10QSB 1 qsb601.txt 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 ----------------------- 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 --------------------- MARATHON BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 95-3770539 ---------------------------------------------- ------------------------- (State or other jurisdiction of incorporation) (IRS Employer Identification No) 11150 West Olympic Boulevard, Los Angeles, CA 90064 ----------------------------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 996-9100 ----------------- 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, ----------------- ------------------ ASSETS 2001 2000 ----------------- ------------------ 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 ----------------- ------------------ 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) ----------------- ------------------ TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . 11,030,000 10,455,000 ----------------- ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . $ 98,856,000 $ 92,916,000 ================= ==================
Marathon Bancorp and Subsidiary Consolidated Statements of Operations
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- -------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- --------------- 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 ---------------- ---------------- 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 ---------------- ---------------- 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) ---------------- ---------------- 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 ---------------- ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . . . . . . 5,306,000 8,903,000 ---------------- ---------------- 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 ---------------- ---------------- 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 -------------- 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