% 7.85% 3.53%
</TABLE>
Marathon Bancorp and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
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OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 363,000 $ 152,000
Adjustments to Reconcile Net Loss to Net Cash Provided
by Operating Activities:
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . 61,000 66,000
Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . 60,000 -
Net Amortization of Premiums and Discounts on Investment Securities 2,000 23,000
Net Change in Deferred Loan Origination Fees. . . . . . . . . . . . 33,000 43,000
Net Increase in Cash Surrender Value of Life Insurance. . . . . . . ( 82,000) ( 33,000)
Net Change in Accrued Interest, Other Assets and Other Liabilities. 168,000 41,000
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . 605,000 279,000
INVESTING ACTIVITIES
Net Change in Interest-Bearing Deposits with
Financial Institutions . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -
Purchases of Available-for-Sale Securities . . . . . . . . . . . . . . . ( 4,982,000) ( 3,537,000)
Purchases of Held-to-Maturity Securities. . . . . . . . . . . . . . . . . ( 4,502,000) ( 2,313,000)
Proceeds from Maturities of Available-for-Sale Securities . . . . . . . . 7,000,000 2,000,000
Proceeds from Maturities of Held-to-Maturity Securities . . . . . . . . . 119,000 5,324,000
Redemption (Purchase) of Federal Home Loan & Federal Reserve Bank Stock . 149,000 ( 13,000)
Net Change in Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 1,628,000) ( 4,166,000)
Purchase of Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . ( 1,935,000) -
Purchases of Premises and Equipment . . . . . . . . . . . . . . . . . . . ( 30,000) ( 80,000)
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . ( 5,709,000) ( 2,772,000)
FINANCING ACTIVITIES
Net Change in Demand Deposits, Money Market and Savings . . . . . . . . . 7,013,000 3,677,000
Net Change in Time Deposits . . . . . . . . . . . . . . . . . . . . . . . 3,747,000 ( 2,717,000)
Federal Home Loan Bank Advance. . . . . . . . . . . . . . . . . . . . . . ( 1,875,000) -
Proceeds from Exercise of Stock Options . . . . . . . . . . . . . . . . . 18,000 16,000
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . . . . . . 8,903,000 976,000
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 3,799,000 ( 1,517,000)
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . 8,891,000 9,249,000
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . $ 12,690,000 $ 7,732,000
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,201,000 $ 412,000
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,600 $ 2,400
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Equity
Marathon Bancorp and Subsidiary
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other
Common Shares Comprehensive Accumulated Comprehensive
Number Amount Income Deficit Income Total
------------- ----------- --------------- ------------- --------------- --------------
BALANCE, DECEMBER 31, 1999 3,830,019 $13,654,000 $(4,319,000) $( 199,000) $9,136,000
Exercise of Stock Options 7,000 18,000 18,000
COMPREHENSIVE INCOME:
Net Income $363,000 363,000 363,000
Net Change in Unrealized
Gain (Loss) on Available-
for-Sale Securities ( 23,000) ( 23,000) ( 23,000)
---------------
TOTAL COMPREHENSIVE INCOME $340,000
===============
------------- ----------- ------------- --------------- --------------
BALANCE, MARCH 31, 2000 3,837,019 $13,672,000 $(3,956,000) $( 222,000) $9,494,000
============= =========== ============= =============== ==============
</TABLE>
<PAGE>
<PAGE>
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 1999 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, 2000 and December 31, 1999, results
of operations and changes in cash flows for the six-month period ended June 30,
2000 and 1999. The results of operations for the three-month period and
six-month period ended June 30, 2000 are not necessarily indicative of what the
results of operations will be for the full year ending December 31, 2000.
(2) EARNINGS PER SHARE (EPS)
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Accordingly, the basic weighted average number of shares used to compute the net
income per share were 3,837,019 and 3,826,964 respectively for the three-month
period ended June 30, 2000 and June 30, 1999 and 3,835,183 and 3,825,301 for the
six-month period ending June 30, 2000 and June 30, 1999. There was no dilution
to change the basic average number of shares in any period shown.
<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 1999 Annual Report on Form 10-KSB.
FINANCIAL HIGHLIGHTS OVERVIEW
RESULTS OF OPERATIONS
Net Interest Income
Net interest income continued to improve during the second quarter of 2000. Net
interest income improved 25% over the same period in 1999 and 11% better than
the first quarter of 2000. For the six-month the net interest income increased
$368,000 or 21% over 1999. The interest income and the interest expense both
showed large increased over the prior year.
Interest income was effected by a number of factors. The prime interest rate
that a major portion of the loan portfolio is tied to increased by 175 basis
points during the last 12 months while the quarterly average loans outstanding
increased 19% over the second quarter of 1999. The average investment portfolio
also increased 22% when compared to the second quarter of last year. These
investments were made at higher yields than the existing securities in the
portfolio.
Interest expense also increased due to the change in interest rates triggered by
the Federal Reserve Boards increases in the fed funds target rate and discounts
rate. The banks average cost of funds increased approximately 88 basis points
in the twelve month period from June 30, 1999 to June 30, 2000. Also, the mix
of deposits changed with higher levels of investment in our investors money
market account and time certificates of deposit. This was the same for both the
quarterly and six-month comparison.
Noninterest Income
Noninterest income showed increases for the second quarter and six-month period.
During the second quarter service charges on business accounts increased. The
large increase in dividends on the cash surrender value of life insurance was
due to the increase in the rates paid on policies and the larger investment in
the policies. Other noninterest income also increased.
For the six-month period noninterest income rose 24%. Service charges on
deposit accounts declined while the dividends on the cash value life insurance
increased substantially. Other noninterest income from loan related charges and
merchant discount increased this category.
Noninterest Expense
Noninterest expense increased for the quarter ended June 30, 2000 by 15% or
$135,000. Increased human resources costs were higher than the second quarter
of 1999 due to the opening of the loan production office in the third quarter of
1999 and increased benefits costs. Occupancy expenses were also higher due to
the loan production office costs. Data processing expenses rose due to
increased costs from our vendors and additional data processing costs provided
for our analyzed business customers.
The noninterest expenses for the six-month period increased $205,000 or 11%.
For the six-month period the costs of the loan production offices also increased
the human resources and occupancy expenses. Legal costs, office supply costs,
and furniture and equipment expenses decreased. Data processing , courier and
insurance costs increased.
Provision for Credit Losses:
Loans classified by the Bank as substandard or doubtful decreased from
$2,318,000 at December 31, 1999 to $1,226,000 at June 30, 2000. Nonperforming
loans, which consist of loans past due over 90 days and accruing plus loans on
nonaccural, totaled $2,000 at June 30, 2000 compared to $3,000 at December 31,
1999. The Company continues to have no other real estate owned.
During the second quarter, the Bank recorded charge-offs of only $29,000 while
collecting recoveries on loans charged off of $33,000. The net change to the
reserve for credit losses was $34,000. For the six-month period ending June 30,
2000 recorded charge-offs were $36,000 and recoveries totaled $44,000.
After an assessment of the loan portfolio and economic conditions, the
management felt that an increase in the reserve for credit losses was necessary
and therefore made a provision to the credit loss reserve of $30,000 for the
quarter bringing the year-to-date provision to $60,000 compared to no provision
in the first half of 1999. Based on the foregoing information, its internal
migration analysis and current economic conditions management determined that
the current level of the reserve for credit losses to be adequate at June 30,
2000.
ASSETS AND LIABILITIES
Assets showed good growth in the first half of 2000 increasing $9,441,000 or 11%
over December 31, 1999 and 23% better than June 30, 1999. Since year-end cash
and due from banks declined $2.9 million while federal funds sold increased by
$6.6 million. Additional longer term investments, with yields higher than those
available in1999, were added to the held-to-maturity portfolio bringing the
yield on the total investment portfolio up by 39 basis points.
Loans increased $1.6 million since year-end and $4.7 million since June 30,
1999. The loan types that increased were commercial and industrial loans as
well as construction loans. Our investment in tax-free life insurance was
increased to improve our yields.
Asset growth was funded by an increase in deposits of $10,760,000 or 15%. The
year-end borrowings from the Federal Home Loan Bank were paid off in early
January. Both noninterest and interest bearing deposits increased, but the
largest increase was in the time certificates of deposit. One of our customers
invested $5,000,000 in certificates during the first quarter that will be
redeemed in late July.
LIQUIDITY AND CAPITAL
Asset/Liability Management
The Company's Asset/Liability Committee is responsible for managing the risks
associated with changing interest rates and their impact on earnings, as well
as, the liquidity needs of the Company.
Management continually monitors liquidity in relation to current and anticipated
levels of loans and deposits, and relates the data to short and long term
expectations. In order to serve customers effectively, funds need to be
available to meet their credit needs as well as their withdrawals of deposited
funds. Assets that are normally considered liquid are federal funds sold,
available for sale investment securities, cash and due from banks, and
securities purchased under agreements to resell. The ratio of liquid assets to
deposits was 24% at June 30, 2000 and the loan to deposit ratio was 63% down
slightly from the first quarter. The high level of fed funds sold at month-end
were there to cover the anticipated withdrawal in July of $5,000,000 in time
certificates by one of our customers to cover their liquidity needs. The Bank
is not looking to replace these funds at the present time due to the current
high cost of funds and the Bank's adequate liquidity.
Interest rate risk management focuses on the maturity and repricing of interest
earning assets in relationship to the interest bearing liabilities that fund
them. 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.
The Company measures interest rate sensitivity by distributing the maturities
and repricing periods 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.
It is the Bank's policy to maintain an adequate balance of rate sensitive assets
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. The Company's asset sensitivity has
been decreased during the last twelve-month period by increasing the investment
portfolio and lengthening the maturities. The Company's cumulative gap as a
percent of total assets at June 30, 2000 was 26% down from the 38% reported at
June 30, 1999.
Capital
Shareholders' equity increased by $358,000 during the first six month's of 2000.
The exercise of stock options during the period increased common shares by 7,000
and raised $18,000.
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.
The adequately capitalized risk-based capital ratio required by the federal
regulators is 8.0 percent and the well-capitalized ratio is 10.0 percent. The
Tier I capital to average assets (leverage ratio) required by the federal
regulators for adequately capitalized is 4.0 percent and 6.0 percent is required
to be well-capitalized. At June 30, 2000, the Company and the Bank had a risk
based capital ratio of 15.8 percent, and a Tier 1 capital leverage ratio of 10.8
percent.
<PAGE>
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
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 10, 2000 Craig D. Collette
-------------------
Craig D. Collette
President and Chief Executive
Officer
Howard J. Stanke
------------------
Howard J. Stanke
Executive Vice President and
Chief Financial Officer
<PAGE>
