SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form 10-Q
Quarterly Report Pursuant of Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------
For the quarterly period ended:
September 30, 1996
Commission File No. 0-18868
MARATHON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1560968
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4095 VALLEY PIKE
WINCHESTER, VIRGINIA 22602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (540) 869-6600
including area code
Indicate by check mark whether the registrant (1) has filed all documents and
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Number of Shares Outstanding at
----- ---------------- --------------
Common Stock 1,873,495 November 5, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements are provided at the page numbers
indicated.
Consolidated Statements of Condition as of
September 30, 1996 and December 31, 1995. . . . . . . . . . 3
Consolidated Statements of Income for the Three Months and
the Nine Months Ended September 30, 1996 and 1995 . . . . . 4
Consolidated Statements of Changes in
Shareholders Equity for the Nine
Months Ended September 30, 1996 and 1995. . . . . . . . . . 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995 . . . . . 6-7
Notes to Consolidated Financial Statements . . . . . . . . 8-10
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
as of
September 30, 1996 and December 31, 1995
<CAPTION>
<S> <C>
ASSETS 9/30/96 12/31/95
----------- -----------
Cash and due from banks $ 5 871 006 $ 2 282 876
Securities (fair value: 1996, $2,040,488 and
1995, $1,708,102) 2 038 790 1 699 472
Federal funds sold 1 727 000 1 574 000
Loans, net 35 208 897 28 774 020
Bank premises and equipment, net 1 355 750 1 288 463
Accrued interest receivable 211 110 159 066
Other real estate 236 123 236 123
Other assets 59 469 55 999
----------- -----------
$46 708 145 $36 070 019
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 5 972 902 $ 5 261 411
Interest bearing 34 163 973 27 360 753
----------- -----------
Total deposits $40 136 875 $32 622 164
Interest expense payable 82 313 60 151
Accounts payable and accrued expenses 124 176 93 220
Mortgage payable 489 334 507 134
Capital lease payable 87 927 109 600
Commitments & contingent liabilities - - - -
----------- -----------
Total liabilities $40 920 925 $33 392 269
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 20,000,000 shares
authorized; 1,873,495 shares issued and
outstanding 1 873 495 1 306 303
Capital surplus 7 167 987 5 109 908
Retained earnings (deficit) (3 247 195) (3 746 878)
Unrealized gain (loss) on securities available for sale (7 067) 8 417
----------- -----------
Total stockholders' equity $5 787 220 $2 677 750
----------- -----------
$46 708 145 $36 070 019
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
<S> <C>
For the Nine Months For the Quarter
Ended September 30, Ended September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Interest income:
Interest and fees on loans $2 613 438 $2 045 895 $ 917 156 $ 745 428
Interest on securities held for maturity 36 710 41 940 12 468 15 168
Interest and dividends on securities
available for sale 41 276 26 214 15 850 10 301
Interest on federal funds sold 77 736 39 977 45 333 23 529
---------- ---------- ---------- ----------
Total interest income $2 769 160 $2 154 026 $990 807 $794 426
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits $1 138 115 $ 863 672 $ 420 397 $ 322 635
Interest on mortgage payable 28 086 35 245 9 251 12 067
Interest on capital lease obligation 5 379 - - 1 667 - -
Interest on fed funds purchased 414 1 474 - - - -
---------- ---------- ---------- ----------
Total interest expense $1 171 994 $900 391 $431 315 $334 702
---------- ---------- ---------- ----------
Net interest income $1 597 166 $1 253 635 $ 559 492 $ 459 724
Provision for loan losses 100 000 58 500 27 500 42 500
Net interest income after provision
for loan loss $1 497 166 $1 195 135 $531 992 $417 224
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts $ 223 383 $ 121 506 $ 74 380 $ 45 707
Commissions and fees 50 403 4 402 14 994 1 151
Other 11 601 10 070 2 151 5 119
---------- ---------- ---------- ----------
Total other income $285 387 $135 978 $91 525 $51 977
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits $ 631 469 $ 489 176 $ 222 938 $ 164 375
Net occupancy expense of premises 90 514 83 153 24 758 28 589
Furniture and equipment 84 219 51 791 28 033 12 738
Legal and professional 31 622 35 512 6 553 9 254
Marketing 48 032 40 912 15 501 8 812
Stationary and Supplies 35 792 36 495 11 898 21 823
Postage 35 911 20 552 10 987 7 912
FDIC assessment 1 500 38 731 - - 11 241
Other 319 744 236 181 106 727 82 540
---------- ---------- ---------- ----------
Total other expenses $1 278 803 $1 032 503 $427 395 $347 284
---------- ---------- ---------- ----------
Income before income taxes $ 503 750 $ 298 610 $ 196 122 $ 121 917
Provision for income taxes $ 4 067 $ - - $ - - $ - -
---------- ---------- ---------- ----------
Net income $ 499 683 $ 298 610 $ 196 122 $ 121 917
========== ========== ========== ==========
Net income per share $ .38 $ .23 $ .15 $ .09
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996 and 1995
<CAPTION>
<S> <C>
Unrealized
Gain(Loss) on
Securities Retained
Preferred Common Capital Available Earnings
Stock Stock Surplus for Sale (Deficit)
---------- ---------- ---------- ----------- -----------
Balance, December 31, 1994 $1 003 440 $1 078 601 $4 199 100 $ (8 032) $(4 029 140)
Net income-Jan-Sept,1995 - - - - - - - - 298 610
Issuance of common stock
(15,045 shares) - - 15 045 60 180 - - (75 225)
Conversion of preferred
to common shares
(200,688 shares) (1 003 440) 200 688 802 752 - - - -
Unrealized gain (loss) on
securities available
for sale - - - - - - 12 645 - -
---------- ---------- ---------- ----------- -----------
Balance, Sept. 30, 1995 $ - - $1 294 334 $5 062 032 $ 4 613 $(3 805 755)
========== ========== ========== =========== ===========
Balance, December 31, 1995 $ - - $1 306 303 $5 109 908 $ 8 417 $(3 746 878)
Net income-Jan-Sept,1996 - - - - - - - - 499 683
Sale of common stock
(567,192 shares), net of
issuance cost, $210,689 567 192 2 058 079 - - - -
Unrealized gain (loss) on
securities available
for sale - - - - - - (15 484) - -
---------- ---------- ---------- ----------- -----------
Balance, Sept. 30, 1996 $ - - $1 873 495 $7 167 987 $ (7 067) $(3 247 195)
========== ========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CSAH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
<CAPTION>
<S> <C>
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 499 683 $ 298 610
Adjustments to reconcile net income
to net cash provided by
operating activities:
Amortization 30 702 32 253
Depreciation 62 577 49 767
Provision for loan loss 100 000 58 500
Net discount accretion on securities (2 246) (1 923)
Changes in assets and liabilities:
(Increase) in other assets (34 172) (12 282)
(Increase) decrease in accrued
interest receivables (52 044) 12 710
Increase in accounts payable and
accrued expenses 31 256 32 955
Increase (decrease) in interest
expense payable 22 162 (80 112)
----------- -----------
Net cash provided by
operating activities $657 918 $390 478
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from return of principal on CMOs
held to maturity $ 209 966 $ 16 410
Purchase of securities held to maturity - - - -
Proceeds from return of principal on CMOs
available for sale 559 340 3 908
Purchase of securities available for sale (1 121 862) (15 900)
Proceeds from maturity of securities
available for sale
Net (increase) in loans (6 534 877) (5 893 928)
Purchase of bank premises and equipment (129 864) (51 890)
----------- -----------
Net cash (used in)
investing activities $(7 017 297) $(5 941 400)
</TABLE>
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CSAH FLOWS
(Continued)
For the Nine Months Ended September 30, 1996 and 1995
<CAPTION>
<S> <C>
1996 1995
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts $ 711 491 $ 1 688 954
Net increase in certificates of deposits 6 803 220 5 565 950
Principal payments on notes payable (17 802) (16 519)
Principal payments on computer lease payable (21 671) (17 227)
Net proceeds from issuance of common stock 2 625 271 - -
----------- -----------
Net cash provided by financing activities $10 100 509 $ 7 221 158
Increase in cash and cash equivalents $ 3 741 130 $ 1 670 236
CASH AND CASH EQUIVALENTS
Beginning 3 856 876 2 065 496
----------- -----------
Ending $ 7 598 006 $ 3 735 732
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash payments for interest $ 1 149 832 $ 980 503
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of common stock $ - - $ 75 225
=========== ===========
Capital lease obligations incurred for
use of equipment $ - - $ 21 395
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES
Unrealized gain (loss) on securities
available for sale $ (15 484) $ 12 645
=========== ===========
Other real estate acquired in settlement of loan $ - - $ 282 898
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1996 and December 31, 1995, and the result of operations and
cash flows for the nine months ended September 30, 1996 and 1995. The
statements should be read in conjunction with the Notes to Consolidated
Financial Statements included in the Company's Annual Report for the year
ended December 31, 1995.
2. The results of operations for the nine month period ended September 30, 1996
and 1995, are not necessarily indicative of the results to be expected for
the full year.
3. Securities held to maturity and available for sale as of September 30, 1996,
and December 31, 1995, are:
September 30, 1996 December 31, 1995
Amortized Amortized
Held to Maturity Cost Cost
---------- -----------
US treasuries & obligations of
US government corporations &
agencies $ 298 087 $ 649 946
Obligations of state and political
subdivisions 251 276 150 000
Corporate securities 99 918 99 819
Mortgage backed securities 11 762 26 200
---------- -----------
$ 661 043 $ 925 965
========== ===========
Fair Fair
Value Value
---------- -----------
US treasuries & obligations of
US government corporations &
agencies $ 294 769 $ 647 375
Obligations of state and political
subdivisions 256 116 160 590
Corporate securities 100 000 100 000
Mortgage backed securities 11 856 26 630
---------- -----------
$ 662 741 $ 934 595
=========== ==========
<PAGE>
September 30, 1996 December 31, 1995
Amortized Amortized
Available for Sale Cost Cost
---------- -----------
US treasury securities & obligations
of US government corporation &
agencies $1 081 823 447 801
Other 302 991 317 289
---------- -----------
$1 384 814 $ 765 090
========== ==========
Fair Fair
Value Value
---------- -----------
US treasury securities & obligations
of US government corporations &
agencies $1 074 756 454 437
Other 302 991 319 070
---------- -----------
$1 377 747 $ 773 507
========== ==========
4. The consolidated entity's loan portfolio is composed of the following:
September 30, 1996 December 31, 1995
----------- -----------
Commercial $17 223 435 $13 315 029
Real estate-mortgage 6 149 785 6 133 400
Real estate-construction 4 965 423 3 637 433
Installment loans to individuals 7 358 287 6 081 297
----------- -----------
$35 696 930 $29 167 159
Less: allowance for loan losses 488 033 393 139
----------- -----------
Loans, net $35 208 897 $28 774 020
=========== ===========
<PAGE>
5. Allowance for Loan Losses:
September 30, 1996 December 31, 1995
----------- -----------
Balance, beginning $ 393 139 $ 299 203
Provision charged to
operating expense 100 000 113 419
Recoveries 4 314 11 185
Loan losses charged to the allowance (9 420) (30 668)
----------- -----------
Balance, ending $ 488 033 $ 393 139
=========== ===========
6. Weighted average shares outstanding computation
The weighted average number of shares outstanding for the nine-month periods
ended September 30, 1996 and 1995 were 1,308,373 shares and 1,150,512 shares
respectively.
Nonaccrual loans which were excluded from impaired loan disclosure under FASB
114 amounted to 108,855 on September 30, 1996 and $45,445 on December 31, 1995.
7. Changes in Stockholders' Equity
The bank initiated a stock offering in September of 1996. The issue was fully
subscribed as of September 30, 1996 with a total of 56,192 shares sold at $5.00
per share. The proceeds increased stockholder's equity by $2,625,271 net of
issuance costs of $210,689. As of September 30, 1996, the proceeds were being
held in an escrow account by the underwriter and were not subject to being
returned to the investors; therefore, the bank has recognized the transaction by
increasing common stock and capital surplus.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Total Assets
Total assets for the nine months ending September 30, 1996, increase $10,638,126
or 29.5% since December 31, 1995. This increase in total assets resulted from
$3,588,130 increase in cash and due from banks or 157.2%, an increase in federal
funds of $153,000 or 9.7%, an increase in net loans of $6,434,877 or 22.4% and
$339,318 in securities or 20.0%. This equates to an increase in earning assets
of $6,927,195 or 21.6% for the nine months ending September 30, 1996.
Allowance for Loan Losses
The allowance for loan losses, as of September 30, 1996, was $488,033. This
gives the bank a 1.37% allowance for loan losses to total loans. Management has
completed an analysis on the reserve and feels the reserve is adequate.
Liabilities
Total deposits for the nine months ending September 30, 1996, increased
$7,514,711 or 23.0% since December 31, 1995. Noninterest bearing deposits
increased by $711,491 or 13.5% and interest bearing deposits increased by
$6,803,220 or 24.9%.
Stockholders' Equity
Total equity has increased by $3,109,470 or 116.1% since December 31, 1995. The
increase was due to a year to date earnings of $500,719 and an increase from the
sale of a stock offering.
<PAGE>
Interest Income
Interest income totaled $2,769,160 for nine months ending September 30, 1996,
$615,134 or 28.6% higher than the nine months ending September 30, 1995.
Interest income for the quarter ending September 30, 1996 totaled $990,807, or
$196,381 or 24.7% higher than the same quarter in 1995. This was a direct result
of the increase in earning assets, which increased the interest and fee income.
Interest Expense
Total interest expense for the nine months ending September 30, 1996, was
$1,171,994, $271,603 or 30.2% higher than the nine months ending September 30,
1995. Total interest expense for the quarter ending September 30, 1996, was
$431,315, $96,613 or 28.9% higher for the same quarter in 1995. This was a
direct result of the increase in interest bearing deposits. Mortgage interest
for the quarter was $9,251, $2,816 or 23.3% less than the same period in 1995.
Net Interest Income
Net interest income for the nine months ending September 30, 1996 was
$1,597,166, $343,531 or 27.4% higher than the nine months ending September 30,
1995. Net interest income for the quarter ending September 30, 1996, totaled
$559,492, $99,768 or 21.7% higher than the same quarter in 1995.
Provision for Loan Losses
During the nine months ending September 30, 1996, $100,000 was placed into
allowance for loan losses compared to $58,500 for the same period in 1995. The
amount expensed was necessary due to the increase in the loan portfolio.
<PAGE>
Other Income
Total other income for the nine months ending September 30, 1996 was $291,387,
$155,409 or 114.3% higher than the same period in 1995. This was due to an
increase in service charges of $101,877 and a $46,001 increase in commissions
and fees.
Other Expense
Total other expenses for the nine months ending September 30, 1996 was
$1,278,803, $246,300 or 23.9% higher than the nine months ending September 30,
1995. This was a result of an increase in salaries expense of $142,293, net
occupancy expense of $7,361, furniture and equipment expense of $32,428, other
expense of $109,508.
Net Income
Net income for the nine months ending September 30, 1996 was $499,684, $201,074
or 67.3% higher than the nine months ending September 30, 1995. Net income for
the quarter ending September 30, 1996 totaled $196,122 or $47,205 or 60.9%
higher than the same quarter in 1995.
Liquidity
The liquidity position of the bank is less than its peers because of a loan to
deposit ratio of 87.7%. Management is maximizing earning assets, which exceed
policy guidelines to improve profitability. This policy exception has been
approved by management and the Board of Directors. The core deposits of the bank
continue to increase.
Capital Resources
The bank's capital on September 30, 1996 was $5,787,220, $3,109,470 or 116.12%
increase since December 31, 1995. This gives the bank adequate capital. The bank
has demonstrated its ability to provide necessary capital, both through earnings
and a common stock offering. The bank initiated the stock offering in September
of 1996. The issue was fully subscribed as of September 30, 1996 with a total of
567,192 shares sold at $5.00 per share. The proceeds increased stockholders'
equity by $2,625,271 net of issuance costs of $210,689. As of September 30,
1996, the proceeds were being held in an escrow account by the underwriter and
were not subject to being returned to the investors; therefore, the bank has
recognized the transaction by increasing common stock and capital surplus.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Change 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 8K.
(a) Exhibit 2 Plan of acquisition, reorganization,
arrangement, liquidation or succession N/A
Exhibit 4 Instruments defining the rights of
security holders, including indentures N/A
Exhibit 10 Material contracts N/A
Exhibit 11 Statements re: computation of
earnings per share N/A
Exhibit 15 Letter re: unaudited interim
financial information N/A
Exhibit 18 Letter re: change in accounting
principles N/A
Exhibit 19 Report furnished to security
holders N/A
Exhibit 22 Published report regarding matters
submitted to vote of security holders N/A
<PAGE>
Exhibit 23 Consents of experts and counsel N/A
Exhibit 24 Power of attorney N/A
Exhibit 27 Financial Data Schedule N/A
Exhibit 99 Additional exhibits N/A
(b) No filings were made on Form 8K for the period
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
MARATHON FINANCIAL CORPORATION
DATE: September 30, 1996 /s/ DONALD L. UNGER
---------------------------
DONALD L. UNGER
PRINCIPAL EXECUTIVE OFFICER
DATE: September 30, 1996 /s/ DONALD L. UNGER
---------------------------
DONALD L. UNGER
PRINCIPAL FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,871,006
<INT-BEARING-DEPOSITS> 34,163,973
<FED-FUNDS-SOLD> 1,727,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,377,747
<INVESTMENTS-CARRYING> 661,043
<INVESTMENTS-MARKET> 662,741
<LOANS> 35,696,930
<ALLOWANCE> 488,033
<TOTAL-ASSETS> 46,708,145
<DEPOSITS> 40,136,875
<SHORT-TERM> 0
<LIABILITIES-OTHER> 206,489
<LONG-TERM> 577,261
1,873,495
0
<COMMON> 0
<OTHER-SE> 3,913,725
<TOTAL-LIABILITIES-AND-EQUITY> 446,708,145
<INTEREST-LOAN> 2,613,438
<INTEREST-INVEST> 77,986
<INTEREST-OTHER> 77,736
<INTEREST-TOTAL> 2,769,160
<INTEREST-DEPOSIT> 1,138,115
<INTEREST-EXPENSE> 1,171,994
<INTEREST-INCOME-NET> 1,597,166
<LOAN-LOSSES> 100,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,278,803
<INCOME-PRETAX> 503,750
<INCOME-PRE-EXTRAORDINARY> 499,683
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,683
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 5.41
<LOANS-NON> 108,855
<LOANS-PAST> 104,173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 213,028
<ALLOWANCE-OPEN> 393,139
<CHARGE-OFFS> 9,420
<RECOVERIES> 4,314
<ALLOWANCE-CLOSE> 488,033
<ALLOWANCE-DOMESTIC> 173,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 314,440
</TABLE>
