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 MARCH 31, 2000
------------------------
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, CA 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 May 1, 2000, there were 3,837,019 shares of no par Common Stock
issued and outstanding.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition
Marathon Bancorp and Subsidiary
MARCH 31, December 31,
---------------- --------------
ASSETS 2000 1999
---------------- --------------
<S> <C> <C>
Cash and Due From Banks $ 4,415,000 $ 7,891,000
Federal Funds Sold 6,760,000 1,000,000
---------------- --------------
TOTAL CASH AND CASH EQUIVALENTS 11,175,000 8,891,000
Interest-Bearing Deposits With Financial Institutions 100,000 100,000
Investment Securities:
Securities Available for Sale 6,049,000 8,590,000
Securities Held to Maturity (approximate market value:2000-$12,412,000; 12,816,000 12,878,000
1999 - $12,539,000)
---------------- --------------
TOTAL INVESTMENT SECURITIES 18,865,000 21,468,000
Federal Home Loan and Federal Reserve Bank stock, at cost 485,000 482,000
Loans 54,725,000 50,102,000
Less Allowance for Credit Losses ( 887,000) ( 853,000)
---------------- --------------
NET LOANS 53,838,000 49,249,000
Premises and Equipment 306,000 325,000
Cash Surrender Value of Life Insurance 3,531,000 1,559,000
Accrued Interest and Other Assets 1,090,000 1,045,000
---------------- --------------
TOTAL ASSETS $ 89,390,000 $ 83,119,000
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand $ 28,223,000 $ 27,529,000
Interest-Bearing Demand 3,776,000 3,130,000
Money Market and Savings 28,984,000 25,848,000
Time Deposits 18,551,000 15,048,000
TOTAL DEPOSITS 79,534,000 71,555,000
Accrued Interest and Other Liabilities 600,000 553,000
Federal Home Loan Bank Advance - 1,875,000
---------------- --------------
TOTAL LIABILITIES 80,134,000 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 March 31, 2000
and December 31, 1999, respectively 13,672,000 13,654,000
Accumulated Deficit ( 4,174,000) ( 4,319,000)
Accumulated Other Comprehensive Income - Net Unrealized
Gains (Losses) on Available-for-Sale Securities ( 242,000) ( 199,000)
---------------- --------------
TOTAL SHAREHOLDERS' EQUITY 9,256,000 9,136,000
---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 89,390,000 $ 83,119,000
================ ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Marathon Bancorp and Subsidiary
Three Months Ended
March 31,
--------------------
<S> <C> <C>
2000 1999
-------------------- ----------------
INTEREST INCOME
Interest and Fees on Loans $ 1,143,000 $ 871,000
Interest on Investment Securities - Taxable 284,000 251,000
Other Interest Income 88,000 66,000
-------------------- ----------------
TOTAL INTEREST INCOME 1,515,000 1,188,000
INTEREST EXPENSE
Interest on Demand Deposits 8,000 8,000
Interest on Money Market and Savings 242,000 182,000
Interest on Time Deposits 239,000 148,000
Other Interest Expense 1,000 -
-------------------- ----------------
TOTAL INTEREST EXPENSE 490,000 338,000
NET INTEREST INCOME 1,025,000 850,000
Provision for Credit Losses 30,000 -
-------------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 995,000 850,000
NONINTEREST INCOME
Service Charges and Fees on Deposits 62,000 76,000
Dividends on Cash Surrender Value of Life Insurance 43,000 21,000
Other Noninterest Income 24,000 21,000
-------------------- ----------------
TOTAL NONINTEREST INCOME 129,000 118,000
NONINTEREST EXPENSE
Salaries and Employee Benefits 501,000 420,000
Occupancy Expenses 137,000 132,000
Furniture and Equipment 27,000 29,000
Professional Services 23,000 26,000
Business Promotion and Donations 16,000 21,000
Stationery and Supplies 13,000 14,000
Data Processing Services 131,000 115,000
Messenger and Courier Services 20,000 19,000
Insurance and Assessments 37,000 33,000
Legal Fees and Costs 12,000 45,000
Net Operating Cost of Other Real Estate Owned - ( 1,000)
Other Expenses 64,000 58,000
-------------------- ----------------
TOTAL NONINTEREST EXPENSE 981,000 911,000
GAIN (LOSS) BEFORE INCOME TAXES 143,000 57,000
Income Taxes (Benefit) ( 2,000) ( 5,000)
-------------------- ----------------
NET INCOME (LOSS) $ 145,000 $ 62,000
==================== ================
Per Share Data:
Net Income (Loss) - Basic $ 0.04 $ 0.02
Net Income (Loss) - Diluted $ 0.04 $ 0.02
Return on Average Assets 0.68% 0.34%
Return on Average Equity 6.32% 2.90%
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Marathon Bancorp and Subsidiary
<S> <C> <C>
Three Months Ended March 31,
2000 1999
----------------- ------------------
Net Income $ 145,000 $ 62,000
Adjustments to Reconcile Net Loss to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 30,000 32,000
Provision for Credit Losses 30,000 -
Net Amortization of Premiums and Discounts on Investment Securities 83,000 9,000
Net Change in Deferred Loan Origination Fees 55,000 3,000
Net Increase in Cash Surrender Value of Life Insurance ( 37,000) -
Net Change in Accrued Interest, Other Assets and Other Liabilities ( 84,000) ( 6,000)
----------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 222,000 100,000
INVESTING ACTIVITIES
Net Change in Interest-Bearing Deposits with
Financial Institutions - -
Purchases of Available-for-Sale Securities ( 3,492,000) ( 2,512,000)
Purchases of Held-to-Maturity Securities - ( 902,000)
Proceeds from Maturities of Available-for-Sale Securities 6,052,000 3,000,000
Proceeds from Maturities of Held-to-Maturity Securities - 3,489,000
Purchase of Federal Home Loan & Federal Reserve Bank Stock - ( 13,000)
Net Change in Loans ( 4,674,000) ( 3,616,000)
Purchase of Life Insurance ( 1,935,000) -
Purchases of Premises and Equipment ( 11,000) ( 63,000)
----------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES ( 4,060,000) ( 617,000)
FINANCING ACTIVITIES
Net Change in Demand Deposits, Money Market and Savings 4,476,000 1,273,000
Net Change in Time Deposits 3,503,000 ( 1,800,000)
Payback of Federal Home Loan Bank Advance ( 1,875,000) -
Proceeds from Exercise of Stock Options 18,000 16,000
----------------- ------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 6,122,000 ( 511,000)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,284,000 ( 1,028,000)
Cash and Cash Equivalents at Beginning of Year 8,891,000 9,249,000
----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,175,000 $ 8,221,000
================= ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 570,000 $ 355,000
Income Taxes Paid $ 4,000 $ -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Equity
Marathon Bancorp and Subsidiary
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Common Shares Other
---------------------- Comprehensive Accumulated Comprehensive
Shares Amount Income Deficit Income Total
------ ------ ------ ------- ------ -----
BALANCE, January 1, 2000 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 $ 145,000 145,000 145,000
Net Change in Unrealized
Gain (Loss) on Available-
for-Sale Securities ( 43,000) ( 43,000) ( 43,000)
----------------
TOTAL COMPREHENSIVE INCOME $ 102,000
================
BALANCE, MARCH 31, 2000 3,837,019 $13,672,000 $( 4,174,000) $ ( 242,000) $ 9,256,000
========= =========== ============== ================ ==============
</TABLE>
<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 March 31, 2000 and December 31, 1999, results
of operations and changes in cash flows for the three-month period ended March
31, 2000 and 1999. The results of operations for the three-month period ended
March 31, 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 3,833,327 and 3,823,619 respectively for the three-month
period ended March 31, 2000 and March 31, 1999. There was no dilution to change
the basic average number of shares, therefore the diluted EPS was the same.
<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
Marathon Bancorp recorded a first quarter profit increase for the fourth
consecutive year. Net income of $145,000 for the first quarter of 2000 compares
to $62,000 for first quarter of 1999, $11,000 for the first quarter of 1998 and
a loss in the first quarter of 1997. Per share earnings were $0.04 for March
31, 2000 compared to $0.02 for March 31, 1999.
At March 31, 2000 total assets were $89,390,000 an increase over year-end of
7.5%. Total loans were $54,725,000, an increase of 9.2% and deposits increased
11.2% to $79,534,000.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income before provision for credit losses increased 21% or $175,000
when comparing the first quarter of 2000 with the first quarter of 1999. Both
the total interest income earned and interest expense were up from the levels of
1999. Interest income rose 28% or $327,000 over the same period last year. All
the categories of interest income increased. Interest and fees on loans
increased from the increase in volume and the rise in prime rate over the last
year of 100 basis points. Interest on investment securities also increased
rising by 13% with the portfolio yield increasing 5.57% to 5.87%. Other
interest income, made up of mostly of interest on fed funds sold, increased 33%
do to the rise in the fed funds target rate set by the Federal Reserve Board.
Interest expense rose $152,000 or 45% due to a number of factors. The rise in
interest rates, increase in the volume of deposits and the mix of deposits all
attributed to the increase. The time certificates of deposit and our high yield
investors money market account saw the most growth over the last year and
represents our highest liability costs.
Noninterest Income
Noninterest income increased during the first quarter of 2000 by 9% when
compared to the first quarter of 1999. Service charges on deposit accounts
decreased due to higher earnings credits that decrease the net fees received on
business account relationships. The dividends earned on the cash value of life
insurance increased with the increase in this investment. Other noninterest
income earned from fees increased by 14%.
Noninterest Expense
Noninterest expense increased with the Company being in a growth mode as
compared to the reorganization cleanup mode of the last two years. Increases in
loan staff, the staffing of our new loan production office opened in October
1999 and other benefits increased the human resources costs by $81,000 or 19%
compared to last year's first quarter. Occupancy costs increased with the costs
incurred by the loan production office. Equipment, professional services,
business promotion and supply and stationary costs decreased. Data processing
costs increased $16,000. Legal fees and costs represented the largest change
decreasing $33,000 or 73%.
Provision for Credit Losses:
Loans classified by the Bank as substandard or doubtful decreased from
$2,318,000 at December 31, 1999 to $1,783,000 at March 31, 2000. Nonperforming
loans, which consist of loans past due over 90 days plus loans on nonaccural,
totaled $117,000 at March 31, 2000 compared to $3,000 at December 31, 1999. The
Company continued to have no other real estate owned.
Based upon management's assessment and the increase in the loan portfolio the
Bank 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. During the first quarter, the Bank recorded charge-offs of only $7,000
while collecting recoveries on loans charged off of $11,000. The net change to
the reserve for credit losses was $34,000. Based upon these factors and
management's assessment of the overall quality of the loan portfolio, its
internal migration analysis and economic conditions they felt the current level
of the reserve for credit losses was adequate at March 31, 2000.
ASSETS AND LIABILITIES
The Company continues to focus on improving the balance sheet and the return on
assets. The asset growth in the first quarter of 2000 was 8% and was one of the
best first quarter performances in the Company's history. The loan portfolio
increased with additions to the commercial loan portfolio and the construction
loans. Most of these loans are floating rate loans tied to Wall Street Journal
prime rate. The short-term fed funds increased to $6,760,000 from the
$1,000,000 reported at year-end and the cash and due from banks was reduced.
Deposits for the quarter increased significantly growing $7,979,000 or 11% from
the totals at year-end 1999. Noninterest-bearing deposits increased 3% while
the interest-bearing deposits increased by 17%. The Company has normally seen
low deposit growth during the first quarter when its customers pay year-end
expenses and tax bills.
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 monitors its liquidity position continuously in relation to trends in
loans and deposits, and relates the data to short and long term expectations.
In order to serve customers effectively, funds must 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% as of March 31, 2000
and the loan to deposit ratio was 69%.
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 is asset sensitive and
has been able to decrease its asset sensitivity during the last twelve-month
period by an increase in the investment portfolio and a lengthening of
maturities. The Company's cumulative gap as a percent of total assets at March
31, 2000 was 26.8%
Capital
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 risk-weighted assets required by the federal regulators is 4.0
percent and 6.0 percent to be well-capitalized. At March 31, 2000 the Company
and the Bank had a risk based capital ratio of 14.8 percent, and a Tier 1
capital leverage ratio of 11.1 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
On March 23, 2000, proxy materials for 2000 Annual Meeting of
Shareholders were mailed to all shareholders of record as of March 6, 2000. The
meeting took place on April 17, 2000. Shareholders were asked to vote on the
matters shown below. Of the total 3,837,019 shares outstanding and entitled to
vote 3,179,237 shares were represented either in person or by properly executed
proxies. The results of the voting on the matters are shown below:
Matter 1. Election of Directors. To elect seven (7) persons to the board
of directors to serve until the 2001annual meeting of Shareholders and
until their successors are elected and have been qualified.
For Withhold
Authority for
Robert J. Abernethy 2,972,688 206,549
Craig C. Collette 3,146,885 32,352
Frank Jobe, M.D. 2,904,257 274,980
C. Thomas Mallos 2,972,080 207,157
Robert Oltman 2,990,580 188,657
Ann Pappas 2,972,080 207,157
Nick Patsaouras 2,972,080 207,157
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: May 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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,415
<INT-BEARING-DEPOSITS> 51,311
<FED-FUNDS-SOLD> 6,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,049
<INVESTMENTS-CARRYING> 12,816
<INVESTMENTS-MARKET> 12,412
<LOANS> 54,725
<ALLOWANCE> 887
<TOTAL-ASSETS> 89,390
<DEPOSITS> 79,593
<SHORT-TERM> 0
<LIABILITIES-OTHER> 600
<LONG-TERM> 0
0
0
<COMMON> 13,672
<OTHER-SE> (4,174)
<TOTAL-LIABILITIES-AND-EQUITY> 83,390
<INTEREST-LOAN> 1,143
<INTEREST-INVEST> 284
<INTEREST-OTHER> 88
<INTEREST-TOTAL> 1,515
<INTEREST-DEPOSIT> 489
<INTEREST-EXPENSE> 490
<INTEREST-INCOME-NET> 1,025
<LOAN-LOSSES> 7
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 981
<INCOME-PRETAX> 143
<INCOME-PRE-EXTRAORDINARY> 143
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145
<EPS-BASIC> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 5.29
<LOANS-NON> 117
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 7
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 887
<ALLOWANCE-DOMESTIC> 887
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 887
</TABLE>
