UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
Quarterly Report Pursuant of Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------
For the quarterly period ended:
June 30, 1999
Commission File No. 0-18868
MARATHON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1560968
-------- ----------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
4095 Valley Pike, Winchester, Virginia 22602
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (540) 869-6600
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Number of Shares Outstanding at
----- ---------------- --------------
Common Stock 2,053,571 8/06/99
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements are provided at the page numbers
indicated.
Consolidated Statements of Condition as of
June 30, 1999 and December 31, 1998 ..............................3
Consolidated Statements of Income for
the Quarter and the Six Months Ended June 30, 1999 and 1998......4
Consolidated Statements of Changes in
Stockholders Equity for the Six Months
Ended June 30, 1999 and 1998......................................5
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 1999 and 1998...........................6
Notes to Consolidated Financial Statements..........................7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14-15
Signature...................................................................16
2
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
as of
June 30, 1999 and December 31, 1998
<CAPTION>
ASSETS
6/30/99 12/31/98
------- --------
<S> <C> <C>
Cash and due from banks $5,928,534 $4,533,428
Federal funds sold 11,396,000 8,281,000
Securities (fair value: 1999, $9,293,303 and
1998, $10,002,374) 9,358,149 9,961,650
Loans held for resale 376,777 401,671
Loans, net 71,911,510 65,065,268
Bank premises and equipment, net 2,517,860 2,615,175
Accrued interest receivable 505,651 478,820
Other real estate 183,218 18,123
Other assets 557,841 496,534
------------ ------------
Total assets $102,735,540 $ 91,851,669
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 12,847,628 $ 10,680,285
Savings and interest bearing demand deposits 28,017,135 24,127,903
Time deposits 52,001,584 47,486,855
------------ ------------
Total deposits $ 92,866,347 $ 82,295,043
Interest expense payable 144,340 140,899
Accounts payable and accrued expenses 379,768 401,395
Capital lease payable 221,189 224,219
------------ ------------
Total liabilities $ 93,611,644 $ 83,061,556
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, Series A, 5% non-cumulative, no par
value: 1,000,000 shares authorized and unissued - - - - - - - -
Common stock, $1 par value, 20,000,000 shares
authorized, 1999, 2,055,186 and 1998, 2,063,186 shares
issued and outstanding $ 2,055,186 $ 2,063,186
Capital surplus 7,799,764 7,849,522
Retained earnings (deficit) (651,018) (1,149,567)
Accumulated other comprehensive income (loss) (80,036) 26,972
------------ ------------
Total stockholders' equity $ 9,123,896 $ 8,790,113
------------ ------------
Total liabilities and stockholders' equity $102,735,540 $ 91,851,669
============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,536,894 $2,904,873 $1,822,599 $1,511,616
Interest on securities held to maturity
Interest taxable 125,392 64,976 58,098 39,017
Interest non-taxable 152 ---- 152 ----
Interest and dividends on securities available for sale:
Interest taxable 124,003 60,894 61,180 36,718
Interest non-taxable 6,052 ---- 4,886 ----
Dividends taxable 15,368 12,075 11,350 9,127
Interest on federal funds sold 170,525 168,711 80,941 98,582
---------- ---------- ---------- ----------
Total interest income $3,978,386 $3,211,529 $2,039,206 $1,695,060
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits $ 1,653,344 $ 1,322,525 $ 829,804 $ 701,054
Interest on leases payable 9,013 10,731 4,539 5,280
---------- ---------- ---------- ----------
Total interest expense $ 1,662,357 $ 1,333,256 $ 834,343 $ 706,334
---------- ---------- ---------- ----------
Net interest income $2,316,029 $ 1,878,273 $1,204,863 $ 988,726
Provision for loan losses 115,000 110,000 55,000 55,000
---------- ---------- ---------- ----------
Net interest income after provision for loan loss $2,201,029 $ 1,768,273 $1,149,863 $ 933,726
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts $ 372,901 $ 306,811 $ 192,164 $ 167,631
Commissions and fees 13,993 15,681 8,132 13,659
Other 27,723 57,387 15,227 3,089
---------- ---------- ---------- ----------
Total other income $ 414,617 $ 379,879 $ 215,523 $ 184,379
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits $ 922,794 $743,946 $ 463,613 $362,864
Net occupancy expense of premises 109,224 122,925 54,401 67,536
Furniture and equipment 186,065 186,039 99,955 92,185
Legal and professional 36,707 50,243 18,660 24,767
Stationery and supplies 79,140 45,828 45,808 20,508
Postage 55,864 45,612 28,348 28,299
Marketing 38,902 34,239 24,805 18,537
FDIC assessment 4,681 5,084 2,364 1,892
Directors' fees 44,600 43,160 19,500 19,400
ATM expenses 76,344 36,492 45,297 18,057
Overdraft charge-offs 58,544 21,257 38,902 5,160
Other operating expenses 237,977 222,438 127,557 120,022
---------- ---------- ---------- ----------
Total other expenses $1,850,842 $ 1,557,263 $ 969,210 $ 779,227
---------- ---------- ---------- ----------
Income before income taxes $ 764,804 $ 590,889 $ 396,176 $ 338,878
Provision for income tax expense (benefit) 266,255 (31,437) 134,115 10,424
---------- ---------- ---------- ----------
Net income $ 498,549 $ 622,326 $ 262,061 $ 328,454
========== ========== ========= ==========
Net income per share, basic $ .24 $ .30 $ .13 $ .16
========== ========== ========= ==========
Net income per share, assuming dilution $ .24 $ .29 $ .13 $ .16
========== ========== ========= ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION & SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
Accumulated
Retained Other Total
Common Capital Earnings Comprehensive Comprehensive Stockholders
Stock Surplus (Deficit) Income/(Loss) Income Equity
----- ------- --------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $2,055,983 $7,815,454 $(2,164,825) $ 4,802 $7,711,414
Comprehensive income:
Net income 622,326 $622,326 622,326
Other comprehensive income,
unrealized gain on
securities available for
sale 1,583 1,583 1,583
---------
Total comprehensive income $ 623,909
=========
Issuance of common stock -
exercise of stock options
(5,000 shares) 5,000 20,000 25,000
---------- ---------- ----------- ---------- ----------
Balance, June 30, 1998 $2,060,983 $7,835,454 $(1,542,499) $ 6,385 $8,360,323
========== ========== =========== ========== ==========
<CAPTION>
Accumulated
Retained Other Total
Common Capital Earnings Comprehensive Comprehensive Stockholders
Stock Surplus (Deficit) Income/(Loss) Income Equity
----- ------- --------- ------------- ------ ------
Balance, December 31, 1998 $2,063,186 $7,849,522 $(1,149,567) $ 26,972 $8,790,113
Comprehensive income:
Net income 498,549 $498,549 498,549
Other comprehensive income,
unrealized (loss) on
securities available for
sale (net of tax $55,126) (107,008) (107,008) (107,008)
---------
Total comprehensive income $391,541
=========
Issuance of common stock -
exercise of stock options
(500 shares) 500 2,000 2,500
Acquisition of common stock
(8,500 shares) (8,500) (51,758) (60,258)
---------- ---------- ----------- ---------- ----------
Balance, June 30, 1999 $2,055,186 $7,799,764 $ (651,018) $ (80,036) $9,123,896
========== ========== =========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
<TABLE>
MARATHON FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $498,549 $622,326
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization 30,557 27,206
Depreciation 116,567 142,397
Net discount accretion on securities (6,459) (1,009)
Provision for loan loss 55,000 110,000
Deferred tax (benefit) (31,067) (42,857)
Origination of loans available for sale (4,090,833) (3,071,950)
Proceeds from sale of loans available for sale 4,750,608 3,517,673
Changes in assets and liabilities:
(Increase) decrease in other assets (30,239) 44,279
(Increase) in accrued interest receivable (26,831) (40,416)
(Decrease) in accounts payable and accrued expenses (21,627) (151,905)
Increase in interest expense payable 3,441 19,961
(Increase) in other real estate (165,095) ----
----------- ------------
Net cash provided by operating activities $1,082,571 $1,175,705
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities on securities held to maturity 1,102,889 $ 310,367
Proceeds from maturities on securities available for sale 216,983 ----
Purchase of securities available for sale (666,920) (1,154,650)
Purchase of securities held to maturity (150,000) (1,407,263)
Net (increase) in loans (7,536,124) (8,101,952)
Purchase of bank premises and equipment (49,809) (277,476)
----------- ------------
Net cash used in investing activities $(7,082,981) $(10,630,974)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts and savings accounts $ 6,056,575 $ 6,063,580
Net increase in certificates of deposits 4,514,729 6,487,275
Principal payments on capital lease payable (3,030) (19,251)
Proceeds from issuance of common stock 2,500 25,000
Purchase of common stock (60,258) ----
----------- ------------
Net cash provided by financing activities $10,510,516 $12,556,604
----------- ------------
Increase in cash and cash equivalents $4,510,106 $3,101,335
Beginning 12,814,428 7,047,382
----------- ------------
Ending $17,324,534 $10,148,717
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,658,916 $1,313,295
=========== ============
Income taxes $ 82,516 $ 11,420
=========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Unrealized gain/(loss) on securities available for sale $ 162,134 $ 1,583
=========== ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
6
<PAGE>
MARATHON FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of June 30, 1999 and December 31, 1998, and the result of operations
and cash flows for the six months ended June 30, 1999 and 1998. The
statements should be read in conjunction with the Notes to Financial
Statements included in the Company's Annual Report for the year ended
December 31, 1998.
2. The results of operations for the six month period ended June 30, 1999
and 1998 are not necessarily indicative of the results to be expected
for the full year.
3. Securities held to maturity and available for sale as of June 30, 1999
and December 31, 1998 are:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Held to Maturity Amortized Cost Amortized Cost
-------------- --------------
<S> <C> <C>
US treasury securities & obligations of
US government corporations & agencies $3,797,590 $4,899,237
Obligations of state and political
Subdivisions 250,742 100,840
---------- ----------
$4,048,332 $5,000,077
========== ==========
<CAPTION>
Fair Value Fair Value
---------- ----------
US treasury securities & obligations of
US government corporations & agencies $3,732,065 $4,936,539
Obligations of state and political
Subdivisions 251,419 104,262
---------- ----------
$3,983,484 $5,040,801
========== ==========
<CAPTION>
June 30, 1999 December 31, 1998
Available for Sale Amortized Cost Amortized Cost
------------------ -------------- --------------
US treasury securities & obligations of
US government corporations & agencies $4,268,008 $4,420,515
Mortgage backed securities 17,227 20,392
Obligations of state & political subdivisions 568,400 ----
Other securities 577,450 479,800
---------- ----------
$5,431,085 $4,920,707
========== ==========
<CAPTION>
Fair Value Fair Value
---------- ----------
US treasury securities & obligations of
US government corporations & agencies $4,160,998 $4,460,218
Mortgage backed securities 18,378 21,555
Obligations of state & political 552,991 ----
subdivisions 577,450 479,800
---------- ----------
Other securities
$5,309,817 $4,961,573
========== ==========
</TABLE>
7
<PAGE>
4. The consolidated entity's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Commercial $40,423,850 $35,388,441
Real estate-mortgage 13,151,856 11,173,003
Real estate-construction 8,395,850 7,472,110
Installment loans to individuals 10,744,712 11,786,311
----------- -----------
$72,716,268 $65,819,865
Less: allowance for loan losses 804,758 754,597
----------- -----------
Loans, net $71,911,510 $65,065,268
=========== ===========
The company had non-accrual loans, which were excluded from the
impaired loan disclosure under FASB 114, which amounted to $151,549 on
June 30, 1999 and $233,200 on December 31, 1998.
5. Reserve for Loan Losses:
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Balance, beginning $754,597 $576,497
Provision charged to operating expense 115,000 285,000
Recoveries 16,365 44,211
Loan losses charged to the allowance (81,204) (151,111)
-------- ---------
Balance, ending $804,758 $754,597
======== ========
6. Weighted average shares outstanding computation
The following shows the weighted average number of shares used in
computing basic earnings per share and the effect on weighted average
number of shares of diluted potential common stock.
<CAPTION>
6/30/99 6/30/98
------- -------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
Basic earnings per share 2,060,097 $ .24 2,056,588 $ .30
====== ======
Effect of dilutive securities:
Stock options 38,167 58,004
--------- ------ ---------
Diluted earnings per share 2,098,264 $ .24 2,114,592 $ .29
========= ====== ========= ======
</TABLE>
7. New Accounting Pronouncements
In October 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an
amendment of FASB Statement No. 65." FASB Statement No. 65, as amended,
requires that, after securitization of a mortgage loan held for sale,
an entity engaged in mortgage banking activities classify the resulting
mortgage-backed security as a trading security. This Statement further
amends Statement No. 65 to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold
those investment. This Statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a
mortgage banking enterprise with the subsequent accounting for
securities retained after the securitization of other types of assets
by a non-mortgage banking enterprise. This Statement is effective
beginning in 1999. The effect of this Statement on the Corporation's
consolidated financial statements is not expected to be material.
8
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning
of any fiscal quarter after its issuance. The Bank has not determined
whether to adopt the new statement early. The Statement will require
the Bank to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
Because the Bank does not employ such derivative instruments,
management does not anticipate that the adoption of the new Statement
will have any effect on the Bank's earnings or financial position.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. The Corporation is a holding company for
the Bank and is not directly engaged in the operation of any other
business.
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
(with the exception of 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
for household, family and other consumer expenditures.
Total Assets
Total assets for the first six months ending June 30, 1999 increased
$10,883,871 or 11.8% since December 31, 1998. This increase in total
assets resulted from a $6,846,242 or 10.5% increase in net loans, an
increase in federal funds sold of $3,115,000 or 37.6% and a decrease of
$603,501 or 6.1% in securities. This equates to an increase in earning
assets of $9,332,847 or 11.1% in the six months ending June 30, 1999.
Allowance for Loan Losses
The allowance for loan losses, as of June 30, 1999, was $804,758. This
is an increase of $50,161 or 6.6% since December 31, 1998. This gives
the bank a 1.10% allowance for loan losses to total loans. Management
has completed an analysis on the reserve and feels the reserve is
adequate.
10
<PAGE>
Liabilities
Total deposits for the six months ending June 30, 1999, increased
$10,571,304 or 12.8% since December 31, 1998. Non-interest bearing
deposits increased by $2,167,343 or 20.3% and savings and interest
bearing deposits increased by $3,889,232 or 16.1%.
Stockholders' Equity
Total equity has increased by $333,782 or 3.8% since December 31, 1998.
The increase was due to a first half profit of $498,549, which was
reduced by an increase in unrealized losses on securities available for
sale of $101,008 net of tax. An additional $2,500 of capital was raised
through the exercise of stock options equating to 500 additional shares
of common stock. During the first half the Corporation repurchased
8,500 shares of common stock for $60,258 under the guidelines approved
by the Board of Directors. The primary capital to assets ratio is 8.9%.
Interest Income
Interest income totaled $3,978,386 for the six months ending June 30,
1999, $766,857 or 23.9% higher than the six months ending June 30,
1998. This is a direct result of the increase in earning assets, which
increased the interest and fee income.
Interest Expense
Total interest expense for the six months ending June 30, 1999 was
$1,662,357, $329,101 or 24.7% higher than the six months ending June
30, 1998. Interest on deposits increased by $330,819 or 25.0% over the
same period in 1998. This was the result of an overall increase in
deposits. Interest on capital leases for the quarter was $9,013, $1,718
or 16.0% less than the same period in 1998.
Net Interest Income
Net interest income for the six months ending June 30, 1999 was
$2,316,029, $437,756 or 23.3% higher than the six months ending June
30, 1998. This was the result of an increase in our earning assets.
11
<PAGE>
Other Income
Total other income for the six months ending June 30, 1999 was
$414,617, $34,738 or 9.1% higher than the same period in 1998. This is
a result of an increase in the demand deposit accounts, which has
increased our service charge income.
Other Expenses
Total other expenses for the six months ending June 30, 1999 were
$1,850,842, $293,579 or 18.9% higher than the six months ending June
30, 1998. Salary expense increased $178,848 or 24.0%, postage expense
increased $10,252 or 22.5%, furniture and equipment expense remained
virtually level, ATM expense increased $39,852 or 109.2% and stationery
and supplies increased $33,312 or 72.7% over the same period in 1998.
Director's fees were $1,440, an increase of 3.3%. Overdraft charge-offs
reflect an increase of $37,287 or 175.4% as a result of the write-off
of some demand deposits accounts due to the return of checks taken on
deposit. Legal and professional fees decreased $13,536 or 26.9%. The
net increase in other expenses is in part a result of additional
staffing to handle the growth of the bank and the costs involved in
processing an increased number of accounts and transactions.
Net Income
Net income for the six months ending June 30, 1999 was $498,549
compared to $622,326 in the same period in 1998. This is a decrease of
$123,777 or 19.9% over the same period of 1998. The reduction in net
income was the result of the Corporation having to recognize income tax
expense for the first time due to the elimination of net operating loss
carryforwards during 1999. The provision for income taxes expense
increased $297,692 from a $31,437 benefit in 1998 to an expense of
$266,255 in 1999.
Liquidity and Capital Resources
The liquidity position of the bank is less than its peers because of a
loan to deposit ratio of 78.3%. In order to maximize earning assets,
management has exceeded the bank's policy by maintaining a higher ratio
than that of its peers. This policy exception has been approved by the
Board of Directors. As the core deposits of the bank continue to
increase, this ratio has become more in line with that of the industry.
12
<PAGE>
Year 2000 Issue
The Year 2000 issue involves the risk that computer programs and
computer systems may not be able to perform without interruption into
the Year 2000. If computer systems do not correctly recognize the date
change from December 31, 1999 to January 1, 2000, computer applications
that rely on the date field could fail or create erroneous results.
Such erroneous results could affect interest payments or due dates and
could cause the temporary inability to process transactions and to
engage in ordinary business activities. The failure of the Corporation,
its suppliers, and its borrowers to address the Year 2000 issue could
have a material adverse effect on the Corporation's financial
condition, results of operations, or liquidity.
In 1997, the Corporation initiated a review and assessment of all
hardware and software. Based on this assessment, the Corporation's
mainframe hardware and banking software was replaced in 1998 to be Year
2000 compliant. However, testing is required to confirm this. Testing
began in the third quarter of 1998 and was completed in the first
quarter of 1999. To date, the Corporation has expended approximately
$220,000 related to the assessment of and efforts in connection with
the Year 2000 issue. Remaining expenditures are not expected to have a
material effect on the Corporation's consolidated financial statements.
The Corporation has continuing formal communications with significant
loan and deposit customers to determine the extent to which the
Corporation is vulnerable to those third parties' failure to remedy
their own Year 2000 issue.
Although the Corporation has no reason to conclude that a failure will
occur, there can be no assurances that there will be no problems
related to the Year 2000. This is an unprecedented event. While it is
impossible to quantify the impact, the most reasonably likely
worst-case scenario would entail diminishment of service levels,
customer inconveniences, financial losses, legal liability and similar
risks.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession - N/A
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. Instruments defining the rights of security holders, including
indentures - N/A
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 16, 1996 (File No.
333-08995).
Exhibit 10.4 Lease between The Marathon Bank and the Lessor,
James Butcher 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 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,
incorporated herein by reference to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997 (File
No. 0-18868).
Exhibit 10.6 1996 Long-Term Incentive Plan incorporated herein
by reference as to the Corporation's Proxy Statement for 1997
Annual Meeting of Stockholders filed April 7, 1997.
14
<PAGE>
11. Statement re computation of per share earnings
15. Letter re unaudited interim financial information - N/A
18. Letter re change in accounting principles - N/A
19. Report furnished to security holders - N/A
22. Published report regarding matters submitted to vote of security
holders - N/A
23. Consents of experts and counsel - N/A
24. Power of attorney - N/A
27. Financial Data Schedule
99. Additional Exhibits - None
(b) Reports on Form 8-K - None
15
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARATHON FINANCIAL CORPORATION
DATE: June 30, 1999 /s/ Donald L. Unger
-----------------------------------
DONALD L. UNGER
PRINCIPAL EXECUTIVE OFFICER
DATE: June 30, 1999 /s/ Frederick A. Board
-----------------------------------
FREDERICK A. BOARD
PRINCIPAL FINANCIAL OFFICER
16
EXHIBIT 11
<TABLE>
MARATHON FINANCIAL CORPORATION
Computation of Weighted Average Shares Outstanding and Earnings Per Share
Shares Outstanding End of Month - 2nd Quarter
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
April 2,060,686 2,055,983
May 2,057,137 2,055,983
June 2,055,186 2,059,610
--------- ---------
6,173,009 6,171,576
Divided by 3 months 3 months
-------- --------
Weighted Shares Outstanding 2,057,670 2,057,192
Add Dilutive Shares 32,376 55,328
2,090,046 2,112,520
========= =========
Net Income $262,061 $328,454
======== ========
Net Income Per Share, Basic
And Assuming Dilution* $ .13 $ .16
======== ========
Shares Outstanding End of Month - Year-to-date
<CAPTION>
1999 1998
---- ----
January 2,063,605 2,055,983
February 2,063,365 2,055,983
March 2,060,602 2,055,983
April 2,060,686 2,055,983
May 2,057,137 2,055,983
June 2,055,186 2,059,610
--------- ---------
12,360,581 12,339,525
Divided by 6 months 6 months
-------- --------
Weighted Shares Outstanding 2,060,097 2,056,588
Add Dilutive Shares 38,167 58,004
2,098,264 2,114,592
========= =========
Net Income $498,549 $622,326
======== ========
Net Income Per Share, Basic $ .24 $ .30
======== ========
Net Income Per Share, Assuming Dilution $ .24 $ .29
======== ========
</TABLE>
* See disclosure of computation at footnote #6 of financial statements
incorporated herein.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,928,534
<INT-BEARING-DEPOSITS> 27,260
<FED-FUNDS-SOLD> 11,396,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,309,817
<INVESTMENTS-CARRYING> 4,048,332
<INVESTMENTS-MARKET> 3,983,484
<LOANS> 71,911,510
<ALLOWANCE> 804,758
<TOTAL-ASSETS> 102,735,540
<DEPOSITS> 92,866,347
<SHORT-TERM> 0
<LIABILITIES-OTHER> 524,108
<LONG-TERM> 221,189
0
0
<COMMON> 2,055,186
<OTHER-SE> 7,068,710
<TOTAL-LIABILITIES-AND-EQUITY> 102,735,540
<INTEREST-LOAN> 3,536,894
<INTEREST-INVEST> 270,967
<INTEREST-OTHER> 170,525
<INTEREST-TOTAL> 3,978,386
<INTEREST-DEPOSIT> 1,653,344
<INTEREST-EXPENSE> 1,662,357
<INTEREST-INCOME-NET> 2,316,029
<LOAN-LOSSES> 115,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,850,842
<INCOME-PRETAX> 764,804
<INCOME-PRE-EXTRAORDINARY> 764,804
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498,549
<EPS-BASIC> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 5.32
<LOANS-NON> 151,549
<LOANS-PAST> 129,688
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 754,597
<CHARGE-OFFS> 81,204
<RECOVERIES> 16,365
<ALLOWANCE-CLOSE> 804,758
<ALLOWANCE-DOMESTIC> 804,758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
