UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
------------------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transitions periods from ____________________ to _______________________
Commission file number : 0-18868
--------------------------------------------------------
Marathon Financial Corporation
(Name of small business issuer in its charter)
Virginia 54-1560968
- -------------------------------------- ---------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
4095 Valley Pike, Winchester, Virginia 22602
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (540) 869-6600
---------------------------------
Securities registered under Section 12(b) of the Act: None
Securities registered under section 12(g) of the
Exchange Act Common Stock, Par Value
$1.00 per share
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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.
[x] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]
Total revenues for the year ended December 31, 1997 were $5,469,833.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $14,079,843 as of March 13, 1998. The aggregate market value was
computed by using a market price of $9.00 per share.
As of March 13, 1998, the number of shares outstanding of the registrant's
common stock was 2,055,983.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
("1998 Proxy Statement") are incorporated by reference in Part III of this Form
10-KSB.
<PAGE>
In addition to historical information, the following discussion contains
forward looking statements that are subject to risks and uncertainties that
could cause the Corporation's actual results to differ materially from those
anticipated in these forward looking statements. Readers are cautioned not to
place undue reliance on these forward looking statements, which reflect
management's analysis only as of the date hereof.
Part I
Item 1. Description of Business
General
Marathon Financial Corporation ("the Corporation") is a bank holding
company that was incorporated under the laws of the Commonwealth of Virginia in
June 1989. The Corporation owns all of the outstanding stock of its sole
subsidiary, The Marathon Bank ("the Bank"), which was incorporated in August
1987 and acquired by the Corporation in October 1990, in accordance with the
Plan of Exchange approved by the shareholders of the Bank in June 1990. The
Corporation is headquartered in Frederick County, Virginia, operating in the
Bank's offices in the Marathon Financial Center, 4095 Valley Pike, Winchester,
Virginia. On August 12, 1993, The Marathon Bank opened a branch location at 300
Warren Avenue, Post Office Plaza, Front Royal in Warren County, Virginia. On
February 13, 1995, The Marathon Bank opened a branch located at 1041 Berryville
Avenue, Winchester, Virginia. During 1997, The Marathon Bank opened two offices.
A branch located at 1447 North Frederick Pike, Winchester, Virginia was opened
on June 18, 1997 and a branch located at 1014 South Main Street, Woodstock,
Virginia was opened on September 22, 1997. The Corporation is a holding company
for the Bank and is not directly engaged in the operation of any other business.
The Bank, which is chartered under the laws of the Commonwealth of
Virginia, conducts a general banking business through its offices. The Bank's
deposits are insured under the Federal Deposit Insurance Act and the Bank is a
member of the Federal Reserve System. As of December 31, 1997, the Bank employed
52 persons on a full-time basis.
The Bank is engaged in the business of offering banking services to the
general public. It offers checking accounts, savings and time deposits, and
commercial, real estate, personal, home improvement, automobile, and other
installment and term loans. It also offers travelers checks, safe deposit,
collection, notary public and other customary bank services (other than trust
services) to its customers. The three principal types of loans made by the Bank
are: (1) commercial and industrial loans; (2) real estate loans; and (3) loans
to individuals by household, family, and other consumer expenditures. The Bank's
premises include drive-up facilities. There are ATM's located at each of our
offices and an additional five off-premise ATM's.
The banking business in the area served by the Bank (the counties of
Frederick, Clarke, Shenandoah, and Warren, Virginia) is highly competitive with
respect to both loans and deposits. In the Bank's primary service area, there
are approximately six commercial banks (including four large, Virginia-wide
banks with multiple offices) offering services ranging from deposits and real
estate loans to full service banking. The Bank is the newest and smallest
commercial bank in its service area. Certain of the commercial banks in this
service area have higher lending limits than the Bank and may provide various
services for their customers that are not offered by the Bank. In addition,
there can be no assurance that other financial institutions, with substantially
greater resources than the Corporation and the Bank, will not establish
operations in the Bank's service area.
<PAGE>
Recent Developments
In December, 1997, the bank had virtually completed an addition consisting
of approximately 3,600 square feet to the main office. The addition increased
the size of the building by 50 percent enabling the bank to better serve the
needs of a growing customer base.
In June 1992, the Corporation issued one stock purchase warrant for each
share of preferred stock purchased in a private offering. A total of 200,688
warrants were issued, entitling the holder to purchase one share of common stock
for each warrant at a price of $5.00 per share until June 30, 1997. During 1997,
192,488 warrants were exercised and 8,200 warrants expired. The stock is now
listed on the NASDAQ Small Cap Market under the symbol MFCV.
Supervision and Regulation
The Corporation is a registered bank holding company subject to regulation
and examination by the Federal Reserve under the Bank Holding Company Act of
1956 (the "Bank Holding Company Act.") It is required to file with the Federal
Reserve periodic reports and any additional information that it may require
under the Bank Holding Company Act. The Bank Holding Company Act also requires
every bank holding company to obtain the prior approval of the Federal Reserve
before acquiring substantially all of the assets of direct or indirect ownership
or control of more than 5% of the voting shares of any bank which is not already
majority owned. The Bank Holding Company Act also prohibits a bank holding
company, with certain exceptions, from itself engaging in or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these provisions is
for acquiring shares of a company engaged in activities found by the Federal
Reserve to be so closely related to banking or managing banks as to be a proper
incident thereto.
The Bank, a state member bank of the Federal Reserve, is subject to
supervision, regulation, and examination by the Federal Reserve, the Virginia
State Corporation Commission and the Federal Deposit Insurance Corporation (the
"FDIC"). Deposits, reserves, investment, loans, consumer law compliance,
issuance of securities, payment of dividends, establishment of branches, mergers
and consolidations, changes in control, electronic funds transfer, management
practices, and other aspects of operations are subject to regulation by the
appropriate federal and state supervisory authorities.
<PAGE>
Statistical Information
The following statistical information is furnished pursuant to the
requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies)
promulgated under the Securities Act of 1933.
INDEX Page
Table 1 Consolidated Financial Data 5
Table 2 Average Balance Sheets, Net Interest Income and Rates 6 and 7
Table 3 Changes in Net Interest Income Attributable to Rate
and Volume 8
Table 4 Types of Investment Securities 9
Table 5 Securities Maturity Analysis 10
Table 6 Composition of the Loan Portfolio 11
Table 7 Maturity Schedule of Selected Loans 12
Table 8 Summary of Risk Elements 13
Table 9 Summary of Loan Loss Experience 14
Table 10 Allocation of the Reserve for Loan Losses 15
Table 11 Deposits and Rates 16
Table 12 Maturities of CDs in Excess of $100,000 17
Table 13 Analysis of Liquid Assets 18
Table 14 Minimum Capital Requirements 19
Table 15 Financial Ratios 20
Table 16 Short-Term Borrowings 21
Table 17 Interest Sensitivity Analysis 22
<PAGE>
Table 1 - Consolidated Financial Data
The following selected consolidated financial data is based upon the
Corporation's audited financial statements and related notes and should be read
in conjunction with such financial statements and notes.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ---
(in thousands except per share data)
<S> <C>
At Period End:
Loans-net of unearned income
and allowance for loan losses $ 50 517 $ 37 409 $ 28 774 $ 22 618 $ 18 149
Allowance for loan losses 576 503 393 299 225
Total assets 64 826 47 287 36 070 27 682 22 379
Deposits 56 435 40 725 32 622 24 604 19 606
Stockholders' equity 7 711 5 890 2 678 2 244 1 934
Income Summary:
Interest income 4 882 3 789 2 940 2 251 1 625
Interest expense 1 943 1 614 1 252 849 717
-------- -------- -------- -------- ---------
Net interest income $ 2 939 $ 2 175 $ 1 688 $ 1 402 $ 908
Provision for (recovery of)
loan losses 133 165 113 151 12
-------- -------- -------- -------- ---------
Net interest income after
provision for (recovery of)
loan losses $ 2 806 $ 2 010 $ 1 575 $ 1 251 $ 896
Other income 587 430 281 242 93
Other expenses 2 583 1 746 1 435 1 175 909
-------- -------- -------- -------- --------
Income before income taxes $ 810 $ 694 $ 421 $ 318 $ 80
Income taxes (benefits) (188) (145) - - - - - -
--------- -------- -------- -------- --------
Net income $ 998 $ 839 $ 421 $ 318 $ 80
========= ========= ========= ========= ========
Per Share Data: *
Book value at period ended $3.75 $3.16 $2.05 $1.75 $1.52
Net income , basic .51 .58 .35 .30 .08
Net income, assuming dilution .50 .58 .35 .30 .08
Cash dividends declared 143 920 111 810 - - - - - -
Average common shares outstanding 1 951 172 1 445 601 1 205 443 1 082 615 1 055 466
</TABLE>
* Changed to reflect stock dividend in 1996.
<PAGE>
Table 2 - Average Balance Sheets, Net Interest Income and Rates
Table 2 illustrates average balances of total earning assets and total
interest-bearing liabilities for 1997 and 1996 and shows the average
distribution of assets, liabilities, stockholder's equity, and the related
income, expense, and corresponding weighted average yields and costs. The
average balances used for the purpose of this table and other statistical
disclosures were calculated by using the daily average balances.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------------------- -----------------------------------
Average Earnings/ Yield/ Average Earnings/ Yield/
Assets Balances (1) Expense Rate Balances (1) Expense Rate
------
----------------------------- -------------- --------------------------------
<S> <C>
Interest Earning Assets:
Loans, net of unearned discounts(2) $ 42 875 769 $ 4 559 365 10.6% $ 33 282 661 $ 3 554 808 10.7%
Securities 2 996 467 193 445 6.5% 2 092 113 131 013 6.3%
Federal funds sold 2 428 532 129 844 5.3% 1 951 410 103 606 5.3%
------------ ----------- ------------ -----------
Total interest earning assets $ 48 300 768 $ 4 882 654 10.1% $ 37 326 184 $ 3 789 427 10.2%
----------- -----------
Non-Interest Earning Assets:
Cash and due from banks 3 139 921 2 643 922
Bank premises and equipment 2 051 763 1 411 295
Intangible assets 0 0
Other assets 672 261 585 713
Allowance for loan losses (569 367) (452 202)
------------ -----------
Total assets $ 53 595 346 $ 41 514 912
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------------------- ---------------------------------------
Average Earnings/ Yield/ Average Earnings/ Yield/
Liabilities and Stockholders' Equity Balances (1) Expense Rate Balances (1) Expense Rate
- ------------------------------------ ----------------------------- -------------- ---------------------------------------
<S> <C>
Liabilities:
Interest-bearing deposits $ 39 478 773 $ 1 918 099 4.9% $ 31 654 328 $ 1 566 223 4.9%
Federal funds purchased 13 340 673 5.0% 5 361 155 2.9%
Notes payable 298 727 24 637 8.2% 473 195 48 275 10.2%
----------- ---------- ------------ -----------
Total interest-bearing liabilities $ 39 790 840 $ 1 943 409 4.9% $ 32 132 884 $ 1 614 653 5.0%
---------- ------------
Non-Interest-Bearing Liabilities:
Liabilities:
Demand deposits 6 945 771 5 588 802
Other liabilities 199 905 174 211
----------- ------------
Total liabilities $ 46 936 516 $ 37 895 897
Stockholders' equity 6 658 830 3 619 015
----------- ------------
Total liabilities and stockholders' equity $ 53 595 346 $ 41 514 912
=========== ============
Net Interest Earnings $ 2 939 245 $ 2 174 774
========== ============
Net Interest Yield on Earnings Assets 6.1% 5.8%
======= =====
</TABLE>
(1) Average balances are calculated using daily balances for each category in
1996 & 1997.
(2) Non-accrual loans are included in the average balance of this category.
7
<PAGE>
Table 3 - Changes in Net Interest Income Attributable to Rate & Volume
<TABLE>
<CAPTION>
December 31, December 31,
1997 vs. 1996 1996 vs. 1995
--------------------------------------------- ---------------------------
Due to Change In Due to Change In
Volume Rate Total Volume Rate Total
------ ----- ----- ------ ----- ------
<S> <C>
Loans $1 038 221 $(33 664) $1 004 557 $ 742 058 $ 26 676 $ 768 734
Securities 58 161 4 271 62 432 35 840 7 766 43 606
Federal funds sold 26 238 26 238 41 190 (4 413) 36 777
---------- --------- ----------- ---------- ----------- --------
Total interest earned on interest
bearing assets $1 122 620 $(29 393) $1 093 227 $ 819 088 $ 30 029 $ 849,117
---------- --------- ----------- ---------- ----------- --------
Interest-bearing deposits $ 351 876 0 $ 351 876 $ 363 080 0 $ 363 080
Federal funds purchased 348 170 518 (828) (553) (1 381)
Notes payable (15 431) (8 207) (23 638) (1 865) 2 581 716
---------- --------- ----------- ---------- ----------- --------
Total interest paid on interest-bearing
liabilities $ 336 793 $ (8 037) $ 328 756 $ 360 387 $ 2 028 $ 362 415
---------- --------- ----------- ---------- ----------- --------
Net interest income $ 785 827 $(21 356) $ 764 471 $ 458 701 $ 28 001 $ 486 702
========== ========= =========== ========== =========== =========
</TABLE>
8
<PAGE>
Table 4 - Types of Investment Securities
Table 4 summarizes the book value of securities for the two years ending
December 31, 1997 and 1996.
Table 4 - Book Value of Securities Available for Sale
-----------------------------------------------------
For the Years Ended
December 31,
-----------------------------
1997 1996
---- ----
U.S. Treasury securities and obligations
of U.S. government agencies and
corporations $ 1 383 775 $ 1 346 663
Obligations of state & political
subdivisions 0 0
Other securities 395 200 332 780
-------------- -------------
$1 778 975 $ 1 679 443
============== =============
Table 4 - Book Value of Securities Held to Maturity
---------------------------------------------------
For the Years Ended
December 31,
-----------------------------
1997 1996
---- ----
U.S. Treasury securities and obligations
of U.S. government agencies and
corporations $1 452 899 $1 292 094
Obligations of state and political
subdivisions 254 033 251 227
Other securities 0 107 938
-------------- -------------
$1 706 932 $1 651 259
============== =============
At December 31, 1997, the securities book value was $3,485,907 and the
market value was $3,506,666, compared to December 31, 1996 values of $3,330,702
and $3,337,690, respectively. As of December 31, 1997, there were no obligations
by any one issuer in the investment portfolio, exclusive of obligations of the
U.S. Government or U.S. Agencies and Corporations, which in the aggregate
exceeded 10% of stockholders' equity.
<PAGE>
Table 5 - Securities Maturity Analysis
Table 5 sets forth the maturity of distribution and weighted average yields
of the securities portfolio at December 31, 1997. The weighted average yields
are calculated on the book value of the portfolio and on securities interest
income adjusted for amortization of premium and accretion of discount.
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
After One But
Within One Year Within Five Years
----------------------------- -----------------------------
Amount Yield Amount Yield
-------------- ------------- -------------- -------------
<S> <C>
U.S. Treasury securities and obligations
of U.S. government agencies and
corporations $399 808 5.22% $1 651 793 6.04%
Obligations of State & political subdivisions 153 000 10.00%
Other securities
-------------- --------------
Total $552 808 6.92% $1 651 793 6.04%
============== ==============
December 31, 1997
------------------------------------------------------------
After Five But
Within Ten Years After Ten Years
------------------------------------------------------------
Amount Yield Amount Yield
-------------- ------------- -------------- -------------
U.S. Treasury securities and obligations
of U.S. government agencies and
corporations $753 276 6.75% $ 31 797 9.01%
Obligations of State & political subdivisions 101 033 7.10%
Other securities 395 200 5.83%
-------------- --------------
Total $854 309 6.79% $426 997 6.07%
============== ==============
</TABLE>
<PAGE>
Table 6 - Composition of the Loan Portfolio
The following table summarizes the composition of the loan portfolio at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1997 1996
---- ----
<S> <C>
Commercial $24 399 929 $18 719 817
Real estate - mortgage 10 065 627 6 882 004
Real estate - construction 6 075 464 3 886 066
Installment loans to individuals 10 552 548 8 424 170
------------- -------------
$51 093 568 $37 912 057
Less allowance for loan losses 576 497 503 014
------------- -------------
Net loans $50 517 071 $37 409 043
=============== =============
</TABLE>
The Corporation had no loans outstanding to foreign countries or for highly
leveraged transactions as of December 31, 1997 or 1996.
There were no categories of loans that exceeded 10% of outstanding loans at
December 31, 1997, which were not disclosed in Table 6.
In the normal course of business, the Corporation makes various commitments
and incurs certain contingent liabilities which are disclosed but not reflected
in the accompanying financial statements. At December 31, 1997, commitments for
standby letters of credit totaled $664,357 and commitments to extend credit
totaled $7,193,712. At December 31, 1996, commitments for standby letters of
credit totaled $293,581 and commitments to extend credit totaled $4,331,307.
<PAGE>
Table 7 - Maturity Schedule of Selected Loans
The table below presents the maturities of selected loans outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
After One
Within But Within After
One Year Five Years Five Years Total
-------------- ------------- -------------- -------------
<S> <C>
Commercial $12 926 891 $10 861 952 $611 086 $24 399 929
Real estate - construction 5 972 684 62 780 40 000 6 075 464
----------------------------- ---------- -------------
$18 899 575 $10 924 732 $651 086 $30 475 393
============================== ========== =============
Interest sensitivity on such loans maturing after one year:
Fixed $10 427 477
Variable 1 148 341
-------------
Total $11 575 818
=============
</TABLE>
<PAGE>
Table 8 - Summary of Risk Elements
The following table details information concerning non-accrual, past due
and restructured loans as of December 31 for each of the years indicated:
December 31,
--------------------------
1997 1996
----------- ------------
Non-accrual loans $ 38 116 $ 71 515
Loans past due 90 days or more 172 855 58 996
Restructured loans -- --
-------------- -------------
$ 210 971 $ 130 511
============== =============
Past due loans consist of loans contractually past due ninety days or
longer as to interest or principal payments which continue to accrue interest.
Loans on non-accrual status are those loans (other than consumer installment
loans) which are ninety days past due, unless the loan is both well-secured and
in process of collection. Accrued interest on these loans is subtracted from
income, and thereafter interest is recognized only to the extent payments are
received or the loan has otherwise been rehabilitated.
Non-accrual loans at December 31, 1997 were $38,116, compared to $71,515
for 1996. Approximately $8,519 of interest income would have been recorded if
interest had accrued in 1997.
As of December 31, 1997, the Corporation had a total of $210,971 in
non-accrual, 90 days past due and restructured loans, compared to $130,511 in
1996. This was an increase of $80,460 or 62%.
On December 31, 1997, the Corporation had $38,116 in non-accrual loans,
which consist of $29,031 in installment loans, $6,543 in commercial loans and
$2,542 in credit card loans. The $172,855 in 90 days past due consists of
$35,266 in installment loans, and $105,366 in mortgage loans, and $32,223 in
credit card loans.
As of December 31, 1997, the Corporation had no loans in addition to the
past due and non-accrual loans mentioned above that are considered to be
potential problem loans.
The Corporation's management and Board of Directors have reviewed the asset
quality of the Bank's loan portfolio and the Bank's loan loss reserve and have
found it to be adequate.
<PAGE>
Table 9 - Summary of Loan Loss Experience
1997 1996
---- ----
Balance, beginning of period $ 503 014 $ 393 139
Less Charge-off's:
Commercial 37 340 23 929
Real estate - mortgage 0 0
Real estate - construction 0 0
Installment loans to individuals 50 000 37 203
-------------- -------------
Total $ 87 340 $ 61 132
-------------- -------------
Plus Recoveries:
Commercial $ 19 988 $ 951
Real estate - mortgage 0 0
Real estate - construction 0 0
Installment loans to individuals 7 835 5 056
-------------- -------------
Total $ 27 823 $ 6 007
-------------- -------------
Additions charged to operating expense $ 133 000 $ 165 000
-------------- -------------
Balance, end of period $ 576 497 $ 503 014
============== =============
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0.14% 0.17%
The Corporation maintains the allowance for loan losses at a sufficient
level to provide for potential losses in the loan portfolio. Loan losses are
charged directly to the allowance when they occur, while recoveries are credited
to the allowance. The provision for loan losses is determined periodically by
management upon consideration of several factors, including changes in the
character and size of the loan portfolio and related loan loss experience, a
review and examination of overall loan quality which includes the assessment of
problem loans, and an analysis of anticipated economic conditions in the market
area. An analysis of the allowance for loan losses, including charge-off
activity, is presented above for the years ended December 31, 1997 and 1996.
<PAGE>
Table 10 - Allocation of the Reserve for Loan Losses
The following table reflects management's allocation of the reserve for
loan losses for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
% of Loans to % of Loans to
Amount Total Loans Amount Total Loans
------------------------------------------------------------
<S> <C>
Commercial $ 490 022 47.7% $ 427 562 49.4%
Real estate - mortgage 11 530 19.7% 10 060 18.2%
Real estate - construction 28 825 11.9% 25 151 10.2%
Installment loans to individuals 46 120 20.7% 40 241 22.2%
-------------- ------------- -------------- -------------
$ 576 497 100.0% $ 503 014 100.0%
============== ============= ============== =============
<PAGE>
Table 11 - Deposits and Rates
The following table details the average amount of, and the average rate
paid on the following primary deposit categories for the years ended December
31, 1997 and 1996.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Average Average Average Average
Balance Rate Balance Rate
-------------- ------------- -------------- -------------
<S> <C>
Non-interest bearing:
Demand deposits $ 6 945 771 $ 5 588 802
---------------- ----------------
Interest-bearing:
Demand deposits $ 7 783 740 3.3% $ 5 774 727 3.4%
Savings deposits 5 272 418 3.3% 5 040 481 3.2%
Time deposits 26 422 615 5.6% 20 839 120 5.8%
-------------- --------------
$39 478 773 4.9% $31 654 328 4.9%
---------------- ----------------
$46 424 544 $37 243 130
================ ================
</TABLE>
The Corporation primarily uses deposits to fund its loans and investment
securities. The Corporation offers individuals and small-to-medium-size
businesses a variety of deposits accounts. Deposit accounts, including checking,
savings, money market and certificates of deposit, are obtained primarily from
the communities which the Corporation services.
<PAGE>
Table 12 - Maturities of CDs in Excess of $100,000
The following is a summary of the maturity distribution of certificates of
deposit in amounts of $100,000 or more as of December 31, 1997.
Amount Percent
------ -------
Three months or less $ 114 267 1.6%
Over three - six months 956 118 13.4%
Over six - twelve months 3 349 325 47.0%
Over twelve months 2 708 059 38.0%
-------------- -------------
Total $ 7 127 769 100.0%
============== =============
Certificates of deposit in amounts of $100,000 or more were $7,127,769 at
December 31, 1997. This represents 22.1% of the total certificates of deposit
balance of $32,281,155 at December 31, 1997. The Corporation does not solicit
such deposits. Further, the Corporation does not aggressively bid for public
funds deposits in large denominations, as such deposits may require the pledging
of investment securities.
The Corporation competes with the major regional financial institutions for
money market accounts and certificates of deposit less than $100,000. While the
Corporation is competitive with its interest rates, using a tiered rate system
to increase individual account balances, the Corporation has found that it can
continue to maintain its interest margin by matching loan maturities with
certificate maturities and setting loan rates based on the Corporation's cost of
funds.
<PAGE>
Table 13 - Analysis of Liquid Assets
Liquidity is a measure of the Corporation's ability to generate sufficient
cash to meet present and future obligations in a timely manner. These
obligations include the credit needs of customers, funding deposit withdrawals,
and the day-to-day operations of the Corporation. The Corporation's ability to
fund these daily commitments at December 31, 1997 and 1996 is illustrated in the
table below:
December 31,
1997 1996
-------------- -------------
Liquid Assets:
Cash and due from banks $ 3 477 382 $ 2 846 434
Federal funds sold 3 570 000 1 656 000
U.S. government agency securities 2 836 674 2 681 675
-------------- -------------
Total liquid assets $ 9 884 056 $ 7 184 109
============== =============
Total deposits and other liabilities $57 114 628 $41 396 603
=============== ==============
Ratio of liquid assets to deposits
and other liabilities 17.3% 17.4%
============== =============
The high loan to deposit ratio (89.5%) as of December 31, 1997, has
provided the opportunity for the Corporation to achieve a high return on its
deposits. For the year ended December 31, 1997, the Corporation experienced a
return on assets of 1.86% and a net interest margin of 6.13%.
The source of new funds is very strong for both long-term and short-term
duration. The growth in deposits was $15.7 million (38.6%) during 1997. The
Corporation also has access to overnight federal funds from correspondent banks
totaling up to $4.5 million. In addition, management believes that the
opportunity for the sale of loans on the market is good. The Corporation's loan
portfolio contains loans of high yields and it enjoys a recent history of low
loan charge-offs.
<PAGE>
Table 14 - Minimum Capital Requirements
The following table indicates the Federal Reserve's minimum capital
requirements and the Corporation's ability to reach such minimum capital
requirements for the periods indicated.
December 31,
-----------------------------
1997 1996
---- ----
Minimum capital requirements
set by the Federal Reserve:
Tier 1 risk-based capital ratio 4.00% 4.00%
Total risk-based capital ratio 8.00% 8.00%
Actual capital ratios of the Corporation:
Tier 1 risk-based capital ratio 14.97% 15.72%
Total risk-based capital ratio 16.09% 16.97%
On August 1, 1990, the Federal Reserve issued transitional capital adequacy
guidelines. These guidelines took effect September 7, 1990. The new capital
standards require an institution to meet two separate minimum capital
requirements: (1) a core capital (consisting of stated capital, capital surplus
and retained earnings) requirement equal to 4% of risk-weighted assets and (2) a
total capital risk-based capital requirement applied to risk-weighted assets
equal to 8%. The risk-based capital requirement includes off-balance sheet
items. Under the risk-based capital requirement, assets are assigned a credit
risk weighting based upon their relative risk ranging from 0% for assets that
are backed by the full faith and credit of the United States or that pose no
credit risk to the Bank to 100% for assets such as delinquent or repossessed
assets.
As indicated in Table 14 above, at December 31, 1997 and December 31, 1996,
the Corporation met the Federal Reserve's minimum capital requirements.
<PAGE>
Table 15 - Financial Ratios
The following table summarizes ratios considered to be significant
indicators of the Corporation's profitability and financial condition for the
years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
For the Years Ending
December 31,
-------------------------------
1997 1996
------------- --------------
<S> <C>
Return on average assets
(Net income/average total assets) 1.86% 2.02%
============= ==============
Return on average equity
(Net income/average equity) 14.99% 23.19%
============= ==============
Dividends payment ratio
(Dividends declared /
Net income) 14.42% 13.32%
============= ==============
Average equity to average asset ratio 12.42% 8.70%
============= ==============
</TABLE>
<PAGE>
Table 16 - Short-Term Borrowings
The Corporation had no short-term borrowings with an average balance
outstanding of more than 30% of stockholders' equity for the years ended
December 31, 1997 and 1996.
<PAGE>
Table 17 - Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1997
-----------------
90 DAYS OVER
1 - 90 DAYS to 1 YEAR 1-5 YEARS 5 YEARS TOTAL
-------------- -------------- -------------- ------------- --------------
<S> <C>
Earning Assets:
Loans $12 314 $10 562 $27 663 $555 $51 094
Investment Sec - HTM 303 100 700 604 1 707
Investment Sec - AFS 0 150 952 677 1 779
Fed Funds Sold 3 570 0 0 0 3 570
-------------- ------------- -------------- ------------- --------------
Total Earning Assets $16 187 $10 812 $29 315 $1 836 $58 150
-------------- ------------- -------------- ------------- --------------
Interest-Bearing Liabilities:
Interest Checking 5 154 5 154
Regular Savings 5 921 5 921
Money Market Savings 5 087 5 087
Certificate of Deposit:
$100,000 and Over 114 4 305 2 709 7 128
$100,000 and Under 3 616 12 560 8 977 25 153
-------------- ------------- -------------- ------------- --------------
Total Interest-Bearing Liabilities $8 817 $16 865 $22 761 $ 0 $48 443
============== ============= ============== ============= ==============
Period GAP $7 370 $(6 053) $ 6 554 $ 1 836
============== ============= ============== =============
Cumulative GAP $7 370 $ 1 317 $ 7 871 $ 9 707
============== ============= ============== =============
Cumulative GAP/Earn Assets 12.67% 2.26% 13.54% 16.69%
============== ============= ============== =============
</TABLE>
The present interest rate sensitivity position of the Corporation reflects
a favorable impact upon earnings in the event of rising interest rates. A rate
increase of as much as 200 basis points could have a favorable impact on net
interest income of approximately 4.2% in the first year. Conversely, a decrease
in the rate structure of 200 basis points could have a negative impact on net
interest income of approximately 4.8%. The current earning assets and deposit
structure of the Corporation suggest that these trends in changes in net
interest income would continue beyond 1997 given a rate change of this
magnitude.
<PAGE>
Item 2. Description of Properties
The Marathon Bank office is located at 4095 Valley Pike, Winchester,
Virginia. On December 31, 1993, the Marathon Land Trust executed a deed and
transferred the office to The Marathon Bank. This property is owned free of
encumbrances.
On August 12, 1993 the Bank opened its Warren County Branch at 300 Warren
Avenue in Post Office Plaza, Front Royal, Warren County, Virginia. On July 1,
1996, the Bank entered into a new lease with Post Office Plaza, L.C. for the new
branch facility in Front Royal. The terms of the lease include a monthly rent of
$3,846 for the first five years and adjusted annually afterward. The lease term
is twenty years with the option to renew for two additional five year terms.
On February 13, 1995, the Bank opened its Winchester Branch at 1041
Berryville Avenue in the City of Winchester, Virginia. The Bank executed a lease
on October 1, 1994, for five years with a monthly lease payment of $1,000.
The Bank has two five-year options to extend this lease.
On June 18, 1997, the Bank opened a second Winchester Branch at 1447 North
Frederick Pike, Winchester, Virginia. The Bank entered into a lease on January
13, 1997 with a termination date of December 31, 2006. The Bank has two
five-year options to extend the lease. The monthly lease payment is $1,750.
On September 22, 1997, the Bank opened its Shenandoah County Branch at 1014
South Main Street, Woodstock, Virginia. A new lease was executed by the Bank on
September 1, 1997, for five years with a monthly lease payment of $500 for the
first year, $700 per month for the second year, $800 per month for the third
year, $900 per month for the fourth year and $1,000 per month for the fifth
year. The bank has options to extend that lease for two five-year options.
Item 3. Legal Proceedings
In the course of normal operations, the Corporation and the Bank are
parties to various legal proceedings. Based upon information currently
available, and after consultations with legal counsel, management believes that
such legal proceedings will not have a material adverse effect on the
Corporation's business, financial position, or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Corporation through
a solicitation of proxies or otherwise.
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Corporation's common stock is listed on the NASDAQ Small Cap Market
under the symbol MFCV. Prior to the common stock's listing on NASDAQ on October
3, 1996, there were occasional transactions in the stock and management assisted
in matching persons interested in buying or selling the stock. The trades of
which management is aware between January 1, 1995 and October 3, 1996 occurred
at or about $5.00 per share. For the quarter ending December 31, 1996, the high
and low bid prices of the common stock on NASDAQ were $5.00 and $3.88,
respectively. During 1997 warrants totaling 192,488 were exercised for the same
number of shares of common stock at a price of $5.00 per share. For the year of
1997, the low bid price was $4.75 on January 3, and the high bid price was
$10.00 per share on December 8. This bid information reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
At December 31, 1997, the Corporation had approximately 1,020 stockholders
of record.
Under state law, without the consent of the Virginia Bureau of Financial
Institutions, the Corporation may not pay dividends until it has restored any
deficit in its capital funds as originally paid in. Dividends from the Bank
serve as the primary funding to the Corporation for dividend payment. The
Corporation declared a $.07 per share cash dividend to stockholders of record as
of January 17, 1998 to be paid in January of 1998. Previously, cash dividends of
$.06 per share had been paid in January of 1997.
Item 6. Management's Discussion and Analysis or Plan of Operations
Marathon Financial Corporation is the holding company for The Marathon
Bank. The following discussion and analysis of the financial condition and
results of operations of the Corporation for the years ending December 31, 1997,
1996 and 1995 should be read in conjunction with the consolidated financial
statements and related notes included as Exhibit 99.1 in this Form 10-KSB.
Results of Operation
The major component of the Corporation's net earnings is net interest
income, which is the excess of interest income earned on earning assets over the
interest expense paid for sources of funds. Net interest income is effected by
changes in volume, resulting from growth and variations in balance sheet
composition, as well as fluctuations in interest rates and maturities of source
and uses of funds. Management seeks to maximize net interest income by managing
the balance sheet and determining the optimal product mix with respect to yields
on assets and costs of funds in light of projected economic conditions, while
maintaining an acceptable level of risk.
Interest income totaled $4,882,654, $3,789,427 and $2,940,310 for the years
ending December 31, 1997, 1996 and 1995, respectively. This represents an
increase of $1,093,227 or 29% in 1997 and $849,117 or 29% in 1996. Interest
expense totaled $1,943,409, $1,614,653 and $1,252,238 for the years ending
December 31, 1997, 1996 and 1995, respectively. This is an increase of $328,756
or 20% in 1997 and $362,415 or 29% in 1996. The increase in 1997 was the result
of significant growth in the Bank's deposit base due to the opening of two new
branches.
Net interest income, before provision for loan losses, was $2,939,245 for
the year ending December 31, 1997, up $764,471 or 35% over the $2,174,774
reported for the same period in 1996. In 1996, net interest income before
provision for loan losses, increased $486,702 or 29% from $1,688,072 in 1995.
<PAGE>
An additional $133,000 was placed into the provision for loan losses in
1997, giving a year-end balance of $576,497 or 1.13% of total loans. In 1996,
the provision was $165,000 giving a year-end balance of $503,014 or 1.33% of
total loans. The Corporation maintains the allowance for loan losses at a
sufficient level to provide for potential losses in the loan portfolio. The
allowance is reviewed by management and the Board of Directors on a regular
basis considering several factors including changes in the character and size of
the loan portfolio, related loan loss experiences, a review and examination of
overall loan quality, the assessment of problem loans, and an analysis of
anticipated economic conditions in the market. Based on that analysis,
management believes that the year-end balance was sufficient to cover
anticipated losses.
Non-interest income totaled $587,179, $430,178 and $281,329 for the years
ending December 31, 1997, 1996, and 1995, respectively. This represents an
increase of $157,001 or 36% in 1997 over 1996. This was the result of an
increase in service charge income and other income.
Non-interest expense totaled $2,582,796, $1,746,265 and $1,435,441 for the
years ending December 31, 1997, 1996 and 1995, respectively. This represents an
increase of $836,531 or 48% in 1997 and an increase of $310,824 or 22% in 1996.
The additional expense in 1997 was attributable to increases in salaries,
depreciation and occupancy expenses associated in the opening of two new
branches in Winchester and Woodstock, Virginia. The 1996 increase was caused by
additional occupancy expenses as a result of the Front Royal Branch's move into
a permanent building at midyear.
Net income for the years ending December 31, 1997, 1996 and 1995 was
$998,362, $839,421 and $420,541, respectively. This represents an increase of
$158,941 or 18.9% in 1997 over 1996 net income.
Capital Adequacy
Total stockholders equity on December 31, 1997 was $7,711,414, an increase
of $1,821,177 or 31% from $5,890,237 in 1996. The Corporation's primary
capital-to-asset ratio was 11.9% in 1997 versus 12.4% in 1996. This exceeds the
Federal Reserve requirement of 6% for bank holding companies. On September 26,
1996, the bank completed a public offering in which 567,192 shares of common
stock were sold at $5.00 per share, resulting in $2,539,038 of new capital after
payment of fees and expenses associated with the offering. Marathon repurchased
10,000 shares of stock for $46,252 on October 23, 1996. During 1997, the bank
issued 192,488 shares of common stock in exchange for the same number of
outstanding warrants exercised at $5.00 per share. This resulted in $962,440 of
new capital.
Liquidity
Liquidity is identified as the ability to generate or acquire sufficient
amounts of cash when needed at reasonable cost, to accommodate withdrawals in
deposits, payments of debt and increases in loan demand. These events may occur
daily or at other short-term intervals in the normal operation of business. Past
experience helps management predict time cycles and the amounts of cash
required.
In assessing liquidity, management gives consideration to many relevant
factors, including stability of deposits, quality of assets, economy of markets
served, concentrations of business and industry, competition and the
Corporation's overall financial condition.
The Corporation's primary sources of liquidity are cash, due from banks,
U.S. Treasury securities, U.S. Agency securities and other short-term
investments including Federal Funds sold and the sale of loans.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates.
<PAGE>
Other Matters
In accordance with sound management policy and Federal Reserve directives,
the bank appointed a Year 2000 coordinator in early 1997. A review of computer
software and related hardware was initiated and completed. Items that were not
Year 2000 compliant were identified. Third party software vendors and hardware
maintenance providers were contacted and have submitted estimates to bring
non-compliant processes up to Year 2000 compatibility. A significant portion of
the expenditures required are related to bringing hardware up to date and as
much of this hardware was scheduled to be replaced in the ordinary course of
business, no adverse effect on earnings as a result of Year 2000 required
changes are expected. The Bank's major software provider has already made its
software Year 2000. The Bank expects to have major systems Year 2000 compliant
by 4th quarter 1998. Remaining systems will be completed in early 1999. All
systems should be installed and fully tested by mid 1999.
Accounting Rule Changes
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", was issued in June 1996
and establishes, among other things, new criteria for determining whether a
transfer of financial assets in exchange for cash or other consideration should
be accounted for as a sale or as a pledge of collateral in a secured borrowing.
Statement 125 also establishes new accounting requirements for pledged
collateral. As issued, Statement 125 is effective for all transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 1996.
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the effective date
(a) of paragraph 15 of Statement 125 and (b) for repurchase agreement,
dollar-roll, securities lending, or similar transactions, of paragraph 9-12 and
237(b) of Statement 125.
FASB Statement No. 130, "Reporting Comprehensive Income", was issued in
June 1997 and establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in full set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This Statement is effective for fiscal years beginning after
December 15, 1997.
Additionally during June of 1997, the FASB issued FASB No. 131,
"Disclosures about Segments of an Enterprise and Related Information." FASB No.
131 establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement becomes effective for financial statements for periods
beginning after December 31, 1997.
The effects of these Statements on the Corporation's consolidated
financial statements are not expected to be material.
Item 7. Financial Statements
Financial Statements are included in this Form 10-KSB as Exhibit 99.1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
Part III
The information required by Items 9, 10, 11 and 12 of Part III has been
incorporated herein by reference to the Corporation's 1998 Proxy Statement as
set forth below in accordance with General Instruction E.3 of Form 10-KSB.
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Information relating to directors and executive officers of the Company is
set forth in the sections entitled "Election of Directors", Nominees" and
"Continuing Directors" of the 1998 Proxy Statement and is incorporated herein by
reference.
Information relating to compliance with Section 16(a) of the Exchange Act
is set forth in the section entitled Section 16(a) Beneficial Ownership
Reporting Compliance and is incorporated herein by reference.
Item 10. Executive Compensation
Information regarding compensation of officers and directors is set forth
in the sections entitled "Executive Compensation", "Employment Contracts,
Termination of Employment and Changes in Control Arrangements" and "Directors'
Compensation" in the 1998 Proxy Statement and is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of certain beneficial owners
and management is set forth in the section entitled "Nominees", "Continuing
Directors" and "Security Ownership of Certain Beneficial Owners" in the 1998
Proxy Statement and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set
forth in the section entitled "Transactions with Management and Board of
Directors" in 1998 Proxy Statement and is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit Index
2. Not applicable.
3. (I) Articles of Incorporation. Incorporation by reference as Exhibit
3(I) to the Corporation's Registration Statement on Form S-1 filed
on August 26, 1992 (File No. 33-51366).
(ii) By-laws. Incorporated by reference as Exhibit 3(ii) to the
Corporation's Registration Statement on Form S-1 filed on August 26,
1992 (File No. 33-51366).
4. Not applicable.
9. Not applicable.
<PAGE>
10. Material Contracts.
Exhibit 10.1 401(k) Plan of Marathon Financial
Corporation, incorporated herein by
reference as Exhibit 10.1 to the
Corporation's Registration Statement on
Form S-1 filed August 26, 1992 (File No.
33-51366).
Exhibit 10.2 Employment Agreement between The
Marathon Bank and Donald L.
Unger, incorporated herein by reference as
Exhibit 10.2 to the Corporation's
Registration Statement on Form S-1 filed
on August 26, 1992 (File No. 33-51366).
Exhibit 10.3 Lease between The Marathon Bank and Post
Office Plaza, L.C. for the branch office at
300 Warren Avenue, Front Royal, Virginia,
incorporated herein by reference as Exhibit
10.3 to the Corporation's Registration
Statement on Form S-1 filed July 26, 1996
(File No. 333-08995).
Exhibit 10.4 Lease between The Marathon Bank and the
Lessors, Rogers M. Fred and Clifton G.
Stoneburner for the branch office at 1041
Berryville Avenue, Winchester, Virginia,
incorporated herein by reference to the
Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No.
0-18868).
Exhibit 10.5 Lease between The Marathon Bank and the
Lessors, Keith R. Lantz and Mary G. Lantz for
land upon which the Bank has placed a
double-wide modular unit to house the branch
office at 1014 South Main Street, Woodstock,
Virginia, filed herein (File No. 0-18868).
11. Statement re: Computation of Per Share Earnings.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Subsidiary of Marathon Financial Corporation, incorporated herein by
reference as Exhibit 21 to the Corporation's Registration Statement on
Form S-1 filed July 26, 1996 (File No. 333-08995).
22. None.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
<PAGE>
99. Additional Exhibits.
Exhibit 99.1 The following consolidated financial
statements of the Corporation including the
related notes and the report of the independent
auditors, are included herein:
1. Independent Auditor's Report.
2. Consolidated Balance Sheets - December 31,
1997 and 1996.
3. Consolidated Statement of Income - Years
Ended December 31, 1997, 1996 and 1995.
4. Consolidated Statements of Changes in
Stockholders' Equity-Years Ended December
31, 1997, 1996 and 1995.
5. Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and
1995.
6. Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K. No reports were filed by the registrant during the
fourth quarter of 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
<TABLE>
<CAPTION>
<S> <C>
MARATHON FINANCIAL CORPORATION
DATE (Registrant)
March ________, 1998 By: ______________________________
Donald L. Unger, President
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C>
DATE SIGNATURE AND TITLE
- ---- -------------------
- ------------------------------------------------- --------------------------------------------
Frank H. Brumback, Director
- ------------------------------------------------- --------------------------------------------
Robert W. Claytor, Director
- ------------------------------------------------- --------------------------------------------
Clifton L. Good, Director
- ------------------------------------------------- --------------------------------------------
Thomas W. Grove, Director
- ------------------------------------------------- --------------------------------------------
Ralph S. Gregory, Director
- ------------------------------------------------- --------------------------------------------
Joseph W. Hollis, Director
- ------------------------------------------------- --------------------------------------------
George R. Irvin, Jr., Director
- ------------------------------------------------- --------------------------------------------
Gerald H. Kidwell, Director
- ------------------------------------------------- --------------------------------------------
Lewis W. Spangler, Director
- ------------------------------------------------- --------------------------------------------
Donald L. Unger, Principal Executive,
Financial, Accounting Officer
</TABLE>
<PAGE>
Exhibit Index
2. Not applicable.
3. (i) Articles of Incorporation. Incorporated by reference as Exhibit 3(I)
to the Corporation's Registration Statement on Form S-1 filed on August
26, 1992 (File No. 33-51366).
(ii) By-laws. Incorporated by reference as
Exhibit 3(ii) to the Corporation's Registration Statement on Form S-1
filed on August 26, 1992 (File No. 33-51366).
4. Not applicable.
9. Not applicable.
10. Material Contracts.
Exhibit 10.1 401(k) Plan of Marathon Financial Corporation,
incorporated herein by reference as Exhibit 10.1 to
the Corporation's Registration Statement on Form
S-1 filed on August 26, 1992 (File No. 33-51366).
Exhibit 10.2 Employment Agreement between The Marathon Bank and
Donald L. Unger, incorporated herein by
reference as Exhibit 10.2 to the Corporation's
Registration Statement on Form S-1 filed on August
26, 1992 (File No. 33-51366).
Exhibit 10.3 Lease between The Marathon Bank and Post Office
Plaza, L. C. for the branch office at 300 Warren
Avenue, Front Royal, Virginia, incorporated herein
by reference as Exhibit 10.3 to the Corporation's
Registration Statement on Form S-1 filed July 26,
1996 (File No. 333-08995).
Exhibit 10.4 Lease between The Marathon Bank and the
Lessors, Rogers M. Fred and Clifton G. Stoneburner
for the branch office at 1041 Berryville Avenue,
Winchester, Virginia, incorporated herein by
reference to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
0-18868).
Exhibit 10.5 Lease between The Marathon Bank and the Lessors,
Keith R. Lantz and Mary G. Lantz for land upon which
the Bank has placed a double-wide modular unit to
house the branch office at 1014 South Main Street,
Woodstock, Virginia, filed herein. (File No.
0-18868).
11. Statement re: Computation of Per Share Earnings. *
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Subsidiary of Marathon Financial Corporation, incorporated herein by
reference as Exhibit 21 to the Corporation's Registration Statement
on Form S-1 filed July 26, 1996 (File No. 333-08995).
22. None.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule. *
28. Not applicable.
99. Additional Exhibits.
<PAGE>
Exhibit 99.1 The following consolidated financial
statements of the Corporation including the
related notes and the report of the independent
auditors, are included herein:*
1. Independent Auditor's Report.
2. Consolidated Balance Sheets - December 31, 1997
and 1996.
3. Consolidated Statement of Income - Years Ended
December 31, 1997, 1996 and 1995.
4. Consolidated Statements of Changes in
Stockholders' Equity-Years Ended December 31,
1997, 1996 and 1995.
5. Consolidated Statements of Cash Flows - Years
Ended December 31, 1997, 1996 and 1995.
6. Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K. No reports were filed by the registrant during the
fourth quarter of 1997.
*Filed Herewith.
<PAGE>
Exhibit 10.5
THIS LEASE. Made this 1st day of September , 1997, by and between KEITH R.
LANTZ and MARY G. LANTZ, husband and wife, and VIRGINIA L. GOCHENOUR, widow,
hereinafter sometimes referred to as "Landlord", parties of the first part, and
THE MARATHON BANK, a Virginia Banking Corporation, hereinafter sometimes
referred to as "Tenant".
WITNESSETH: That the Landlord in consideration of the rents and covenants
hereinafter reserved on the part of the Tenant to be paid and performed has
agreed to let and does hereby let, lease and demise to the Tenant and the Tenant
does hereby take and hire from the Landlord .853 acre having a road frontage on
U.S. Route 11 of 141.1 feet as shown on that certain drawing of G.W. Clifford
and Associates, a copy of which is attached hereto and made a part hereof by
this reference.
This is a portion of the real estate which was devised to Allen L.
Gochenour in the Will of Maggie Gochenour dated the 27th day of January, 1959,
probated on the 9th day of December, 1965, of record in the Clerk's Office of
the Circuit Court of Shenandoah County, Virginia, in Will Book 52, page 706.
Allen L. Gochenour died intestate on the 24th day of November, 1977, seised and
possessed of the above described real estate. He left surviving him as his only
heirs at law, his widow, Virginia L. Gochenour, and one son, James A.,
Gochenour. By Deed dated the 21st day of December, 1977, recorded in the
aforesaid Clerk's Office in Deed Book 378, page 01, the said James A. Gochenour,
single, conveyed unto Virginia L. Gochenour and Keith R. Lantz, two of the
Grantors herein, all of his undivided two-thirds (2/3) right, title and interest
in and to the real estate of which the above described and conveyed lot was a
portion.
The term of this lease shall be for five years commencing on the 1st day of
September, 1997, and expiring on the 31st day of August, 2002, at a rental of
FORTY-SIX THOUSAND EIGHT HUNDRED DOLLARS ($46,800.00) payable as follows: FIVE
HUNDRED DOLLARS ($500.00) per month for the first year; SEVEN HUNDRED DOLLARS
($700.00) per month for the second year; EIGHT HUNDRED DOLLARS ($800.00) per
month for the third year; NINE HUNDRED DOLLARS ($900.00) per month for the
fourth year; and ONE THOUSAND DOLLARS ($1,000.00) per month for the fifth year.
In the event the Tenant exercises its option hereunder to renew this lease, the
monthly rent payment will be ONE THOUSAND DOLLARS ($1,000.00) increased by the
percentage increase in the CPI from January 1, 2002, of the year of rent with a
minimum increase of 3% and a maximum increase of 5%.
This lease is granted and accepted upon the foregoing and the following
covenants and conditions and subject to the following restrictions, to all and
everyone of which the parties consent; and each of the parties hereby expressly
covenant and agree to keep, perform and observe all of the terms, covenants and
conditions herein contained on its part to be kept, performed and observed.
1. The Tenant shall well and truly pay to the Landlord, at the address set
forth above, or at such other place as the Landlord may designate in writing,
mailed or delivered to the Tenant, the rent herein reserved, without demand
therefor, on the days and in the manner and amounts herein prescribed for the
payment hereof.
2. The Tenant shall be permitted to place a double-wide modular unit on the
demised premises containing approximately 1,100 square feet with a drive-in
window at the rear of the facility with a automatic teller machine (ATM). The
Tenant shall be permitted to build a permanent facility on the demised premises
with a canopy for three drive-ins.
Upon the termination of this lease, any improvements made to the real
estate shall become the property of the Landlord unless the option to purchase
hereunder is exercised during the term of the lease.
3. The Landlord requires no security deposit from the Tenant.
4. The Tenant shall be responsible for all repairs, maintenance to any
improvements made on the demised premises, including, but not limited to,
electrical, heating, air conditioning, plumbing, infrastructure and facilities
as well as any parking area.
<PAGE>
5. During the term of this lease the Tenant shall pay 58.5% of the real
estate tax attributed to this real estate as it applies to the land value in
addition to all improvements made by the Tenant imposed on the demised real
estate by the state, county or other lawful governmental authority as well as
all personal property and business taxes imposed by the state, county or other
lawful governmental authority until such time as the Landlord subdivides the
real estate and a separate tax bill is issued for the demised premises by the
state, county or other lawful governmental authority.
6. The parties expressly agree that this lease is executed in order that
the Tenant may conduct business of a banking operation upon the premises and
that the demised premises shall not be put to any other use without the prior
written consent of the Landlord.
7. This lease may not be assigned or transferred and the premises may not
be sublet either in whole or in part by Tenant without the Landlord's prior
written consent. This lease may not be assigned or transferred and the premises
may not be sublet either in whole or in part by the Tenant without the
Landlord's prior written consent unless the assets of the Tenant shall be
purchased by another banking corporation, which said banking corporation shall
be subject to all the terms and provisions contained herein.
8. The Landlord reserves the right to enter upon the premises for the
purposes of inspecting the demised premises and any improvements located
thereon, but the said inspection shall not unreasonably interfere with the
Tenant's business operations.
9. The Tenant shall maintain all public or common areas located on the
demised premises from all physical and fire hazards. The Tenant shall adequately
insure all improvements, including public or common areas for fire, casualty,
hazard and liability. The Tenant shall be responsible for insuring its personal
property and shall be responsible for liability within the demised premises. The
Landlord shall be added as a additional insured to the insurance policy, which
shall have a minimum amount of liability coverage in the amount of 1,000,000.00.
10. All notices required to be sent under the provisions of this lease to
the Landlord and Tenant by one another shall be in writing and sent by U.S.
Mail, certified, return receipt requested, to:
LANDLORD: KEITH R. LANTZ
MARY G. LANTZ
VIRGINIA L. GOCHENOUR
254 East Reservoir Road
Woodstock, Virginia 22664
TENANT: The Marathon Bank
4095 Valley Pike
Winchester, Virginia 22602
Either party may, at any time, by giving notice, set forth a different address
to which notices may be sent.
11. If suit is brought to enforce any covenant of this lease or for the
breach of any covenant contained herein, the losing party shall pay the
prevailing party a reasonable attorney fee, which will be fixed by the Court, in
addition to Court costs.
12. It is expressly agreed that if at any time during the term of this
lease, the Tenant shall be adjudged bankrupt or insolvent by any federal or
state court of competent jurisdiction, the Landlord may declare this lease to be
terminated and cancelled and may take possession of the demised premises. In the
event of any such bankruptcy or insolvency of the Landlord or in the event the
premises are sold, Tenant may elect to terminate this lease, but he will not be
required to do so.
13. This lease shall be automatically extended for two (2) five year (5)
terms unless the Tenant notifies the Landlord in writing at least ninety (90)
days prior to the termination of the then current lease that it is not extending
the lease. The Tenant, upon constructing the permanent facility contemplated
hereunder, shall have the right to extend the term of the said lease to a twenty
(20) year term under the same terms and conditions set forth herein.
<PAGE>
14. The Landlord, or his successors and/or assigns, shall not sell the
demised premises without first offering the property to the Tenant upon certain
terms, prices and conditions as set forth in writing to the Tenant. The Tenant
shall have the option to purchase the property under said terms, prices and
conditions as contained in the said notice for a period of thirty (30) days
after receiving the said written notice. In the event the Tenant does not
exercise this option, Landlord shall have the right to sell the demised premises
under the same terms, prices and conditions for a period of one hundred twenty
(120) days thereafter. In the event the demised premises are not sold, then the
demised premises will continue to be subject to the Tenant's right of first
refusal as provided for in this paragraph.
15. It is understood and agreed that if the demised premises are deemed
untenantable by fire or other unavoidable casualty, the Landlord shall not be
obligated to rebuild the building or reconstruct the demised premises and the
Tenant shall not be obligated to pay the rent thereon during the time the
premises shall be unoccupied or unfit for occupancy because of said destruction
or untenantable conditions; but if the demised premises and buildings thereon
shall be restored within a reasonable time thereafter and during the time of
this lease, the rent shall again commence to accrue from and after the date of
such restoration; but if the Tenant fails to rebuild and restore the premises in
a reasonable time thereafter the Landlord may, at its option, either consider
this lease to be cancelled and terminated or to rebuild and restore said
premises.
16. If any monthly installment of rent herein called for remains overdue
and unpaid for ten (10) days, the Landlord shall impose a penalty of five
percent (5%) of the monthly rental payment for each month overdue. If any
monthly installment of rent and interest as herein called for remains overdue
and unpaid for thirty (30) days, the Landlord, may, at their option at any time
during such default declare this lease terminated and take possession of the
demised premises. In addition, the Landlord reserves unto itself all of the
rights given to the Landlord under the laws of the Commonwealth of Virginia. In
the event of default or breach of this lease agreement, the Tenant agrees that
it shall be responsible for all costs and expenses of the Landlord in the
enforcement hereof, including, but not limited to, reasonable attorney fees. The
Landlord acknowledges any and all obligations as may be provided by law to
mitigate damages in the event of breach hereunder.
17. It is further understood that the Tenant will bear all expenses for
permits, site plan approval, survey and all necessary requirements of the Town
of Woodstock. It is also understood that all necessary approvals for site plans
will have to be done in the name of the Landlord on behalf of the Tenant.
18. It is expressly agreed between the parties hereto that the Tenant shall
maintain the demised premises in a clear and neat condition and that the Tenant
shall be prohibited from storing any unused junk or debris on the premises.
19. On the last day of the term herein demised, or upon sooner termination
hereof, the Tenant shall peacefully and quietly leave, surrender and deliver up
the demised premises, broom clean, reasonable wear and tear excepted. The Tenant
agrees to indemnify and save harmless the Landlord from all damage to the
building, contents thereof owned by the Landlord, and the surrounding premises,
caused by the Tenant or by their guests or invitees.
20. If the whole or a substantial part of the demised premises shall be
taken for any public or quasi-public use under any statue or right of eminent
domain, or private purchase in lieu thereof, then when possession shall be taken
hereunder of the demised premises, or any part thereof, the term herein demised
and all rights of the Tenant hereunder, shall immediately cease and terminate
and the rent shall be adjusted as to the time of such termination.
21. It is further understood between the parties hereto that in the event
the Landlord places the demises premises for sale, the Tenant shall have the
right of first refusal during the term of this lease.
22. This instrument contains all agreements and conditions made between the
parties hereto, and it may not be modified, altered or changed orally or in any
manner, other than by agreement in writing, signed by all parties hereto, or
their successors in interest.
23. This instrument shall be construed in accordance with the laws of the
Commonwealth of Virginia.
24. The agreement contained herein shall apply to and inure to the benefit
of and be binding upon the parties hereto and upon their successors in interest
or personal representatives.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have execute this lease in duplicate
as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C> (SEAL)
--------------------------------------------
Keith R. Lantz
(SEAL)
--------------------------------------------
Mary G. Lantz
(SEAL)
--------------------------------------------
Virginia L. Gochenour
THE MARATHON BANK:
By: ________________________________________________
-----------------------------
(Title)
STATE OF VIRGINIA AT LARGE, To-Wit:
The foregoing instrument was acknowledged before me in Shenandoah County, Virginia, this _________ day
of _________, 1997, by Keith R. Lantz and Mary G. Lantz.
My commission expires: _________________________________.
------------------------------------------------------------
Notary Public
STATE OF VIRGINIA AT LARGE, To-Wit:
The foregoing instrument was acknowledged before me in Shenandoah County, Virginia, this ____________ day
of _______, 1997, by Virginia L. Gochenour.
My commission expires: ___________________________________.
------------------------------------------------------------
Notary Public
STATE OF VIRGINIA AT LARGE, To-Wit:
The foregoing instrument was acknowledged before me in Shenandoah County,
Virginia, this ___________ day of _______, 1997, by
___________________________________, _______________, (Title), of The Marathon
Bank.
My commission expires: ___________________________________.
------------------------------------------------------------
Notary Public
<PAGE>
EXHIBIT 11
MARATHON FINANCIAL CORPORATION
Computation of Weighted Average Shares Outstanding and Earnings Per Share
Weighted Shares Outstanding End of Month
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
January 1 863 495 1 306 303
February 1 863 495 1 306 303
March 1 864 462 1 306 303
April 1 865 495 1 306 303
May 1 874 000 1 306 303
June 1 874 000 1 306 303
July 1 938 226 1 306 303
August 2 055 983 1 306 303
September 2 055 983 1 306 303
October 2 055 983 1 863 495
November 2 055 983 1 863 495
December 2 055 983 1 863 495
------------- --------------
23 423 088 17 347 212
Divided by 12 months 12 months
------------- --------------
Weighted Shares Outstanding 1 951 924 1 445 601
============= ==============
Net Income $ 998 362 $ 839 421
============= ==============
Net Income Per Share, Basic $0.51 $0.58
============= ==============
Net Income Per Share, Assuming Dilution $0.50 $0.58
============= ==============
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $3,477,382
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,570,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,783,777
<INVESTMENTS-CARRYING> 1,706,932
<INVESTMENTS-MARKET> 1,722,889
<LOANS> 51,093,568
<ALLOWANCE> 576,497
<TOTAL-ASSETS> 64,826,042
<DEPOSITS> 56,435,221
<SHORT-TERM> 0
<LIABILITIES-OTHER> 400,271
<LONG-TERM> 279,136
0
0
<COMMON> 2,055,983
<OTHER-SE> 5,655,431
<TOTAL-LIABILITIES-AND-EQUITY> 64,826,042
<INTEREST-LOAN> 4,559,365
<INTEREST-INVEST> 193,445
<INTEREST-OTHER> 129,844
<INTEREST-TOTAL> 4,882,654
<INTEREST-DEPOSIT> 1,918,099
<INTEREST-EXPENSE> 1,943,409
<INTEREST-INCOME-NET> 2,939,245
<LOAN-LOSSES> 133,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,582,796
<INCOME-PRETAX> 810,628
<INCOME-PRE-EXTRAORDINARY> 810,628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 998,362
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.5
<YIELD-ACTUAL> 6.09
<LOANS-NON> 38,116
<LOANS-PAST> 172,855
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 503,014
<CHARGE-OFFS> 87,340
<RECOVERIES> 27,823
<ALLOWANCE-CLOSE> 576,497
<ALLOWANCE-DOMESTIC> 576,497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
EXHIBIT 99.1
MARATHON FINANCIAL CORPORATION
Winchester, Virginia
FINANCIAL REPORT
DECEMBER 31, 1997
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3 and 4
Consolidated statements of changes in stockholders' equity 5
Consolidated statements of cash flows 6 and 7
Notes to consolidated financial statements 8-30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Marathon Financial Corporation
Winchester, Virginia
We have audited the accompanying consolidated balance sheets of
Marathon Financial Corporation and Subsidiary, as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the years ended December 31, 1997, 1996 and 1995.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marathon
Financial Corporation and Subsidiary, as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years ended December 31,
1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 14, 1998
<PAGE>
MARATHON FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------------- -------------
<S> <C>
Cash and due from banks $ 3 477 382 $ 2 846 434
Securities (fair value: 1997, $3,506,666;
1996, $3,337,690) 3 490 709 3 331 209
Federal funds sold 3 570 000 1 656 000
Loans, net 50 517 071 37 409 043
Bank premises and equipment, net 2 499 374 1 587 342
Accrued interest receivable 285 837 212 089
Other real estate 448 123 18 123
Other assets 537 546 226 600
------------- --------------
$ 64 826 042 $ 47 286 840
============= ==============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand deposits $ 7 992 135 $ 6 229 844
Savings and interest-bearing demand deposits 16 161 931 11 035 082
Time deposits 32 281 155 23 460 361
------------- --------------
Total deposits $ 56 435 221 $ 40 725 287
Interest expense payable 104 753 81 764
Accounts payable and accrued expenses 295 518 273 900
Capital leases payable 279 136 315 652
Commitments and contingent liabilities - - - -
------------- --------------
Total liabilities $ 57 114 628 $ 41 396 603
------------- --------------
Stockholders' Equity
Preferred stock, Series A, 5% noncumulative, no par
value; 1,000,000 shares authorized and unissued $ - - $ - -
Common stock, $1 par value; 20,000,000 shares
authorized; 1997, 2,055,983 shares issued and
outstanding; 1996, 1,863,495 shares issued and
outstanding 2 055 983 1 863 495
Capital surplus 7 815 454 7 045 502
Retained earnings (deficit) (2 164 825) (3 019 267)
Unrealized gain on securities available for sale 4 802 507
------------- --------------
Total stockholders' equity $ 7 711 414 $ 5 890 237
------------- --------------
$ 64 826 042 $ 47 286 840
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- ---------------
<S> <C>
Interest income:
Interest and fees on loans $ 4 559 365 $ 3 554 808 $ 2 786 074
Interest on investment securities, taxable 93 379 67 963 57 788
Interest and dividends on securities
available for sale:
Taxable 89 006 54 677 16 559
Dividends 11 060 8 373 13 060
Interest on federal funds sold 129 844 103 606 66 829
----------------- ---------------- ---------------
Total interest income $ 4 882 654 $ 3 789 427 $ 2 940 310
----------------- ---------------- ---------------
Interest expense:
Interest on deposits $ 1 918 099 $ 1 566 223 $ 1 203 143
Interest on mortgage payable - - 30 045 38 949
Interest on capital lease obligations 24 637 18 230 8 610
Interest on federal funds purchased 673 155 1 536
----------------- ---------------- ---------------
Total interest expense $ 1 943 409 $ 1 614 653 $ 1 252 238
----------------- ---------------- ---------------
Net interest income $ 2 939 245 $ 2 174 774 $ 1 688 072
Provision for loan losses 133 000 165 000 113 419
----------------- ---------------- ---------------
Net interest income after
provision for loan losses $ 2 806 245 $ 2 009 774 $ 1 574 653
----------------- ---------------- ---------------
Other income:
Service charges on deposit accounts $ 459 695 $ 338 788 $ 227 776
Commissions and fees 102 234 72 883 45 207
Gain on sale of other real estate - - 8 498 - -
Other 25 250 10 009 8 346
----------------- ---------------- ---------------
Total other income $ 587 179 $ 430 178 $ 281 329
----------------- ---------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Consolidated Statements of Income
(Continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- --------------- --------------- --------------
<S> <C>
Other expenses:
Salaries and employee benefits $ 1 213 499 $ 846 609 $ 675 948
Net occupancy expense of premises 341 620 160 772 110 478
Furniture and equipment 132 778 102 575 98 969
Other 894 899 636 309 550 046
--------------- --------------- --------------
Total other expenses $ 2 582 796 $ 1 746 265 $ 1 435 441
--------------- --------------- --------------
Income before income taxes $ 810 628 $ 693 687 $ 420 541
Provision for income tax (benefit) (187 734) (145 734) - -
---------------- ---------------- --------------
Net income $ 998 362 $ 839 421 $ 420 541
=============== =============== ==============
Earnings per share, basic $ .51 $ .58 $ .35
=============== =============== ==============
Earnings per share, assuming dilution $ .50 $ .58 $ .35
=============== =============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Retained on Securities Total
Capital Stock Capital Earnings Available Stockholders'
Preferred Common Surplus (Deficit) for Sale Equity
--------- ------ ------- --------- -------------- ------------
<S> <C>
Balance, December 31,
1994 $ 1 003 440 $ 1 078 601 $ 4 199 100 $ (4 029 140) $ (8 032) $ 2 243 969
Net income - 1995 - - - - - - 420 541 - - 420 541
Issuance of common
stock (15,045 shares) - - 15 045 60 180 (75 225) - - - -
Issuance of common
stock - stock dividend
(11,969 shares) - - 11 969 47 876 (59 845) - - - -
Cash to be paid in lieu
of fractional shares - - - - - - (3 209) - - (3 209)
Conversion of
preferred stock to
common stock
(200,688 shares) (1 003 440) 200 688 802 752 - - - - - -
Unrealized gain
on securities
available for sale - - - - - - - - 16 449 16 449
------------- ----------- ------------ ------------ ----------- --------------
Balance, December 31,
1995 $ - - $ 1 306 303 $ 5 109 908 $ (3 746 878) $ 8 417 $ 2 677 750
Net income - 1996 - - - - - - 839 421 - - 839 421
Issuance of common
stock - stock offering
(567,192 shares) - - 567 192 1 971 846 - - - - 2 539 038
Acquisition of common
stock (10,000 shares) - - (10 000) (36 252) - - - - (46 252)
Dividends declared - - - - - - (111 810) - - (111 810)
Unrealized (loss)
on securities
available for sale - - - - - - - - (7 910) (7 910)
------------- ----------- ------------ ------------ ------------ ---------------
Balance, December 31,
1996 $ - - $ 1 863 495 $ 7 045 502 $ (3 019 267) $ 507 $ 5 890 237
Net income - 1997 - - - - - - 998 362 - - 998 362
Issuance of common
stock - warrants
(192,488 shares) - - 192 488 769 952 - - - - 962 440
Dividends declared - - - - - - (143 920) - - (143 920)
Unrealized gain
on securities
available for sale - - - - - - - - 4 295 4 295
------------- ----------- ------------ ------------ ----------- --------------
Balance, December 31,
1997 $ - - $ 2 055 983 $ 7 815 454 $ (2 164 825) $ 4 802 $ 7 711 414
============= =========== ============ ============= =========== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- --------------
<S> <C>
Cash Flows from Operating Activities
Net income $ 998 362 $ 839 421 $ 420 541
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 41 846 40 581 16 194
Depreciation 198 156 103 815 103 366
Provision for loan losses 133 000 165 000 113 419
Writedown of other real estate - - 8 000 42 581
Deferred tax (benefit) (200 000) (150 000) - -
Gain on sale of other real estate - - (8 498) - -
Accretion of securities discounts, net (13 317) (15 807) (2 567)
Changes in assets and liabilities:
(Increase) decrease in other assets (125 826) (25 973) 21 614
(Increase) decrease in accrued interest
receivable (73 748) (53 023) 13 668
Increase (decrease) in accounts payable
and accrued expenses (10 491) 68 870 35 027
Increase (decrease) in interest expense payable 22 989 21 613 (74 818)
--------------- --------------- ---------------
Net cash provided by operating activities $ 970 971 $ 993 999 $ 689 025
--------------- --------------- --------------
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal
payments of investments securities $ 1 107 991 $ 568 892 $ 21 240
Proceeds from maturities, calls and principal
payments of securities available for sale 503 397 205 004 4 901
Purchase of investment securities (1 152 890) (1 280 095) - -
Purchase of securities available for sale (600 386) (1 122 641) (216 806)
Net (increase) in loans (12 451 882) (8 885 477) (6 424 201)
Origination of loans available for sale (5 992 149) (3 431 800) (3 502 050)
Proceeds from sale of loans available for sale 4 773 003 3 517 254 3 378 405
Purchase of equipment (1 137 155) (194 815) (128 332)
Proceeds from sale of other real estate - - 218 498 - -
--------------- --------------- --------------
Net cash (used in) investing activities $ (14 950 071) $ (10 405 180) $ (6 866 843)
---------------- ---------------- ---------------
Cash Flows from Financing Activities
Net increase in demand deposits, NOW accounts
and savings accounts $ 6 889 140 $ 1 774 085 $ 2 383 106
Net increase in certificates of deposit 8 820 794 6 329 038 5 634 842
Net proceeds from issuance of common stock 962 440 2 539 038 - -
Principal payments on capital lease obligations (36 516) (32 036) (26 516)
Principal payments on mortgage payable - - (507 134) (22 234)
Acquisition of common stock - - (46 252) - -
Payment of dividends (111 810) - - - -
---------------- --------------- --------------
Net cash provided by financing activities $ 16 524 048 $ 10 056 739 $ 7 969 198
--------------- --------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- --------------
<S> <C>
Increase in cash and
cash equivalents $ 2 544 948 $ 645 558 $ 1 791 380
Cash and Cash Equivalents
Beginning 4 502 434 3 856 876 2 065 496
--------------- --------------- --------------
Ending $ 7 047 382 $ 4 502 434 $ 3 856 876
=============== =============== ==============
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 1 920 420 $ 1 593 040 $ 1 327 056
=============== =============== ==============
Income taxes $ 12 179 $ 4 153 $ - -
=============== =============== ==============
Supplemental Schedule of Noncash
Investing and Financing Activities:
Other real estate acquired in
settlement of loans $ 430 000 $ - - $ 278 704
=============== =============== ==============
Issuance of common stock $ - - $ - - $ 138 279
=============== =============== ==============
Property and equipment acquired
under capital lease obligations $ - - $ 238 088 $ 21 395
=============== =============== ==============
Conversion of preferred stock
to common stock $ - - $ - - $ 1 003 440
=============== =============== ==============
Unrealized gain (loss) on securities
available for sale $ 4 295 $ (7 910) $ 16 449
=============== ================ ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MARATHON FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
Note 1. Nature of Banking Activities and Significant Accounting Policies
Marathon Financial Corporation (the Corporation) and its
Subsidiary, the Marathon Bank, grant commercial, financial,
agricultural, residential and consumer loans to customers in
Virginia. The loans are expected to be repaid from cash flow or
proceeds from the sale of selected assets of the borrowers.
The accounting and reporting policies of the Corporation conform
to generally accepted accounting principles and to general
practices within the banking industry. The following is a summary
of the more significant policies.
Principles of Consolidation
The consolidated financial statements of the Marathon
Financial Corporation and its Subsidiary, include the
accounts of all companies. All material intercompany
balances and transactions have been eliminated.
Securities
Investments are classified in three categories and accounted
for as follows:
a. Securities Held to Maturity
Securities classified as held to maturity are those debt
securities the Corporation has both the intent and
ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of
discount, computed by the interest method over their
contractual lives.
b. Securities Available for Sale
Securities classified as available for sale are those
debt and equity securities that the Corporation intends
to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on
various factors, including significant movements in
interest rates, changes in the maturity mix of the
Corporation's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar
factors. Securities available for sale are carried at
fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity. Realized
gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
<PAGE>
Notes to Consolidated Financial Statements
c. Trading Securities
Trading securities, which are generally held for the
short term in anticipation of market gains, are carried
at fair value. Realized and unrealized gains and losses
on trading account assets are included in interest income
on trading account securities. The Corporation had no
trading securities at December 31, 1997 and 1996.
Derivative Financial Instruments
FASB No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments"
requires various disclosures for derivative financial
instruments which are futures, forward, swap, or option
contract, or other financial instruments with similar
characteristics. The Corporation does not have any
derivative financial instruments as defined under this
statement.
Loans
Loans are stated at the amount of unpaid principal, reduced
by unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized as
income over the terms of the loans by the interest method.
Interest on other loans is calculated by using the simple
interest method on daily balances of the principal amount
outstanding. Loans are charged off when management believes
that the collectibility of the principal is unlikely.
Accrual of interest is discontinued on a loan when
management believes, after considering economic and business
conditions and collection efforts, that the borrowers'
financial condition is such that collection of interest is
doubtful.
The Corporation has adopted FASB No. 114, "Accounting by
Creditors for Impairment of a Loan." This statement has been
amended by FASB No. 118, "Accounting by Creditors for
Impairment of a Loan Income Recognition and Disclosures."
Statement 114, as amended, requires that the impairment of
loans that have been separately identified for evaluation is
to be measured based on the present value of expected future
cash flows or, alternatively, the observable market price of
the loans or the fair value of the collateral. However, for
those loans that are collateral dependent (that is, if
repayment of those loans is expected to be provided solely
by the underlying collateral) and for which management has
determined foreclosure is probable, the measure of
impairment of those loans is to be based on the fair value
of the collateral. Statement 114, as amended, also requires
certain disclosures about investments in impaired loans and
the allowance for credit losses and interest income
recognized on loans.
<PAGE>
Notes to Consolidated Financial Statements
The Corporation considers all consumer installment loans and
residential mortgage loans to be homogeneous loans. These
loans are not subject to impairment under FASB 114. A loan
is considered impaired when it is probable that the
Corporation will be unable to collect all principal and
interest amounts according to the contractual terms of the
loan agreement. Factors involved in determining impairment
include, but are not limited to, expected future cash flows,
financial condition of the borrower, and current economic
conditions. A performing loan may be considered impaired, if
the factors above indicate a need for impairment. A loan on
nonaccrual status may not be impaired if in the process of
collection or there is an insignificant shortfall in
payment. An insignificant delay of less than 30 days or a
shortfall of less than 5% of the required principal and
interest payment generally does not indicate an impairment
situation, if in management's judgment the loan will be paid
in full. Loans that meet the regulatory definitions of
doubtful or loss generally qualifies as an impaired loan
under FASB 114. Charge-offs for impaired loans occur when
the loan, or portion of the loan is determined to be
uncollectible, as is the case for all loans. The Corporation
had no loans subject to FASB 114 at December 31, 1997 and
1996.
Loans are placed on nonaccrual when a loan is specifically
determined to be impaired or when principal or interest is
delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied
as a reduction of the loan principal balance. Interest
income on other nonaccrual loans is recognized only to the
extent of interest payments received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level
which, in management's judgment, is adequate to absorb
credit losses inherent in the loan portfolio. The amount of
the allowance is based on management's evaluation of the
collectibility of the loan portfolio, credit concentrations,
trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired
loans are generally determined based on collateral values or
the present value of estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged
to expense and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are
charged or credited to the provision for loan losses.
Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the loan
portfolio and the related allowance may change in the near
term.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed primarily
on the straight-line and declining-balance methods.
Maintenance and repairs of property and equipment are
charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of
property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or
loss is included in operations.
<PAGE>
Classifications of Amortization on Assets Acquired Under
Capital Leases
The amortization expense on assets acquired under capital
leases is included with the depreciation expense.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share." Statement 128
replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128
requirements.
Income Taxes
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences, operating loss carryforwards, and tax credit
carry-forwards. Deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
Organization Costs
The Marathon Financial Corporation was organized under the
laws of the State of Virginia as a bank holding company on
October 2, 1990. Certain expenses incurred prior to this
date were deferred and were amortized using the
straight-line method over a 60-month period.
Loan Fees and Costs
Loan origination and commitment fees and direct loan
origination costs are being recognized as collected and
incurred. The use of this method of recognition does not
produce results that are materially different from results
which would have been produced if such costs and fees were
deferred and amortized as an adjustment of the loan yield
over the life of the related loan.
<PAGE>
Advertising
The Corporation follows the policy of charging the costs of
advertising to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2. Securities
The amortized cost and fair value of the securities available
for sale as of December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ------------ -------------- -------
1997
---------------------------------------------------------------------
<S> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 1 352 298 $ 4 884 $ (2 128) $ 1 355 054
Mortgage-backed securities 31 477 2 046 - - 33 523
Other 395 200 - - - - 395 200
-------------- -------------- ------------- --------------
$ 1 778 975 $ 6 930 $ (2 128) $ 1 783 777
============== ============== ============= ==============
1996
---------------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 1 346 663 $ 5 381 $ (6 860) $ 1 345 184
Mortgage-backed securities 34 930 1 986 - - 36 916
Other 297 850 - - - - 297 850
-------------- -------------- ------------- --------------
$ 1 679 443 $ 7 367 $ (6 860) $ 1 679 950
============== ============== ============= ==============
</TABLE>
<PAGE>
The amortized cost and fair value of the securities available for
sale as of December 31, 1997, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities
because mortgages underlying the mortgage-backed securities may be
called or prepaid without any penalties. Therefore, these
securities are not included in the maturity categories in the
maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- -------
<S> <C>
Due in one year or less $ 150 091 $ 150 469
Due after one year through five years 952 207 953 010
Due after five years through ten years 250 000 251 575
Mortgage-backed securities 31 477 33 523
Other 395 200 395 200
--------------- ---------------
$ 1 778 975 $ 1 783 777
=============== ===============
The amortized cost and fair value of securities being held to
maturity as of December 31, 1997 and 1996, are as follows:
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
1997
----------------------------------------------------------------------
<S> <C>
Obligations of U.S.
government corporations
and agencies $ 1 452 899 $ 14 254 $ (141) $ 1 467 012
Obligations of state and
political subdivisions 254 033 1 844 - - 255 877
-------------- -------------- ------------- --------------
$ 1 706 932 $ 16 098 $ (141) $ 1 722 889
============== ============== ============= ==============
1996
----------------------------------------------------------------------
Obligations of U.S.
government corporations
and agencies $ 1 292 094 $ 463 $ (984) $ 1 291 573
Obligations of state and
political subdivisions 251 227 6 938 - - 258 165
Corporate securities 99 952 48 - - 100 000
Mortgage-backed securities 7 986 23 (7) 8 002
-------------- -------------- ------------- --------------
$ 1 651 259 $ 7 472 $ (991) $ 1 657 740
============== ============== ============= ==============
</TABLE>
<PAGE>
The amortized cost and fair value of the securities being held to
maturity as of December 31, 1997, by contractual maturity, are
shown below. Expected maturities may differ from contractual
maturities because the corporate securities may be called or
prepaid without any penalties. Therefore, these securities are not
included in the maturity categories in the maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ------
<S> <C>
Due in one year or less $ 402 716 $ 402 575
Due after one year through five years 699 906 705 093
Due after five years through ten years 604 310 615 221
-------------- -------------
$ 1 706 932 $ 1 722 889
============== =============
</TABLE>
Proceeds from maturities, calls and principal payments of
securities available for sale during 1997, 1996 and 1995 were
$503,397, $205,004 and $4,901. There were no realized gains or
realized losses recognized on these transactions.
Proceeds from maturities, calls and principal payments of
securities being held to maturity during 1997, 1996 and 1995 were
$1,107,991, $568,892 and $21,240. There were no realized gains or
realized losses recognized on these transactions.
Securities having a book value of $646,873 and $647,020 at
December 31, 1997 and 1996 were pledged to secure public deposits
and for other purposes required by law.
Note 3. Loans and Related Party Transactions
The loan portfolio as of December 31, 1997 and 1996, is composed
of the following:
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C>
Commercial $ 24 399 929 $ 18 719 817
Real estate - mortgage 10 065 627 6 882 004
Real estate - construction 6 075 464 3 886 066
Installment loans to individuals 10 552 548 8 424 170
--------------- ---------------
$ 51 093 568 $ 37 912 057
Less allowance for loan losses 576 497 503 014
--------------- ---------------
$ 50 517 071 $ 37 409 043
=============== ===============
</TABLE>
The Corporation has had, and may be expected to have in the
future, banking transactions in the ordinary course of business
with directors, executive officers, their immediate families and
affiliated companies in which they are principal stockholders
(commonly referred to as related parties), on the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with others. These persons
and firms (exclusive of loans to any such person which in the
aggregate did not exceed $60,000) were indebted to the Corporation
for loans totaling $1,831,322 and $1,736,231 at December 31, 1997
and 1996, respectively. During 1997, total principal additions
were $824,680 and total principal payments were $729,589.
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C>
Balance, beginning $ 503 014 $ 393 139 $ 299 203
Provision for loan losses 133 000 165 000 113 419
Recoveries 27 823 6 007 11 185
Loan losses charged to
the allowance (87 340) (61 132) (30 668)
------------- -------------- -------------
Balance, ending $ 576 497 $ 503 014 $ 393 139
============= ============== ==============
</TABLE>
Nonaccrual loans excluded from impaired loan disclosure under FASB
114 amounted to $38,116 and $71,515 at December 31, 1997 and 1996,
respectively. If interest on these loans had been accrued, such
income would have approximated $8,519 and $6,638 for 1997 and
1996, respectively.
Note 5. Bank Premises and Equipment, Net
Bank premises and equipment as of December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- -----------
<S> <C>
Bank premises $ 1 869 457 $ 1 340 468
Furniture and equipment 1 332 436 724 269
Capital leases - property and equipment 389 135 389 135
--------- ----------
$ 3 591 028 $ 2 453 872
Less accumulated depreciation 1 091 654 866 530
--------------- --------------
$ 2 499 374 $ 1 587 342
=============== ==============
</TABLE>
Depreciation and amortization included in operating expense for
1997, 1996 and 1995 was $228,365, $134,024 and $103,366,
respectively.
Notes to Consolidated Financial Statements
<PAGE>
Note 6. Deposits
The aggregate amount of jumbo time deposits, each with a minimum
denomination of $100,000, was approximately $7,127,769 and
$4,748,281 in 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of time deposits
(in thousands) are as follows:
Three months or less $ 3 730
Over three months through twelve months 16 866
Over one year through three years 7 913
Over three years 3 772
---------------
$ 32 281
===============
Note 7. Income Taxes
Net deferred tax assets consist of the following components as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 697 623 $ 1 036 066
Writedown of other real estate 2 720 2 720
Other real estate expenditures 1 524 - -
Nonaccrual interest 12 959 - -
Less valuation allowance (338 889) (817 629)
------------ ------------
$ 375 937 $ 221 157
------------- ------------
Deferred tax liabilities,
allowance for loan losses $ 25 937 $ 71 157
----------- ------------
$ 350 000 $ 150 000
============= ============
</TABLE>
The provision for income taxes charged to operations for the
years ended December 31, 1997, 1996 and 1995, consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------ ---------------
<S> <C>
Current tax expense $ 12 266 $ 4 266 $ - -
Deferred tax expense 278 740 239 191 142 895
Change in valuation allowance (478 740) (389 191) (142 895)
-------------- ------------- --------------
$ (187 734) $ (145 734) $ - -
============== ============= ==============
</TABLE>
<PAGE>
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to
pretax income for the years ended December 31, 1997, 1996 and
1995, due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ -------------
<S> <C>
Computed "expected" tax expense $ 275 614 $ 235 854 $ 142 984
Increase (decrease) in income taxes
resulting from:
Reduction of valuation allowance (478 740) (389 191) (142 895)
Other 15 392 7 603 (89)
------------- ------------ --------------
$ (187 734) $ (145 734) $ - -
============== ============= ==============
</TABLE>
Under the provisions of the Internal Revenue Code, the
Corporation has available approximately $2,047,350 of net
operating loss carryforwards which can be offset against future
taxable income. The carryforwards expire December 31, 2006. The
full realization of the tax benefits associated with the
carryforwards depends predominately upon the recognition of
ordinary income during the carryforward period.
Note 8. Leases
Capital Leases
During the year ended December 31, 1996, the Corporation
entered into a lease agreement on a branch facility, located on
land leased from a partnership of which the Corporation's
president is a partner. The liability is payable in monthly
installments of $1,991 through May 31, 2016 at an interest rate
of 8%.
During the year ended December 31, 1994, the Corporation
entered into a lease agreement on computer equipment and
software. Additional equipment and software was added to the
lease during 1995 in the amount of $21,395. The liability is
payable in quarterly installments of $9,017 through June 1,
1999, at an interest rate of 7%. The lease also requires
additional maintenance payments of $4,853 per quarter.
Capital lease payable at December 31, 1997 in the amount of
$279,136 represents the present value of the balance due in
future years for lease rentals discounted at the respective
interest rates. Since the term of the lease is approximately
the same as the estimated useful life of the assets, and the
present value of the future minimum lease payments at the
beginning of the lease approximated the fair value of the
leased assets at that date, the leases are considered to be
capital leases and have been so recorded.
<PAGE>
The following is a schedule by years of the future minimum
lease payments under the capital leases together with the
present value of the net minimum lease payments as of December
31, 1997:
Years ending December 31:
1998 $ 79 378
1999 51 638
2000 23 898
2001 23 898
2002 23 898
Later years 320 629
--------------
Total minimum lease payments $ 523 339
Less estimated executory costs
(such as maintenance) included in
the total minimum lease payments 29 118
--------------
Net minimum lease payments $ 494 221
Less the amount representing interest 215 085
--------------
Present value of net minimum
lease payments $ 279 136
==============
Lease Commitments and Total Rental Expense
During the year ended December 31, 1996, the Corporation
entered into a twenty-year operating lease with a partnership
of which the Corporation's president is a partner for the
rental of a branch location and improvements. The lease expires
on June 30, 2016 and has two five-year renewal options. The
lease provides that the Corporation pay all property taxes,
insurance and maintenance costs plus an annual rental of
$22,256 for the initial lease beginning July 1, 1996. The total
minimum lease commitment at December 31, 1997 under this lease
is $409,886.
During the year ended December 31, 1994, the Corporation
entered into a five-year operating lease for the rental of a
branch location. The lease expires on March 30, 2000 and has
two five-year renewal options. The lease provides that the
Corporation pay all property taxes, insurance and maintenance
plus an annual rental of $12,000 for the initial lease period
commencing on April 1, 1995. The total minimum lease
commitments at December 31, 1997 under this lease is $27,000.
During the year ended December 31, 1997, the Corporation
entered into a ten-year operating lease for the rental of a
branch location. The lease expires on December 31, 2006 and has
two five-year renewal options. The lease provides that the
Corporation pay all property taxes, insurance and maintenance
plus rental payments for the initial lease period commencing on
January 13, 1997. The total minimum lease commitments at
December 31, 1997 under this lease is $272,631.
<PAGE>
During the year ended December 31, 1997, the Corporation
entered into a five-year operating lease for the rental of a
branch location. The lease expires on August 31, 2002 and has
two five-year renewal options. The lease provides that the
Corporation pay all property taxes, insurance and maintenance
plus rental payments for the initial lease period commencing on
September 1, 1997. The total minimum lease commitments at
December 31, 1997 under this lease is $44,800.
The total minimum lease commitment for these operating leases
is due as follows:
1998 $ 65 056
1999 70 056
2000 65 256
2001 63 456
2002 61 006
Later years 429 487
---------------
$ 754 317
===============
There was $56,933, $29,823 and $9,000 in rental expense
resulting from these leases included in the consolidated
statements of income for the years ended December 31, 1997,
1996 and 1995, respectively.
Fixed Equipment on Land Leased with Related Parties
Fixed equipment with a depreciated cost at December 31, 1997 of
$16,556 is located on land leased from a partnership of which
the Corporation's president is a partner. The lease expires on
May 31, 2016.
Note 9. Commitments and Contingent Liabilities
In the normal course of business, there are other outstanding
commitments and contingent liabilities which are not reflected in
the accompanying financial statements. See Note 12 with respect to
financial instruments with off-balance-sheet risk.
As members of the Federal Reserve System, the Corporation is
required to maintain certain average reserve balances. For the
final weekly reporting period in the years ended December 31, 1997
and 1996, the aggregate amounts of daily average required balances
were approximately $156,000 and $84,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
Note 10. Dividend Restrictions
Federal and state regulations limit the amount of dividends which
the Corporation can pay without obtaining prior approval and,
additionally, federal regulations require that the Corporation
maintain minimum capital requirements. As of December 31, 1997,
the Corporation was required to obtain prior approval on any
dividend declared.
The Corporation did obtain approval from the State Corporation
Commission to pay dividends in 1997, 1996 and 1995. On December
19, 1995, the Board of Directors declared a stock dividend equal
to 15% of net income, payable February 8, 1996, to stockholders of
record December 19, 1995. On December 17, 1996, the Board of
Directors declared a cash dividend of $.06 per share payable
January 27, 1997 to shareholders of record December 27, 1996. On
January 7, 1998, the Board of Directors declared a cash dividend
of $.07 per share payable January 26, 1998 to shareholders of
record January 17, 1998.
Transfers of funds from the banking subsidiary to the parent
corporation in the form of loans, advances and cash dividends are
restricted by federal and state regulatory authorities. As of
December 31, 1997, no unrestricted funds could be transferred from
the banking subsidiary to the parent corporation, without prior
regulatory approval.
Note 11. Other Expenses
The principal components of "Other expenses" in the Consolidated
Statements of Income are:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- ---------------
<S> <C>
FDIC assessment $ 10 699 $ 2 000 $ 33 798
Other real estate valuation - - 8 000 42 581
Marketing 75 870 60 155 53 619
Stationery and supplies 73 722 52 208 48 225
Postage 59 392 49 010 31 545
Directors fees 69 315 45 450 21 675
ATM expense 56 800 37 048 26 877
Forgery loss 59 870 - - - -
Other (includes no items in excess
of 1% of total revenue) 489 231 382 438 291 726
--------------- -------------- ---------------
$ 894 899 $ 636 309 $ 550 046
=============== ============== ===============
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 12. Financial Instruments With Off-Balance-Sheet Risk
The Corporation is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of
credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized
in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Corporation has
in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet
instruments.
A summary of the contract or notional amount of the Corporation's
exposure to off-balance-sheet risk as of December 31, 1997 and
1996 is as follows:
1997 1996
------------ ---------
(Thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 7 194 $ 4 331
Standby letters of credit 664 294
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Corporation
upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property and equipment,
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial
paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The
Corporation holds real estate and bank deposits as collateral
supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for those commitments at
December 31, 1997, varies from 0 percent to 100 percent; the
average amount collateralized is 88 percent.
<PAGE>
Notes to Consolidated Financial Statements
The Corporation has cash accounts in other commercial banks. The
amount on deposit at one of these banks at December 31, 1997
exceeded the insurance limits of the Federal Deposit Insurance
Corporation by approximately $697,277.
Note 13. 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
years ended December 31, 1997, 1996 and 1995 were $15,880, $12,173
and $9,601.
Note 14. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
For securities held for investment purposes, fair values are
based on quoted market prices or dealer quotes.
Loan Receivables
For certain homogeneous categories of loans, such as some
residential mortgages, and other consumer loans, fair value
is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the
current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same
remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on
demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar
remaining maturities.
<PAGE>
Notes to Consolidated Financial Statements
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit is estimated
using the fees currently charged to enter similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of
interest rates and the committed rates.
The fair value of stand-by letters of credit is based on
fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
At December 31, 1997 and 1996, the difference between the
carrying amounts and fair values of loan commitments and
stand-by letters of credit were immaterial.
The estimated fair values of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Thousands) (Thousands)
----------------------------------- -----------------------------------
<S> <C>
Financial assets:
Cash and short-term
investments $ 7 047 $ 7 047 $ 4 502 $ 4 502
Securities 3 491 3 507 3 331 3 338
Loans 51 094 51 031 37 912 38 286
Less: allowance for
loan losses (576) - - (503) - -
-------------- -------------- -------------- ---------------
Total financial assets $ 61 056 $ 61 585 $ 45 242 $ 46 126
============= ============== ============= ===============
Financial liabilities:
Deposits $ 56 435 $ 56 867 $ 40 725 $ 40 892
Long-term debt 279 327 316 402
------------- -------------- ------------- ---------------
Total financial
liabilities $ 56 714 $ 57 194 $ 41 041 $ 41 294
============= ============== ============= ===============
</TABLE>
Note 15. Capital Requirements
The Corporation is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain
mandatory - possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material
effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation must meet specific capital
guidelines that involve quantitative measures of the Corporation's
assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The
Corporation's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
<PAGE>
Notes to Consolidated Financial Statements
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of
December 31, 1997, that the Corporation meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the
Federal Reserve Bank categorized the Corporation as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Corporation
must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table.
The Corporation's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Amount in Thousands)
<S> <C>
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets)
Consolidated $ 8 283 16.09% >=$ 4 117 >= 8.00% N/A
Marathon Bank $ 7 455 14.50% >=$ 4 112 >= 8.00% >=$ 5 140 >= 10.00%
Tier 1 Capital (to Risk
Weighted Assets)
Consolidated $ 7 707 14.97% >=$ 2 059 >= 4.00% N/A
Marathon Bank $ 6 879 13.38% >=$ 2 056 >= 4.00% >=$ 3 084 >= 6.00%
Tier 1 Capital (to
Average Assets)
Consolidated $ 7 707 12.68% >=$ 2 431 >= 4.00% N/A
Marathon Bank $ 6 879 11.49% >=$ 2 394 >= 4.00% >=$ 2 993 >= 5.00%
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets)
Consolidated $ 6 359 16.97% >=$ 2 998 >= 8.00% N/A
Marathon Bank $ 6 352 16.95% >=$ 2 998 >= 8.00% >=$ 3 748 >= 10.00%
Tier 1 Capital (to Risk
Weighted Assets)
Consolidated $ 5 890 15.72% >=$ 1 499 >= 4.00% N/A
Marathon Bank $ 5 883 15.70% >=$ 1 499 >= 4.00% >=$ 2 249 >= 6.00%
Tier 1 Capital (to
Average Assets)
Consolidated $ 5 890 12.51% >=$ 1 883 >= 4.00% N/A
Marathon Bank $ 5 883 12.50% >=$ 1 883 >= 4.00% >=$ 2 353 >= 5.00%
</TABLE>
<PAGE>
Note 16. Stock Option Plans
In 1997, the shareholders approved the 1996 Long-Term Incentive Plan.
The plan allows for incentive stock options and nonqualified stock
options to be granted with an exercise price to be not less than 100%
of the Fair Market Value of the Stock on the day the stock option is
granted. 350,000 shares of the Corporation's Common Stock have been
reserved for the issuance of stock options under the Incentive Plan.
The Board granted 42,078 options to key employees of the Corporation at
$5.12 (weighted average exercise price). Of the 42,078 options, a total
of 14,721 were vested as of December 31, 1997 with the remaining
options vesting 6,357 in 1998 and 5,250 per year on September 17 for
the next four years. Directors also received options to purchase
100,000 shares at $5.00, of which 50,000 shares were vested as of
December 31, 1997 with the remaining options vesting 10,000 per year on
September 17 for the next five years. The options expire September 16,
2006.
Under the Employee and Director Plans, in no event may the shares for
which awards may be granted under the plan exceed 10% of the issued and
outstanding shares of Common Stock of the Corporation at any time.
The fair value of each employee-related grant is estimated at the grant
date using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1997: Dividend rate of .16%,
price volatility of 35.00%, risk-free interest rate of 5.00% and
expected lives of 5 years.
The Corporation applies APB Opinion 25 in accounting for its stock
option plans. Accordingly, no compensation expense has been recognized
for 1997. Had compensation cost been determined on the basis of fair
value pursuant to FASB Statement No. 123, net income and earnings per
share would have been as follows:
Net income
As reported $ 998 362
=============
Proforma $ 970 561
=============
Basic earnings per share
As reported $ .51
=============
Proforma $ .50
=============
Diluted earnings per share
As reported $ .50
=============
Proforma $ .48
=============
<PAGE>
The status of the stock option plans during 1997 is as follows:
<TABLE>
<CAPTION>
1996 Long-Term 1996 Long-Term
Incentive Plan - Incentive Plan -
Employee Director
-------- --------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ --------- ------- --------
<S> <C>
Outstanding at January 1, 1997 - - $ - - - - $ - -
Granted during 1997 42 078 5.12 100 000 5.00
Exercised during 1997 - - - - - - - -
Forfeited during 1997 - - - - - - - -
----------- -----------
Outstanding at December 31, 1997 42 078 5.12 100 000 5.00
=========== ===========
Weighted average fair value of
options granted during 1997 $ 1.97 $ 1.94
=========== ===========
</TABLE>
The status of the options outstanding at December 31, 1997 is as
follows:
Remaining
Exercise Contractual
Price Number Life in Years
-------- ------ -------------
$ 5.00 139 875 8.75
8.19 542 8.75
7.13 1 661 8.75
Note 17. Warrants Outstanding
On June 15, 1992, the Corporation issued one stock purchase warrant
("warrant") for each share of preferred stock purchased in a private
offering. A total of 200,688 warrants were issued. Warrants were
immediately transferable and entitle the holder to purchase one share
of common stock at a price of $5.00 per share until June 30, 1997.
During 1997, 192,488 warrants were exercised. The remaining 8,200
warrants expired.
<PAGE>
Note 18. Earnings Per Share
The following shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number
of shares of diluted potential common stock. Potential dilutive common
stock had no effect on income available to common stockholders.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- ---------------------
Per Per Per
Share Share Share
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C>
Basic earnings
per share 1 951 172 $ .51 1 442 478 $ .58 1 198 837 $ .35
========= ========= =========
Effect of dilutive
securities:
Stock options 45 421 - - - -
Warrants 19 560 - - - -
----------- -------------- -------------
Diluted earnings
per share 2 016 153 $ .50 1 442 478 $ .58 1 198 837 $ .35
=========== ========= ============== ========= ============= =========
</TABLE>
Warrants and options of 200,688 and 1,500, respectively, were not
included in computing diluted EPS for 1996 and 1995 because their
effects were antidilutive.
Note 19. Capitalization
In October 1996, the Corporation sold 567,192 shares of its common
stock in a public offering. Net proceeds from the sale were $2,539,038
after deducting underwriting commissions of $123,844 and direct
offering costs of $183,078. Of the net proceeds, $567,192 was credited
to common stock and $1,971,846 was credited to capital surplus.
<PAGE>
Note 20. Parent Corporation Only Financial Statements
MARATHON FINANCIAL CORPORATION
(Parent Corporation Only)
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C>
Assets
Cash on deposit with subsidiary bank $ 53 207 $ 119 610
Securities 906 894 - -
Prepaid expenses - - 283
Accrued interest receivable 14 546 - -
Investment in capital stock of subsidiary 6 880 687 5 883 516
------------- -------------
Total assets $ 7 855 334 $ 6 003 409
============= =============
Liabilities
Accounts payable $ - - $ 1 362
Dividends payable 143 920 111 810
------------- -------------
$ 143 920 $ 113 172
------------- -------------
Stockholders' Equity
Preferred stock $ - - $ - -
Common stock 2 055 983 1 863 495
Capital surplus 7 815 454 7 045 502
Retained earnings (deficit) (2 164 825) (3 019 267)
Unrealized gain on securities
available for sale 4 802 507
-------------- --------------
Total stockholders' equity $ 7 711 414 $ 5 890 237
-------------- --------------
Total liabilities and stockholders'
equity $ 7 855 334 $ 6 003 409
============= =============
</TABLE>
<PAGE>
MARATHON FINANCIAL CORPORATION
(Parent Corporation Only)
Statements of Income
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C>
Income
Interest on investment securities,
taxable $ 5 945 $ - - $ - -
Interest on securities available
for sale, taxable 8 625 - - - -
Miscellaneous - - 6 000 - -
----------- ---------- ----------
Total income $ 14 570 $ 6 000 $ - -
----------- ---------- ----------
Expenses:
Amortization $ - - $ - - $ 5 064
Other 11 927 1 248 1 110
----------- ---------- ----------
Total expenses $ 11 927 $ 1 248 $ 6 174
----------- ---------- ----------
Income (loss) before
undistributed income
of subsidiaries $ 2 643 $ 4 752 $ (6 174)
----------- ---------- ----------
Undistributed income of
subsidiary $ 995 719 $ 834 669 $ 426 715
------------ ---------- ----------
Net income $ 998 362 $ 839 421 $ 420 541
=========== ========== ==========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
MARATHON FINANCIAL CORPORATION
(Parent Corporation Only)
Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- ------------
<S> <C>
Cash Flows from Operating Activities
Net income $ 998 362 $ 839 421 $ 420 541
Adjustments to reconcile net income to net cash
provided by (used in)
operating activities:
Amortization - - - - 5 064
Undistributed income of subsidiary (995 719) (834 669) (426 715)
(Increase) decrease in prepaid expenses 283 295 (365)
(Increase) in accrued interest receivable (14 545) - - - -
Increase (decrease) in accounts payable (1 363) (3 322) 1 475
-------------- ------------- -----------
Net cash provided by (used in)
operating activities $ (12 982) $ 1 725 $ - -
-------------- ------------- -----------
Cash Flows from Investing Activities
Purchase of investment securities $ (401 490) $ - - $ - -
Purchase of securities available for sale (502 561) - - - -
-------------- ------------- -----------
Net cash (used in) investing
activities $ (904 051) $ - - $ - -
------------- ------------- -----------
Cash Flows from Financing Activities
Net proceeds from issuance of common stock $ 962 440 $ 2 539 038 $ - -
Acquisition of common stock - - (46 252) - -
Transfer of capital to subsidiary - - (2 375 271) - -
Payment of dividends (111 810) - - - -
-------------- ------------- -----------
Net cash provided by
financing activities $ 850 630 $ 117 515 $ - -
-------------- ------------- -----------
Increase (decrease) in cash
and cash equivalents $ (66 403) $ 119 240 $ - -
Cash and Cash Equivalents
Beginning 119 610 370 370
-------------- ------------ -----------
Ending $ 53 207 $ 119 610 $ 370
============== ============ ============
Supplemental Schedule of Noncash
Investing and Financing Activities
Issuance of common stock $ - - $ - - $ 138 279
============== ============ ===========
Unrealized gain (loss) on securities
available for sale $ 4 295 $ (7 910) $ 16 449
============== ============= ===========
Conversion of preferred stock to
common stock $ - - $ - - $ 1 003 440
============== ============= ===========
</TABLE>
