UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10- QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission file number 0-12510
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MARATHON BANCORP
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(Exact name of registrant as specified in its charter)
California 95-3770539
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(State or other jurisdiction of incorporation) (IRS Employer Identification No)
11150 West Olympic Boulevard, Los Angeles, CA 90064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 996-9100
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
---
As of August 1, 2001, there were 3,852,819 shares of no par Common Stock
issued and outstanding.
Marathon Bancorp and Subsidiary
Consolidated Statements of Financial Condition
JUNE 30, December 31,
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ASSETS 2001 2000
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Cash and Due From Banks. . . . . . . . . . . . . . . . . . . . . $ 4,432,000 $ 3,675,000
Federal Funds Sold . . . . . . . . . . . . . . . . . . . . . . . 5,340,000 7,265,000
----------------- ------------------
TOTAL CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . 9,772,000 10,940,000
Interest -Bearing Deposits With Financial Institutions . . . . . - -
Investment Securities:
Securities Available for Sale . . . . . . . . . . . . . . . . 8,451,000 9,333,000
Securities Held to Maturity (Approx. market value:
2001 - $12,453,000; 2000 - $16,875,000): . . . . . . . . 12,271,000 15,207,000
----------------- ------------------
TOTAL INVESTMENT SECURITIES. . . . . . . . . . . . . . . 20,722,000 24,540,000
Federal Home Loan and Federal Reserve Bank stock, at cost. . . . 407,000 375,000
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,729,000 52,872,000
Less Allowance for Credit Losses. . . . . . . . . . . . . . . ( 1,063,000) ( 1,066,000)
----------------- ------------------
NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . 62,666,000 51,806,000
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . 230,000 263,000
Cash Surrender Value of Life Insurance . . . . . . . . . . . . . 3,759,000 3,667,000
Accrued Interest and Other Assets. . . . . . . . . . . . . . . . 1,300,000 1,325,000
----------------- ------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $ 98,856,000 $ 92,916,000
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing . . . . . . . . . . . . . . . . . . . . . $ 28,852,000 $ 29,900,000
Interest-Bearing. . . . . . . . . . . . . . . . . . . . . . . 58,108,000 49,985,000
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TOTAL DEPOSITS. . . . . . . . . . . . . . . . . . . . . . 86,960,000 79,885,000
Accrued Interest and Other Liabilities . . . . . . . . . . . . . 866,000 776,000
Federal Home Loan Bank Advance . . . . . . . . . . . . . . . . . - -
----------------- ------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 87,826,000 82,461,000
Shareholders' Equity
Preferred Shares - No Par Value, 1,000,000 Shares Authorized,
No Shares Issued and Outstanding . . . . . . . . . . . . . - -
Common Shares - No Par Value, 9,000,000 Shares Authorized,
3,849,819 and 3,838,019 Shares Issued and Outstanding at
June 30, 2001 and December 31, 2000, respectively. . . . . 13,706,000 13,675,000
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . ( 2,756,000) ( 3,215,000)
Accumulated Other Comprehensive Income - Net Unrealized
Gains (Losses) on Available-for-Sale Securities. . . . . . 80,000 ( 5,000)
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TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . 11,030,000 10,455,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . $ 98,856,000 $ 92,916,000
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Marathon Bancorp and Subsidiary
Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
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INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . . $ 1,327,000 $ 1,218,000 $ 2,589,000 $ 2,361,000
Interest on Investment Securities - Taxable. . . . . 320,000 345,000 713,000 629,000
Other Interest Income. . . . . . . . . . . . . . . . 47,000 105,000 129,000 193,000
--------------- --------------- --------------- ---------------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . 1,694,000 1,668,000 3,431,000 3,183,000
INTEREST EXPENSE
Interest on Demand Deposits. . . . . . . . . . . . . 8,000 8,000 16,000 16,000
Interest on Money Market and Savings . . . . . . . . 219,000 272,000 464,000 514,000
Interest on Time Deposits. . . . . . . . . . . . . . 280,000 256,000 607,000 495,000
Other Interest Expense . . . . . . . . . . . . . . . - - 2,000 1,000
TOTAL INTEREST EXPENSE. . . . . . . . . . . . . . 507,000 536,000 1,089,000 1,026,000
--------------- --------------- --------------- ---------------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . 1,187,000 1,132,000 2,342,000 2,157,000
Provision for Credit Losses. . . . . . . . . . . . . . . 25,000 30,000 25,000 60,000
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES. . . . . . . . . . 1,162,000 1,102,000 2,317,000 2,097,000
--------------- --------------- --------------- ---------------
NONINTEREST INCOME
Service Charges and Fees on Deposits . . . . . . . . 74,000 72,000 160,000 134,000
Dividends on Cash Surrender Value of Life Insurance. 54,000 51,000 105,000 94,000
Gain (Loss) Sale of Securities . . . . . . . . . . . - - 4,000 -
Other Noninterest Income . . . . . . . . . . . . . . 18,000 23,000 65,000 47,000
TOTAL NONINTEREST INCOME. . . . . . . . . . . . . 146,000 146,000 334,000 275,000
--------------- --------------- --------------- ---------------
NONINTEREST EXPENSE
Salaries and Employee Benefits . . . . . . . . . . . 547,000 498,000 1,134,000 999,000
Occupancy Expenses . . . . . . . . . . . . . . . . . 144,000 140,000 284,000 277,000
Furniture and Equipment. . . . . . . . . . . . . . . 22,000 23,000 46,000 50,000
Professional Services. . . . . . . . . . . . . . . . 29,000 36,000 59,000 59,000
Business Promotion and Donations . . . . . . . . . . 25,000 21,000 41,000 37,000
Stationery and Supplies. . . . . . . . . . . . . . . 14,000 12,000 24,000 25,000
Data Processing Services . . . . . . . . . . . . . . 68,000 82,000 139,000 155,000
Customer Related Expenses. . . . . . . . . . . . . . 71,000 81,000 155,000 155,000
Insurance and Assessments. . . . . . . . . . . . . . 35,000 37,000 70,000 74,000
Legal Fees and Costs . . . . . . . . . . . . . . . . 83,000 38,000 108,000 50,000
Net Operating Cost of Other Real Estate Owned. . . . - - - -
Other Expenses . . . . . . . . . . . . . . . . . . . 67,000 63,000 137,000 131,000
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . 1,105,000 1,031,000 2,197,000 2,012,000
--------------- --------------- --------------- ---------------
GAIN (LOSS) BEFORE INCOME TAXES. . . . . . . . . . . . . 203,000 217,000 454,000 360,000
Income Taxes (Benefit) . . . . . . . . . . . . . . . . . ( 3,000) ( 1,000) ( 5,000) ( 3,000)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 206,000 $ 218,000 $ 459,000 $ 363,000
=============== =============== =============== ===============
Per Share Data:
Net Income (Loss) - Basic . . . . . . . . . . . . $ 0.05 $ 0.06 $ 0.12 $ 0.09
Net Income (Loss) - Diluted . . . . . . . . . . . $ 0.05 $ 0.06 $ 0.12 $ 0.09
Book Value. . . . . . . . . . . . . . . . . . . . $ 2.87 $ 2.47
Return on Average Assets . . . . . . . . . . . . . . . . 0.89% 0.98% 0.99% 0.83%
Return on Average Equity . . . . . . . . . . . . . . . . 7.55% 9.39% 8.59% 7.85%
Marathon Bancorp and Subsidiary
Consolidated Statements of Cash Flows
2001 2000
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OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,000 $ 363,000
Adjustments to Reconcile Net Loss to Net Cash Provided
by Operating Activities:
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . 58,000 61,000
Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . 25,000 60,000
Net Amortization of Premiums and Discounts on Investment Securities 36,000 2,000
Net Change in Deferred Loan Origination Fees. . . . . . . . . . . . ( 163,000) 33,000
Net Increase in Cash Surrender Value of Life Insurance. . . . . . . ( 92,000) ( 82,000)
Net Change in Accrued Interest, Other Assets and Other Liabilities. 90,000 168,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . 413,000 605,000
INVESTING ACTIVITIES
Net Change in Interest-Bearing Deposits with
Financial Institutions . . . . . . . . . . . . . . . . . . . . . . . . - 100,000
Purchases of Available-for-Sale Securities . . . . . . . . . . . . . . . ( 9,508,000) ( 4,982,000)
Purchases of Held-to-Maturity Securities. . . . . . . . . . . . . . . . . ( 3,733,000) ( 4,502,000)
Proceeds from Maturities of Available-for-Sale Securities . . . . . . . . 11,500,000 7,000,000
Proceeds from Maturities of Held-to-Maturity Securities . . . . . . . . . 5,608,000 119,000
Redemption (Purchase) of Federal Home Loan & Federal Reserve Bank Stock . ( 32,000) 149,000
Net Change in Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 10,697,000) ( 1,628,000)
Purchase of Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . - ( 1,935,000)
Purchases of Premises and Equipment . . . . . . . . . . . . . . . . . . . ( 25,000) ( 30,000)
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NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . ( 6,887,000) ( 5,709,000)
FINANCING ACTIVITIES
Net Change in Demand Deposits, Money Market and Savings . . . . . . . . . 5,298,000 7,013,000
Net Change in Time Deposits . . . . . . . . . . . . . . . . . . . . . . . 1,777,000 3,747,000
Federal Home Loan Bank Advance. . . . . . . . . . . . . . . . . . . . . . ( 1,800,000) ( 1,875,000)
Proceeds from Exercise of Stock Options . . . . . . . . . . . . . . . . . 31,000 18,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . . . . . . 5,306,000 8,903,000
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . ( 1,168,000) 3,799,000
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . 10,940,000 8,891,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . $ 9,772,000 $ 12,690,000
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,127,000 $ 1,201,000
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,000 $ 8,600
Consolidated Statement of Equity
Marathon Bancorp and Subsidiary
Accumulated
Common Shares Other
------------------------------ Comprehensive Accumulated Comprehensive
Shares Amount Income Deficit Income Total
-------------- -------------- ------------- --------------- ----------- ----------
BALANCE, DECEMBER 31, 2000. 3,838,019 $ 13,675,000 $ (3,215,000) $( 5,000) $10,455,000
Exercise of Stock Options . 11,800 31,000 31,000
COMPREHENSIVE INCOME:
Net Income. . . . . . . . $ 459,000 459,000 459,000
Net Change in Unrealized
Gain (Loss) on Available-
for-Sale Securities. . . . 85,000 85,000 85,000
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TOTAL COMPREHENSIVE INCOME. $ 544,000
==============
Balance, June 30, 2001. . . 3,849,819 $ 13,706,000 $ (2,756,000) $ 80,000 $11,030,000
============== ============== ============= =========== ===========
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATIONS
The unaudited consolidated financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
footnotes normally required for complete financial disclosure. While the
Company believes that the disclosures presented are sufficient to make the
information not misleading, reference may be made to the consolidated financial
statements and notes thereto included in the Company's 2000 Annual Report on
Form 10-KSB.
The accompanying consolidated statements of financial condition and the related
consolidated statements of operations and cash flows reflect, in the opinion of
management, all material adjustments necessary for fair presentation of the
Company's financial position as of June 30, 2001 and December 31, 2000, results
of operations and changes in cash flows for the six-month period ended June 30,
2001 and 2000. The results of operations for the three-month period and
six-month period ended June 30, 2001 are not necessarily indicative of what the
results of operations will be for the full year ending December 31, 2001.
(2) EARNINGS PER SHARE (EPS)
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Accordingly, the basic weighted average number of shares used to compute the net
income per share were 3,849,819 and 3,837,019 respectively for the three-month
period ended June 30, 2001 and June 30, 2000 and 3,846,014 and 3,835,183 for the
six-month period ending June 30, 2001 and June 30, 2000. The dilution was not
enough to change the basic earnings per share in any period shown.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion is intended to provide additional information about
Marathon Bancorp (the Company), its financial condition and results of
operations, which is not otherwise apparent from the consolidated financial
statements. Since Marathon National Bank (the Bank) represents a substantial
portion of the Company's activities and investments, the following relates
primarily to the financial condition and operations of the Bank. It should be
read in conjunction with the Company's 2000 Annual Report on Form 10-KSB.
FINANCIAL HIGHLIGHTS OVERVIEW
The Company had a good second quarter of the year increasing assets to
$98,856,000, while earning $206,000, or $0.05 per share down slightly from the
$218,000 earned in the second quarter of 2000. The 2001 six-month earnings were
$459,000, or $0.12 per share, a 26% increase over the same period in 2000.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income continued to rise during the quarter to $1,187,000 an
increase of 5% over the second quarter of 2000. This came in the face of a
continuing decrease in interest rates brought on by the Federal Reserve Board
action. The Company compensated by increasing the loan portfolio and decreasing
Federal Funds sold and investment securities. Interest costs also declined due
to the decrease in rates paid on interest-bearing funds. The net interest margin
for the second quarter 2001 was 5.63% compared to 5.62% for the second quarter
of 2000.
The six-month net interest income improved by $185,000, or 9% over the first
six-months of 2000. The increase in the loan portfolio of 23% had the largest
impact on the net interest margin even though the overall rate of return on the
loan portfolio decreased with falling rates. The net interest margin for the
first half of 2001 was 5.61% compared to 5.47% in 2000. The increase in the
loan portfolio was funded through a reduction in investment securities portfolio
and an increase in money market deposits.
Noninterest Income
Total noninterest income for the second quarter of 2001 was the same as that
earned in the second quarter of 2000. Service charges on business checking
accounts increased as well as dividends on the cash surrender value of bank
owned life insurance policies, while other noninterest income decreased when
compared to last year.
For the six-month period, all segments of noninterest income increased which
reflected in an overall increase in noninterest income of $59,000 or 21% for
2001. Service charges on deposit accounts increased 19%, life insurance
dividends increased 12% and other noninterest income increased 38%.
Noninterest Expense
Noninterest expense for the second quarter of 2001 increased $74,000 or 7% over
the same period last year. Human resource costs were up, as well as,
advertising and legal fees. The Company has a real estate loan in the process
of foreclosure that is generating increased legal expenses that should be
recoverable in the future. Professional services, data processing, insurance
and customer related expenses declined from last year.
For the six-month period, noninterest expenses increased $185,000 or 9% over the
prior year. The increased costs were in human resources, occupancy, advertising
and legal fees. Equipment costs, data processing, insurance and office supplies
decreased from last year. The Company did local cable television advertising at
the end of the first quarter and the beginning of the second quarter.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Credit Losses:
Loans that the Bank classified as substandard or doubtful as of the end of the
second quarter totaled $2,168,000 compared to $2,173,000 at December 31, 2000.
Nonperforming loans, which consist of loans past due over 90 days plus loans on
nonaccural, totaled $1,046,000 at June 30, 2001 compared to $1,000,000 at
December 31, 2000. The Company does not currently have any other real estate
owned but is in the process of foreclosure on a $1,000,000 loan that is in the
nonaccrual total and well collateralized.
During the quarter, the Bank had charge-offs of $47,000 and collected loan
recoveries of $13,000. The Company made a provision to the reserve for credit
losses of $25,000. The net change to the reserve for credit losses for the
quarter was a decline of $9,000. Management did an assessment of the loan
portfolio, reviewed current economic conditions and looked at its own historic
losses and determined that the current level of the reserve was adequate. The
current reserve is $1,063,000, or 1.67% of outstanding loans.
ASSETS AND LIABILITIES
Assets increased substantially during the second quarter rising 8% from the
level at March 31, 2001 and reversing the slight decline in the first quarter
over yearend total. Asset growth was all in the loan portfolio which increased
by $10,857,000 or 21% from yearend levels. The southern California market has
not slowed down in loan demand. Single family home construction is still strong
and the Company is making real estate construction loans and commercial loans.
The strength in loan demand has helped keep the net interest margin of the
Company up and helped us maintain good profitability.
The investment portfolio was also restructured during the first half of the year
to remove calls and take advantage of higher rates before they fell further.
This has also helped us to maintain our margins.
A decrease in the investment portfolio through calls and maturities and a large
increase in deposits funded the growth in loan assets. Deposits have increased
$7,075,000, with the majority of the increase coming in our money market
investment account that pays interest rates equal to the accounts offered at the
investment banking firms. Operating activities also produced $413,000 of cash
during the first half of the year.
LIQUIDITY AND CAPITAL
Asset/Liability Management
Managing the risks associated with changing interest rates and their impact on
earnings, as well as, the liquidity needs of the Company is the responsibility
of the Asset/Liability Committee of the Bank.
Management continually monitors liquidity in relation to current and anticipated
levels of loans and deposits, and relates the data to short and long term
expectations. In order to serve customers effectively, funds need to be
available to meet their credit needs as well as their withdrawals of deposited
funds. Assets that are normally considered liquid are federal funds sold,
available for sale investment securities, cash and due from banks, and
securities purchased under agreements to resell. The ratio of short-term assets
to deposits was 21% at June 30, 2001 and the loan to deposit ratio was 71% up
from the first quarter and yearend. The Bank has not had to borrow during the
quarter to meet the loan funding needs.
Interest rate risk management focuses on the maturity and repricing of interest
earning assets in relationship to the interest bearing liabilities that fund
them. Net interest income can be vulnerable to fluctuations arising from a
change in the general level of interest rates to the extent that the average
yield on earning assets responds differently to such a change than does the
average cost of funds. The Company feels that we may still see a further drop
in the short-term interest rates in the third quarter 0f 2001, which may effect
the net interest margin.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company measures interest rate sensitivity by distributing the maturities
and repricing periods of assets and supporting funding liabilities into interest
sensitivity periods, summarizing interest rate risk in terms of the resulting
interest sensitivity gaps. A positive gap indicates that more interest
sensitive assets than interest sensitive liabilities will be repriced during a
specified period, while a negative gap indicates the opposite condition.
It is the Bank's policy to maintain an adequate balance of rate sensitive assets
to rate sensitive liabilities. Due to the fact that the Bank has a large
portfolio of noninterest bearing demand deposits the Company has historically
been asset sensitive with a positive gap. The Company's asset sensitivity has
been decreased by lengthening the maturities in the investment portfolio and
removing the short-term callable securities. The Company's cumulative gap as a
percent of total assets at June 30, 2001 was 9% down from the 21% reported at
December 31, 2000.
Capital
Shareholders' equity increased by $575,000 during the first six month's of 2001.
Stock options exercised by employees accounted for $31,000 of the increase.
The Bank is required to meet certain minimum risk-based capital guidelines and
leverage ratios promulgated by the bank regulatory authorities. The risk based
capital standards establish capital requirements that are more sensitive to risk
differences between various assets, consider off balance sheet activities in
assessing capital adequacy, and minimize the disincentives to holding liquid,
low risk assets. The leverage ratio consists of tangible Tier 1 capital divided
by average total assets.
The adequately capitalized total risk-based capital ratio required by the
federal regulators is 8.0 percent and the well-capitalized ratio is 10.0
percent. The Tier I capital to average assets (leverage ratio) required by the
federal regulators for adequately capitalized is 4.0 percent and 5.0 percent is
required to be well-capitalized. At June 30, 2001, the Bank had a risk based
capital ratio of 14.2 percent, and a Tier 1 capital leverage ratio of 11.7
percent.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARATHON BANCORP
Date: August 10, 2001 Craig D. Collette
-------------------
Craig D. Collette
President and Chief Executive
Officer
Howard J. Stanke
------------------
Howard J. Stanke
Executive Vice President and
Chief Financial Officer