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:
June 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 1,306,303 8/12/96
<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
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three Months and
the Six Months Ended June 30, 1996 and 1995 . . . . . . . . 4
Consolidated Statements of Changes in
Shareholders Equity for the Six
Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1996 and 1995 . . . . . . . . 6-7
Notes to Consolidated Financial Statements . . . . . . . . 8-10
<PAGE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
as of
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
ASSETS 6/30/96 12/31/95
<S> <C>
Cash and due from banks $ 3 110 122 $ 2 282 876
Securities (fair value: 1996, $1,692,099 and
1995, $1,708,102) 1 691 345 1 699 472
Federal funds sold 3 148 000 1 574 000
Loans, net 31 596 179 28 774 020
Bank premises and equipment, net 1 327 924 1 288 463
Accrued interest receivable 199 174 159 066
Other real estate 236 123 236 123
Other assets 301 870 55 999
=========== ===========
$41 610 737 $36 070 019
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 6 267 152 $ 5 261 411
Interest bearing 31 598 997 27 360 753
=========== ===========
Total deposits $37 866 149 $32 622 164
Interest expense payable 73 100 60 151
Accounts payable and accrued expenses 117 873 93 220
Mortgage payable 495 377 507 134
Capital lease payable 95 278 109 600
Commitments & contingent liabilities - - - -
----------- -----------
Total liabilities $38 647 777 $33 392 269
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock, Series A, 5% noncumulative,
no par value; 1,000,000 shares
authorized; no shares issued
and outstanding $ - - $ - -
Common stock, $1 par value; 20,000,000 shares
authorized; 1,306,303 shares issued and
outstanding 1 306 303 1 306 303
Capital surplus 5 109 908 5 109 908
Retained earnings (deficit) (3 443 316) (3 746 878)
Unrealized gain (loss) on securities
available for sale (9 935) 8 417
============ ============
Total stockholders' equity $ 2 962 960 $ 2 677 750
============ ============
$41 610 737 $36 070 019
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1996 1995 1996 1995
-----------------------------------------------
<S> <C>
Interest income:
Interest and fees on loans $1 696 282 $1 283 690 $ 874 244 $ 669 773
Interest on securities held for maturity 24 242 26 772 7 892 10 422
Interest and dividends on securities
available for sale 25 426 15 913 20 051 8 621
Interest on federal funds sold 32 403 16 448 20 278 9 018
---------- ---------- ---------- ----------
Total interest income $1 778 353 $1 342 823 $ 922 465 $ 697 834
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits $ 717 718 $ 541 037 $ 373 343 $ 295 395
Interest on mortgage payable 18 835 19 683 9 363 11 927
Interest on capital lease obligation 3 712 3 495 1 794 1 359
Interest on fed funds purchased 414 1 474 374 -
---------- ---------- ---------- ----------
Total interest expense $ 740 679 $ 565 689 $ 384 874 $ 308 681
---------- ---------- ---------- ----------
Net interest income $1 037 674 $ 777 134 $ 537 591 $ 389 153
Provision for loan losses 72 500 16 000 42 500 16 000
Net interest income after provision __________ __________ __________ __________
for loan loss $ 965 174 $ 761 134 $ 495 091 $ 373 153
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts $ 149 003 $ 75 799 $ 82 227 $ 44 464
Commissions and fees 35 409 20 028 19 014 9 909
Other 9 450 4 951 7 791 3 191
---------- ---------- ---------- ----------
Total other income $ 193 862 $ 100 778 $ 109 032 $ 57 564
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits $ 408 531 $ 324 801 $ 205 029 $ 150 417
Net occupancy expense of premises 65 756 54 564 30 566 24 987
Furniture and equipment 56 186 39 053 38 672 19 710
Legal and professional 25 069 26 258 6 715 11 258
Marketing 32 531 32 100 24 451 11 039
Stationary and Supplies 23 894 24 377 7 849 12 588
Postage 24 924 12 640 13 410 4 630
FDIC assessment 1 500 27 490 500 13 600
Other 213 017 143 936 109 919 80 155
---------- ---------- ---------- ----------
Total other expenses $ 851 408 $ 685 219 $ 437 111 $ 328 384
---------- ---------- ---------- ----------
Income before income taxes $ 307 628 $ 176 693 $ 167 012 $ 102 333
Provision for income taxes $ 4 066 $ - - $ 4 066 $ - -
---------- ---------- ---------- ----------
Net income $ 303 562 $ 176 693 $ 162 946 $ 102 333
========== ========== ========== ==========
Net income per share $ .23 $ .16 $ .12 $ .09
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MARATHON FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain(Loss) on
Securities Retained
Preferred Common Capital Available Earnings
Stock Stock Surplus for Sale (Deficit)
<S> <C>
Balance, December 31, 1994 $1 003 440 $1 078 601 $4 199 100 $ (8 032) $(4 029 140)
Net income - Jan-Jun. 1995 - - - - - - - - 176 693
Change in unrealized gain
(loss) on securities
available for sale - - - - - - 12 899 - -
---------- ---------- ---------- ----------- ----------
Balance, June 30, 1995 $1 003 440 $1 078 601 $4 199 100 $ 4 867 $(3 852 447)
========== ========== ========== =========== ===========
Balance, December 31, 1995 $ - - $1 306 303 $5 109 908 $ 8 417 $(3 746 878)
Net income - Jan-Jun. 1996 - - - - - - - - 303 562
Change in unrealized gain
(loss) on securities
available for sale - - - - - - (18 352) - -
---------- ---------- ---------- ----------- -----------
Balance, June 30, 1996 $ - - $1 306 303 $5 109 908 $ (9 935) $(3 443 316)
========== ========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 303 562 $ 176 693
Adjustments to reconcile net income
to net cash provided by
operating activities:
Amortization 5 451 10 576
Depreciation 56 820 48 223
Accretion of securities discount, net (1 228) (1 071)
Provision for loan loss 72 500 16 000
Changes in assets and liabilities:
(Increase) in other assets (251 322) (71 083)
(Increase) decrease in accrued
interest receivable (40 108) 2 167
Increase in accounts payable and
accrued expenses 27 862 47 758
Increase (decrease) in interest
expense payable 12 949 (72 536)
----------- -----------
Net cash provided by
operating activities $ 186 486 $ 156 727
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and principal
payments on securities held to maturity $ 559 340 $ 2 300
Proceeds from maturities and principal payments
on securities available for sale 204 087 11 004
Purchase of Investment Securities (299 221) - -
Purchase of securities available for sale (473 203) (15 900)
Net (increase) in loans (2 894 659) (4 003,977)
Purchase of bank premises and equipment (96 281) (50 592)
----------- -----------
Net cash (used in)
investing activities $(2 999 937) $(4 057 165)
----------- -----------
</TABLE>
<PAGE>
MARATHON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts $ 1 055 295 $ 589 354
Net increase in certificates of deposits 4 188 690 3 851 348
Cash paid in lieu of fractional shares (3 209) - -
Principal payments on mortgage payable (11 757) (10 909)
Principal payments on capital lease obligations (14 322) (11 037)
----------- -----------
Net cash provided by financing activities $ 5 214 697 $ 4 418 756
----------- -----------
Increase in cash and cash equivalents $ 2 401 246 $ 518 318
CASH AND CASH EQUIVALENTS
Beginning 3 856 876 2 065 496
----------- ---------
Ending $ 6 258 122 $ 2 583 814
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash payments for interest $ 727 730 $ 638 225
=========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Unrealized gain (loss) on securities
available for sale $ (18 352) $ 12 899
=========== ==========
Equipment acquired under capital lease obligations $ - - $ 21 395
=========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MARATHON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
June 30, 1996 and December 31, 1995, and the result of operations and cash flows
for the six months ended June 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 six month period ended June 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 June 30, 1996, and
December 31, 1995, are:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
Amortized Amortized
Held to Maturity Cost Cost
<S> <C>
US treasuries & obligations of
US government corporations &
agencies $ 297 980 $ 649 946
Obligations of state and political
subdivisions 251 324 150 000
Corporate securities 99 885 99 819
Mortgage backed securities 16 363 26 200
---------- ----------
$ 665 552 $ 925 965
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Fair Fair
Value Value
<S> <C>
US treasuries & obligations of
US government corporations &
agencies $ 293 267 $ 647 375
Obligations of state and political
subdivisions 256 500 160 590
Corporate securities 100 000 100 000
Mortgage backed securities 16 539 26 630
----------- ----------
$ 666 306 $ 934 595
=========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
Amortized Amortized
Available for Sale Cost Cost
<S> <C>
Obligations of US government
corporations & agencies $ 595 744 $ 447 801
Mortgage backed securities 137 134 38 639
Other 302 850 278 650
---------- ----------
$1 035 728 $ 765 090
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Fair Fair
Value Value
<S> <C>
Obligations of US government
corporations & agencies $ 589 061 $ 454 437
Mortgage backed securities 133 882 40 420
Other 302 850 278 650
---------- ----------
$1 025 793 $ 773 507
========== ==========
</TABLE>
4. The consolidated entity's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C>
Commercial $15 310 722 $13 315 029
Real estate-mortgage 5 747 258 6 133 400
Real estate-construction 4 015 021 3 637 433
Installment loans to individuals 6 986 771 6 081 297
----------- -----------
$32 059 772 $29 167 159
Less: allowance for loan losses 463 593 393 139
----------- -----------
Loans, net $31 596 179 $28 774 020
=========== ===========
</TABLE>
<PAGE>
5. Allowance for Loan Losses:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C>
Balance, beginning $ 393 139 $ 299 203
Provision charged to
operating expense 72 500 113 419
Recoveries 4 265 11 185
Loan losses charged to the allowance (6 311) (30 668)
---------- -----------
Balance, ending $ 463 593 $ 393 139
========== ===========
</TABLE>
Nonaccrual loans which were excluded from impaired loan disclosure under
FASB 114 amounted to $63,819 on June 30, 1996 and $45,445 on December 31,
1995.
6. Weighted average shares outstanding computation
The weighted average number of shares outstanding for the six month periods
ended June 30, 1996 and 1995 were 1,306,303 shares and 1,091,000 shares
respectively.
<PAGE>
Part II. Other Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Total Assets
Total assets for the six months ending June 30, 1996, increased
$5,540,718 or 15.4% since December 31, 1995. This increase in total
assets resulted from a $2,822,159 increase in loans or 9.8%, an
increase in federal funds sold of $1,574,000 or 100.0%, and an increase
of $827,246 or 36.2% in cash and due from banks. This equates to an
increase in earning assets of $4,388,032 or 13.7% in the six months
ending June 30, 1996.
Allowance for Loan Losses
The allowance for loan losses, as of June 30, 1996, was $463,593.
This is an increase of $70,454 or 17.9% since December 31, 1995. This gives the
bank a 1.45% 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 six months ending June 30, 1996, increased
$5,243,985 or 16.1% since December 31, 1995. Noninterest bearing deposits
increased by $1,005,741 or 19.1% and interest bearing deposits increased by
$4,238,244 or 15.5%.
<PAGE>
Stockholders' Equity
Total equity has increased by $285,210 or 10.7% since December 31,
1995. The increase was due to a first half profit of $303,562 and an increase in
unrealized losses on securities available for sale of $18,352. This gives a
primary capital to assets ratio of 7.1%.
Interest Income
Interest income totaled $1,778,353 for the six months ending
June 30, 1996, $435,530 or 32.4% higher than the six months ending June 30,
1995. This is a direct result of the increase in our earning assets, which
increased the interest and fee income.
Interest Expense
Total interest expense for the six months ending June 30, 1996 was
$740,679, $174,990 or 30.9% higher than the six months ending June 30, 1995.
Interest on deposits increased by $176,681 or 32.7% over the same period in
1995. This was the result of an overall increase in deposits. Mortgage interest
for the quarter was $18,835, $848 or 4.3% less than the same period in 1995.
Net Interest Income
Net interest income for the six months ending June 30, 1996 was
$1,037,674, $260,540 or 33.5% higher than the six months ending June 30, 1995.
This was the result of an increase in net interest margin.
<PAGE>
Other Income
Total other income for the six months ending June 30, 1996 was
$193,862, $93,084 or 92.4% higher than the same period in 1995. This is a result
of our increase in the demand deposit area, which has improved our service
charge income.
Other Expenses
Total other expenses for the six months ending June 30, 1996 was
$851,408, $166,189 or 24.3% higher than the six months ending June 30, 1995.
Salary expense increased $83,730 or 25.8%, occupancy expense increased $11,192
or 20.5%, postage expense increased by $12,284 or 97.2%, legal and professional
expense decreased $1,189 or 4.5%, over the same period in 1995. The net increase
in other expenses is a direct result of having three offices opened for the
entire first half of 1996, versus having three offices for only a portion of the
first half of 1995. In addition, the overall growth of the bank has contributed
to the increase.
Net Income
Net income for the six months ending June 30, 1996 was $307,628,
compared to $176,693 in the same period in 1995. This is an increase of $130,935
or 74.1% over the same period of 1995.
Liquidity and Capital Resources
The liquidity position of the Bank is less than its peer's because
of a loan to deposit ratio of 83.4%. 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.
<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.
See Attached
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession - N/A
4. Instruments defining the rights of security holders,
including indentures - N/A
10. Material contracts - N/A
<PAGE>
11. Statement re computation of per share earnings - N/A
15. Letter re unaudited interim financial information - N/A
18. Letter re change in accounting principles - N/A
19. Report furnished to security holders - N/A
22. Published report regarding matters submitted to vote
of security holders - N/A
23. Consents of experts and counsel - N/A
24. Power of attorney - N/A
99. Additional Exhibits - None
(b) There were no Form 8-K's filed during the quarter
<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
/s/ Donald L. Unger
DATE: June 30, 1996 ______________________________
DONALD L. UNGER
PRINCIPAL EXECUTIVE OFFICER
/s/ Frederick A. Board
DATE: June 30, 1996 _____________________________
FREDERICK A. BOARD
PRINCIPAL FINANCIAL OFFICER
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its 1996 Annual Meeting of Shareholders on May 7, 1996. Of the
1,306,303 shares outstanding, 921,663 shares were either present or received by
proxy. At the Annual Meeting, the following matters were acted upon by
shareholders.
1. Election of Directors. The following persons were elected as Class I
Directors of the Company to serve a three year term, with the votes
For and Withheld as indicated:
DIRECTOR FOR AGAINST
Joseph W. Hollis 921,663 0
Gerald H. Kidwell 921,663 0
Lewis W. Spangler 921,663 0
Thomas W. Grove 921,663 0
2. Ratification of Yount, Hyde and Barbour, PC, as independent auditors
for 1996.
FOR AGAINST
921,663 NONE
<PAGE>
MARATHON FINANCIAL CORPORATION
4095 VALLEY PIKE
WINCHESTER, VIRGINIA 22602
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE MAY 7, 1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, dated the 5th day of April, 1996, and revoking
all prior proxies, hereby appoints Robert W. Claytor and Clifton L. Good, and
either of them as proxies with full power of substitution and hereby authorizes
such proxies, and either of them, to represent and to vote, as designated below,
all of the shares of Common Stock of Marathon Financial Corporation, held of
record by the undersigned on March 31, 1996 at the Annual meeting of
Stockholders to be held on May 7, 1996 or at any adjournment thereof.
The Board of Directors Unanimously Recommends a Vote for Proposal 1.
1. Election of Directors for the terms specified in the Proxy Statement
[ ] FOR ALL NOMINEES LISTED BELOW (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW
Joseph W. Hollis Gerald H. Kidwell Lewis W. Spangler Thomas W. Grove
(Instructions: To withhold authority to vote for any individual nominee(s),
strike a line through that nominee's name.)
2. In their discretion, upon such other matters as may properly come before the
meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy
will be noted for Proposal 1.
PLEASE SIGN exactly as your name appears hereon. When shares are held by
joint tenants, only one such person needs to sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. Please mark, sign, date and return this proxy promptly using
the enclosed envelope.
DATE: _______________________, 1996 _______________________________________
Signature
[ ] Will attend meeting. _______________________________________
Signature
<PAGE>
MARATHON FINANCIAL CORPORATION
4095 VALLEY PIKE
WINCHESTER, VIRGINIA 22602
PROXY STATEMENT FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by the
management of Marathon Financial Corporation (hereinafter referred to as the
"Corporation"), on behalf of the Board of Directors, of proxies to be voted at
the Annual Meeting of Stockholders of the Corporation to be held on May 7, 1996
or any adjournment thereof. The cost of this solicitation will be borne by the
Corporation. Brokers will be reimbursed for their reasonable expenses in
soliciting proxies from beneficial owners. This proxy statement and the enclosed
form of proxy are first being sent to stockholders on or about April 5, 1996.
All properly executed proxies in the accompanying form received by the
Corporation prior to the meeting will be voted at the meeting in accordance with
any direction noted thereon. Any proxy may be revoked by delivering to the
Corporation a proxy bearing a later date, by giving notice of revocation to the
Corporation in writing prior to the Annual Meeting, or by giving the Corporation
oral or written notice of the revocation at the Annual Meeting.
VOTING AT THE MEETING
As of March 31, 1996, the record date for the determination of stockholders
entitled to notice of and to vote at the meeting (the "Record Date"), there were
1,306,304 shares of Common Stock of the Corporation outstanding. For all matters
to be voted on at the Annual Meeting, each share of Common Stock is entitled to
one vote. Election of directors will be by plurality vote.
ELECTION OF DIRECTORS
The Corporation's Board of Directors contains eleven individuals. Four
individuals are to be elected as directors of the Corporation at the Annual
Meeting to serve for a term of three years expiring in June 1999, and seven
directors will continue to serve in accordance with their prior election. The
four nominees, Joseph W. Hollis, Gerald H. Kidwell, Lewis W. Spangler, and
Thomas W. Grove, were last elected by the stockholders in 1993.
It is the intention of the persons named in the enclosed proxy, unless
otherwise instructed by the stockholders, to vote for the nominees named below.
If, for any reason at the time of the meeting, any of the nominees becomes
unable or is unwilling to serve, the persons named in the enclosed proxy will
have discretionary authority to vote for a substitute nominee or nominees. It is
not anticipated that any nominee will be unavailable for election.
<PAGE>
2
Nominees
The following table sets forth certain information as of December 31, 1995
regarding the nominees and continuing directors of the Corporation. Each
director serves for a three year term. Unless otherwise indicated, the principal
occupation listed for each nominee and continuing director has been his
principal occupation for at least the past five years.
Age, principal occupation, and beneficial
ownership of Common Stock (percentage of
Name class) (1)
Nominees for Class I Directors to serve until 1999:
Joseph W. Hollis Mr. Hollis is 42 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is President of
B. J. Sager (beer distributor) in Winchester,
Virginia.
57,451 shares (4.40%) (2)
Gerald H. Kidwell Mr. Kidwell is 74 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is a farmer and
former budget analyst with the federal
government in Washington, D.C.
55,029 shares (4.21%) (3)
- -------------------------
(1) In calculating the number of shares of Common Stock which are beneficially
owned (and thus the percentage of Common Stock beneficially owned), a
person has the right to acquire beneficial ownership of Common Stock within
sixty (60) days through the exercise of any option, warrant or right, or
through the conversion of any security.
(2) Includes 39,276 shares held by, or jointly with, spouses, children or
trusts.
(3) Includes 54,020 shares held by, or jointly with, spouses, children or
trusts.
<PAGE>
3
Age, principal occupation, and beneficial
ownership of Common Stock (percentage of
Name class) (1)______________________________
Lewis W. Spangler Mr. Spangler is 53 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is Vice President
of Jones & Frank Corporation (petroleum
equipment sales & distribution) in Winchester,
Virginia; and Vice President and Manager of
Oil Equipment Properties (real estate in
Winchester, Virginia).
39,267 shares (3.01%) (4)
Thomas W. Grove Mr. Grove is 55 years old and has served as
a director of the Corporation since 1993 and
of the Bank since 1993. He is President of
T. W. Grove Construction, Inc. in Front
Royal, Virginia.
8,558 shares (.66%) (5)
Continuing Directors
Class II Directors serving until 1997:
W. Houston Board, III Mr. Board is 48 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is President and
a Director of B.T.B., Inc. (tire dealer) in
Front Royal and Winchester, Virginia.
27,308 shares (2.09%)
Ralph S. Gregory Mr. Gregory is 56 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is President of
Gregory's, Incorporated (commercial
contractor) in Stephens City, Virginia.
69,547 shares (5.32%) (6)
- -------------------------
(4) Includes 402 shares held by, or jointly with, spouses, children or trusts.
(5) Includes 4,038 shares held by, or jointly with, spouses, children or trusts.
(6) Includes 54,487 shares held by, or jointly with, spouses, children or
trusts.
<PAGE>
4
Age, principal occupation, and beneficial
ownership of Common Stock (percentage of
Name class) (1)
George R. Irvin Mr. Irvin is 60 years old and has served as a
director of the Corporation since 1989 and of
the Bank since 1987. He is retired and the
former chairman of Irvin, Incorporated
(wholesale candy and tobacco distributor)
in Edinburg, Virginia.
59,470 shares (4.55%) (7)
Continuing Directors
Class III Directors serving until 1998:
Frank H. Brumback Mr. Brumback is 71 years old and has served
as a director of the Corporation since 1989
and of the Bank since 1987. He is Chairman
of the Bank and the Corporation; Vice
President of Woodbine Farms, Incorporated
(orchardist) in Winchester, Virginia, and
President of BGW, Incorporated (real estate)
in Winchester, Virginia.
35,323 shares (2.70%) (8)
Robert W. Claytor Mr. Claytor is 48 years old and has served as
a director of the Corporation since 1989 and
of the Bank since 1987. He is President and
General Manager of H. N. Funkhouser & Company,
(petroleum distributor) in Winchester,
Virginia.
44,679 shares (3.42%) (9)
- -------------------------
(7) Includes 7,168 shares held by, or jointly with, spouses, children or trusts.
(8) Includes 16,246 shares held jointly.
(9) Includes 34,869 shares held by, or jointly with, spouses, children or
trusts.
<PAGE>
5
Age, principal occupation, and beneficial
ownership of Common Stock (percentage of
Name class) (1)
Clifton L. Good Mr. Good is 58 years old and has served as a
director of the Corporation since 1989 and of
the Bank since 1987. He is President of
Clifton L. Good Realty, Incorporated in
Front Royal, Virginia.
49,363 (3.78%) (10)
Donald L. Unger Mr. Unger is 53 years old and has served as a
director of the Corporation since 1993 and of
the Bank since 1993. He has served as
President and Chief Financial Officer of The
Marathon Bank and of Marathon Financial
Corporation since April 1992. From 1981 to
1992, Mr. Unger was chief executive officer
and a director of The Peoples Bank of Front
Royal, Front Royal, Virginia.
4,019 shares (.31%)
Beneficial ownership of Common
Stock by all directors and
executive officers as a group
(11 persons) 450,014 shares (34.4%) (11)
Unless otherwise indicated in the footnotes, the individuals named above
have sole voting and dispositive powers over the shares beneficially owned by
them.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held a total of 12 meetings in 1995. Each incumbent
director attended at least 75% of the aggregate of the number of meetings of the
board and the number of meetings held by all committees on which he served.
- ------------------------
(10) Includes 40,784 shares held by, or jointly with, spouses, children or
trusts or Clifton L. Good Realty, Incorporated.
(11) 200,688 shares of Common Stock are reserved for the exercise of the
Warrants. However, only 25,152 shares of Common Stock (the number of shares
beneficially owned by the Corporation's directors upon exercising of said
Warrants have been deemed to be outstanding in calculating the exchange or
exercise) have been deemed to be outstanding in calculating the beneficial
ownership by all directors and executive officers as a group.
<PAGE>
6
The Board of Directors of the Bank has standing Audit, Loan, and Personnel
Committees; the Board does not have a Compensation Committee.
The Audit Committee is responsible for receiving the audit and examination
reports of the internal accounting staff, the independent public accountants and
the banking examiners. The Audit Committee held five meetings in 1995. The
present members of the Audit Committee are Messrs. Hollis, Board, Good, and
Kidwell.
The Loan Committee considers new loan applications which are in excess of
individual officer limits and monitors (with management) the Bank's loan
portfolio. The Loan Committee held 36 meetings in 1995. The present members of
the Loan Committee are Messrs. Claytor, Good, Gregory, Brumback, Spangler,
Kidwell, Grove, and Unger.
The Personnel Committee is responsible for supervising, hiring, and setting
compensation levels for the Bank's personnel. The Personnel Committee met two
times in 1995. The present members of the Personnel Committee are Messrs. Irvin,
Claytor, Hollis, Spangler, and Unger.
EXECUTIVE COMPENSATION
The following table presents information concerning the annual and long-term
compensation of Donald L. Unger who was, at December 31, 1995, the Corporation's
chief executive officer. This table presents compensation for services rendered
in all capacities to the Corporation in 1995, 1994, 1993, and 1992.
Summary Compensation Table
Long Term Compensation All Other
Annual Compensation Awards Compensation
Name Year Salary Bonus Stock Options (#)
(12)
Donald L. Unger 1995 $100,000 $7,000 $8,000 (13)
Donald L. Unger 1994 $100,000 $ 0 0 $8,000 (13)
Donald L. Unger 1993 $100,000 $ 0 0 $8,000 (13)
Donald L. Unger 1992 $100,000 $ 0 500 (14) 0
- ------------------------
(12) Mr. Unger began his employment with the Corporation and the Bank on
April 13, 1992. His salary and bonus have been annualized.
(13) Eight percent of annual salary accrued in lieu of a pension plan, pursuant
to Mr. Unger's employment agreement.
(14) These options were granted pursuant to Mr. Unger's employment agreement
with the Bank in 1992. No options were awarded to Mr. Unger in 1995.
<PAGE>
7
The following table presents, for the executive officer listed in the
Summary Compensation Table, information regarding (i) his exercise of stock
options in 1995 and (ii) the number and value of all his unexercised stock
options at December 31, 1995.
Aggregated Option Exercises in 1995 and December 31, 1995 Option Values
Donald L. Unger
Shares Acquired on Exercise (#) 0
Value Realized upon Exercise ($) $0
Number of Unexercised Options at
December 31, 1995 (#)
Exercisable/Unexercisable 500/0
Value of Unexercised in-the-Money
Options at December 31, 1995 ($) (15) $250.00
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to his employment agreement with the Bank, Donald L. Unger received
options to acquire 500 shares of Common Stock, at an exercise price of $5.00 per
share. The agreement also provides that Mr. Unger will receive up to 2,500 of
additional stock options, at an exercise price of $5.00 per share, contingent
upon the Bank's performance. Mr. Unger receives life insurance (2.5 times
salary) and health insurance benefits on the same terms as any other Bank
employee. Pursuant to his employment agreement, each year he is allocated an
additional 8% of his annual salary (unfunded) which accrues interest at the 3
month T-Bill rate until paid at the termination of his employment. If and when
the Bank adopts a pension plan, this 8% payment will be reduced upon Mr. Unger's
participation in such a plan.
In the event of a merger or other acquisition of the Corporation or the Bank
by another financial institution, Mr. Unger's employment agreement calls for him
to receive a one-time payment which is tied to the consideration received by
shareholders of up to 2.99 times his salary.
DIRECTORS' COMPENSATION
Directors of the Corporation were paid Director's fees for meetings attended
as follows:
Board of Director's Meetings $200
Loan, Audit and Personal Committee Meetings $ 25
- ------------------------
(15) Based upon a market value of $5.00 per share which is the highest trade for
the fourth quarter of 1995 of which the Corporation has knowledge.
<PAGE>
8
TRANSACTIONS WITH MANAGEMENT
The officers, directors, their immediate families and affiliated companies
in which they are stockholders maintain normal relationships with the Bank.
Loans made by the Bank are made in the ordinary course of business on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and do not involve more than normal
risks of collectibility or present other unfavorable features. The amount of
such loans was $1,174,885 at December 31, 1995.
The Bank also has a land lease with Post Office Plaza partnership of which
Donald L. Unger, President and Chief Executive Officer owns 25%. The lease
arrangement was approved by the Bureau of Financial Institutions of the SCC and
the Federal Reserve Board in regard to establishing a branch at 300 Warren
Avenue, Front Royal, Warren County, Virginia. This land lease became effective
in July of 1993. The rent paid on the land lease totaled $7,800 for the year
1995.
401(k) PLAN
Defined Contribution Retirement Plan
The Corporation has a defined contribution retirement plan under Code
Section 401(k) of the Internal Revenue Service covering employees who have
completed six months of service and who are at least 21 years of age.
Contributions made to the plan for the year ended December 31, 1995 was $9,601.
No contributions were made for the years ended December 31, 1994 and 1993.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Except for those directors of the Corporation indicated herein, the
Corporation does not know of any person or entity that is the beneficial owner
of more than five percent of any class of the Corporation's voting securities.
INDEPENDENT PUBLIC ACCOUNTANTS
Yount, Hyde & Barbour, P.C. served as the Corporation's independent public
accountants in 1995 and has been selected by the Corporation to audit the books
and accounts of the Corporation and its subsidiary in 1995. The Corporation does
not expect that a representative of Yount, Hyde & Barbour, P.C. will be present
at the Annual Meeting. If such representative is present, however, he or she
will have an opportunity to make a statement and will be available to respond to
appropriate questions.
<PAGE>
9
STOCKHOLDER PROPOSALS
Proposals of stockholders intend to be presented at the next annual meeting
must be received by the Corporation no later than January 17, 1997, in order to
be considered for inclusion in the Corporation's proxy materials for the 1997
Annual Meeting of Stockholders.
OTHER BUSINESS
If any other matters come before the meeting, not referred to in the
enclosed proxy, including matters incident to the conduct of the meeting, the
proxy holders will vote the shares represented by such proxies in accordance
with their best judgment. Management is not aware of any other business to come
before the meeting as of the date of the preparation of this Proxy Statement.
By order of the Board of Directors
/s/ Donald L. Unger
Donald L. Unger
President and Chief Executive Officer
Winchester, Virginia
April 5, 1996
<PAGE>
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<CIK> 0000854399
<NAME> MARATHON FINANCIAL CORP.
<S> <C>
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<PERIOD-END> JUN-30-1996
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0
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