-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F7fNxyRuEd3m3GFuXQzM2ldKouihV6mkm1/vbHAi9VMgxkPDWXgAncDfY3XlGSSS SEfTtvqHbBWUuYtqh8+7jw== 0000718446-02-000007.txt : 20020812 0000718446-02-000007.hdr.sgml : 20020812 20020812171642 ACCESSION NUMBER: 0000718446-02-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARATHON BANCORP CENTRAL INDEX KEY: 0000718446 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953770539 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12510 FILM NUMBER: 02727584 BUSINESS ADDRESS: STREET 1: 11150 W OLYMPIC BL CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3109969100 MAIL ADDRESS: STREET 1: 11150 W OLYMPIC BLVD CITY: LOS ANGELES STATE: CA ZIP: 90064 10QSB 1 junqsb02.txt JUNE 2002 10-QSB 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, 2002 ----------------------- 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) (I.R.S. 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, 2002, there were 3,853,019 shares of no par Common Stock issued and outstanding. 1
Consolidated Statements of Financial Condition Marathon Bancorp and Subsidiary JUNE 30, December 31, ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 2001 ----------------- ----------------- Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . . $ 6,883,000 $ 4,291,000 Federal Funds Sold. . . . . . . . . . . . . . . . . . . . . . . . . . 7,390,000 2,905,000 ----------------- ----------------- TOTAL CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . 14,273,000 7,196,000 Investment Securities Securities Available for Sale. . . . . . . . . . . . . . . . . . . 15,297,000 16,368,000 Securities Held to Maturity. . . . . . . . . . . . . . . . . . . . 11,704,000 12,918,000 ----------------- ----------------- TOTAL INVESTMENT SECURITIES. . . . . . . . . . . . . . . . . . 27,001,000 29,286,000 Federal Home Loan Bank and Federal Reserve Bank Stock, at cost. . . . 496,000 426,000 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,380,000 60,988,000 Less Allowance for Credit Losses . . . . . . . . . . . . . . . . . ( 1,246,000) ( 1,082,000) ----------------- ----------------- NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . 63,134,000 59,906,000 Premises and Equipment. . . . . . . . . . . . . . . . . . . . . . . . 194,000 231,000 Cash Surrender Value of Life Insurance. . . . . . . . . . . . . . . . 3,954,000 3,855,000 Accrued Interest and Other Assets . . . . . . . . . . . . . . . . . . 1,469,000 1,439,000 ----------------- ----------------- TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $ 110,521,000 $ 102,339,000 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-Bearing Demand . . . . . . . . . . . . . . . . . . . . $ 37,951,000 $ 27,859,000 Interest-Bearing Demand. . . . . . . . . . . . . . . . . . . . . . 3,908,000 3,504,000 Money Market and Savings . . . . . . . . . . . . . . . . . . . . . 38,103,000 38,211,000 Time Deposits Under $100,000 . . . . . . . . . . . . . . . . . . . 6,533,000 6,963,000 Time Deposits $100,000 and Over. . . . . . . . . . . . . . . . . . 10,712,000 13,111,000 ----------------- ----------------- TOTAL DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . 97,207,000 89,648,000 Accrued Interest and Other Liabilities. . . . . . . . . . . . . . . . 798,000 899,000 Federal Home Loan Bank Advance. . . . . . . . . . . . . . . . . . . . - - ----------------- ----------------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 98,005,000 90,547,000 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, Issued and Outstanding: 3,853,019 in 2002 and 3,849,819 in 2001 13,714,000 13,713,000 Accumulated Deficit. . . . . . . . . . . . . . . . . . . . . . . . ( 1,322,000) ( 2,168,000) Accumulated Other Comprehensive Income - Net Unrealized Gains (Losses) on Securities Available for Sale. . . . . . . . 124,000 247,000 ----------------- ----------------- TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . 12,516,000 11,792,000 ----------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . . . $ 110,521,000 $ 102,339,000 ================= =================
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Consolidated Statements of Operations Marathon Bancorp and Subsidiary Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 -------------------- ------------------ ----------- -------------- INTEREST INCOME Interest and Fees on Loans . . . . . . . . . . . . . $ 1,264,000 $ 1,327,000 2,489,000 2,589,000 Interest on Investment Securities - Taxable. . . . . 358,000 320,000 732,000 713,000 Other Interest Income. . . . . . . . . . . . . . . . 29,000 47,000 49,000 129,000 -------------------- ------------------ ----------- -------------- TOTAL INTEREST INCOME. . . . . . . . . . . . . . . 1,651,000 1,694,000 3,270,000 3,431,000 INTEREST EXPENSE Interest on Demand Deposits. . . . . . . . . . . . . 9,000 8,000 19,000 16,000 Interest on Money Market and Savings . . . . . . . . 178,000 219,000 359,000 464,000 Interest on Time Deposits. . . . . . . . . . . . . . 118,000 280,000 254,000 607,000 Other Interest Expense . . . . . . . . . . . . . . . 3,000 - 4,000 2,000 -------------------- ------------------ ----------- -------------- TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . 308,000 507,000 636,000 1,089,000 -------------------- ------------------ ----------- -------------- NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . 1,343,000 1,187,000 2,634,000 2,342,000 Provision for Credit Losses. . . . . . . . . . . . . . . 20,000 25,000 50,000 25,000 -------------------- ------------------ ----------- -------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES . . . . . . . . . . . . . 1,323,000 1,162,000 2,584,000 2,317,000 NONINTEREST INCOME Service Charges and Fees on Deposits . . . . . . . . 135,000 74,000 267,000 160,000 Dividends on Cash Surrender Value of Life Insurance. 57,000 54,000 113,000 105,000 Gain (Loss) Sale of Securities . . . . . . . . . . . - - 62,000 4,000 Other Noninterest Income . . . . . . . . . . . . . . 24,000 18,000 54,000 65,000 -------------------- ------------------ ----------- -------------- TOTAL NONINTEREST INCOME . . . . . . . . . . . . . 216,000 146,000 496,000 334,000 NONINTEREST EXPENSE Salaries and Employee Benefits . . . . . . . . . . . 551,000 547,000 1,124,000 1,134,000 Occupancy Expenses . . . . . . . . . . . . . . . . . 132,000 144,000 274,000 284,000 Furniture and Equipment. . . . . . . . . . . . . . . 38,000 22,000 64,000 46,000 Professional Services. . . . . . . . . . . . . . . . 32,000 29,000 74,000 59,000 Business Promotion . . . . . . . . . . . . . . . . . 12,000 25,000 18,000 41,000 Stationery and Supplies. . . . . . . . . . . . . . . 13,000 14,000 26,000 24,000 Data Processing Services . . . . . . . . . . . . . . 77,000 68,000 149,000 139,000 Customer Related Expenses. . . . . . . . . . . . . . 58,000 71,000 119,000 155,000 Insurance and Assessments. . . . . . . . . . . . . . 42,000 35,000 73,000 70,000 Legal Fees and Costs . . . . . . . . . . . . . . . . 4,000 83,000 58,000 108,000 Other Expenses . . . . . . . . . . . . . . . . . . . 79,000 67,000 156,000 137,000 -------------------- ------------------ ----------- -------------- TOTAL NONINTEREST EXPENSE. . . . . . . . . . . . . 1,038,000 1,105,000 2,135,000 2,197,000 INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 501,000 203,000 945,000 454,000 Income Taxes (Benefit). . . . . . . . . . . . . . . . 54,000 ( 3,000) 99,000 ( 5,000) -------------------- ------------------ ----------- -------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 447,000 $ 206,000 $ 846,000 $ 459,000 ==================== ================== =========== ============== Per Share Data: Net Income - Basic. . . . . . . . . . . . . . . . . $ 0.12 $ 0.05 $ 0.22 $ 0.12 Net Income - Diluted. . . . . . . . . . . . . . . . $ 0.11 $ 0.05 $ 0.21 $ 0.12 Return on Average Assets . . . . . . . . . . . . . . . . 1.64% 0.89% 1.84% 0.99% Return on Average Equity . . . . . . . . . . . . . . . . 14.68% 7.55% 14.13% 8.59%
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Consolidated Statements of Cash Flows Marathon Bancorp and Subsidiary Three Months Ended June 30, --------------------------------- 2002 2001 --------------- ---------------- OPERATING ACTIVITIES Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 846,000 $ 459,000 Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Gain on sale of Investment Securities . . . . . . . . . . . . 62,000 - Depreciation and Amortization . . . . . . . . . . . . . . . . 60,000 58,000 Provision for Credit Losses . . . . . . . . . . . . . . . . . 50,000 25,000 Net Amortization of Premiums and Discounts on Investment Securities . . . . . . . . . . . . . . . . . ( 27,000) 36,000 Net Change in Deferred Loan Origination Fees. . . . . . . . . 42,000 ( 163,000) Net Increase in Cash Surrender Value of Life Insurance. . . . ( 99,000) ( 92,000) Net Change in Accrued Interest, Other Assets and Other Liabilities . . . . . . . . . . . . . . . . . . ( 131,000) 90,000 --------------- ---------------- NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . 803,000 413,000 INVESTING ACTIVITIES Net Change in Interest-Bearing Deposits with Financial Institutions - - Purchases of Available for Sale Securities . . . . . . . . . . . . ( 2,505,000) ( 9,508,000) Purchases of Held to Maturity Securities. . . . . . . . . . . . . . ( 500,000) ( 3,733,000) Proceeds from Maturities of Available for Sale Securities . . . . . 1,856,000 11,500,000 Proceeds from Maturities of Held to Maturity Securities . . . . . . 2,138,000 5,608,000 Proceeds from Sale of Available-for-Sale Securities . . . . . . . . 1,138,000 - Purchase of Federal Home Loan & Federal Reserve Bank Stock. . . . . ( 70,000) ( 32,000) Net Change in Loans . . . . . . . . . . . . . . . . . . . . . . . . ( 3,320,000) ( 10,697,000) Purchase of Life Insurance. . . . . . . . . . . . . . . . . . . . . - - Purchases of Furniture, Fixtures and Equipment. . . . . . . . . . . ( 23,000) ( 25,000) --------------- ---------------- NET CASH (USED) BY INVESTING ACTIVITIES. . . . . . . . . . . . ( 1,286,000) ( 6,887,000) FINANCING ACTIVITIES Net Change in Demand Deposits, Money Market and Savings . . . . . . 10,388,000 5,298,000 Net Change in Time Deposits . . . . . . . . . . . . . . . . . . . . ( 2,829,000) 1,777,000 Net Change in Federal Home Loan Bank Advance. . . . . . . . . . . . - ( 1,800,000) Proceeds from Exercise of Stock Options . . . . . . . . . . . . . . 1,000 31,000 --------------- ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . . . 7,560,000 5,306,000 --------------- ---------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 7,077,000 ( 1,168,000) Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . 7,196,000 10,940,000 --------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 14,273,000 $ 9,772,000 =============== ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 776,000 $ 1,127,000 Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,000 $ 23,000
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Consolidated Statement of Equity Marathon Bancorp and Subsidiary Accumulated Common Shares Other -------------------------------- Comprehensive Accumulated Comprehensive Shares Amount Income Deficit Income Total --------------- --------------- ------------- -------------- ----------- ------------ BALANCE, DECEMBER 31, 2001. 3,852,819 $ 13,713,000 $ (2,168,000) $ 247,000 $11,792,000 Exercise of Stock Options . 200 1,000 1,000 COMPREHENSIVE INCOME: Net Income. . . . . . . . $ 846,000 846,000 846,000 Net Change in Unrealized Gain (Loss) on Available- for-Sale Securities. . . . (123,000) (123,000) (123,000) --------------- TOTAL COMPREHENSIVE INCOME. $ 723,000 =============== BALANCE, JUNE 30, 2002. . . 3,853,019 $ 13,714,000 $ (1,322,000) $ 124,000 $12,516,000 =============== =============== ============= =========== ============
5 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 2001 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, 2002 and December 31, 2001, results of operations and changes in cash flows for the six-month period ended June 30, 2002 and 2001. The results of operations for the three-month period and six-month period ended June 30, 2002 are not necessarily indicative of what the results of operations will be for the full year ending December 31, 2002. (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 3,853,019 and 3,849,819 respectively for the three-month period ended June 30, 2002 and June 30, 2001 and 3,852,933 and 3,846,014 for the six-month period ending June 30, 2002 and June 30, 2001. The diluted weighted average number of shares for the three-month period ended June 30, 2002 and June 30, 2001 respectively were 3,977,187 and 3,854,495 and for the six-month period ending June 30, 2002 and June 30, 2001 were 3,953,032 and 3,850,690. 6 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 2001 Annual Report on Form 10-KSB. FINANCIAL HIGHLIGHTS OVERVIEW Marathon Bancorp had one of its most profitable quarters with net income of $447,000, an increase of 117% over the $206,000 posted in the second quarter of 2001. Profits for the six months ended June 30, 2002 improved 84% to $846,000 and increased $387,000 over the $459,000 earned in the first six months of 2001. Basic earnings per share for the second quarter were $0.12 compared to $0.05 earned in the second quarter of 2001 and the six month basic earnings per share for 2002 were $0.22 compared to $0.12 for the same period in 2001. Assets grew by $8,182,000 from yearend 2001 to June 30, 2002 while loans increased 5.6% or $3,392,000 for the same period. Deposits increased $7,559,000 since yearend 2002 with non-interest deposits on the increase and interest-bearing deposits declining. RESULTS OF OPERATIONS Net Interest Income Net interest income increased for both the three-month period and six-month period ending June 30, 2002. For the second quarter period net interest income grew $156,000 or 13.1%. Interest income was maintained, even though interest rates declined, by an increase in the loan portfolio that generated a higher yield than investments. Also an increase in the size of the investment portfolio increased the interest income on investment securities. A decrease in the interest paid on deposits was the main factor in increasing net interest income. Interest expense declined $199,000 or 64.6% for the second quarter of 2002 compared to the second quarter of 2001. Declining interest rates and a reduction in certificates of deposits contributed to the drop in cost of funds. The net interest margin for the second quarter of 2002 was 5.39% compared to 5.66% for the second quarter of 2001. For the six-month period ending June 30, 2002 net interest income increased $292,000 or 12.5% over the first six months of 2001. Although interest income decreased by 4.7% or $161,000, interest expense declined by $453,000 or 41.6% generating the increase in net interest income. The largest decline in interest expense was in the interest paid on time certificates of deposit. Net interest margin for the six months ending June 30, 2002 was 5.43% compared to 5.62% for the first six months of 2001. Noninterest Income For the second quarter of 2002 noninterest income increased by $70,000 or 48.0% over the same period of 2001. The large increase is due to an increase in the service charges and fees collected on deposit accounts. Other services charges and fees also rose with increased income generated from merchant discount revenue sharing. For the six-month period ended June 30, 2002 noninterest income rose $162,000 or 48.5% over the six-months ended June 30 2001. Service charges and fees on deposit accounts increased $107,000 and gain on sale of securities increased from $4,000 in the 2001 period to $62,000 in 2002. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS Noninterest Expense Noninterest expense decreased during the second quarter of 2002 by 6.1% when compared to the same period of 2001. Reductions in occupancy expense business promotion, customer related expenses and legal costs offset gains in human resources, insurance and data processing. Human resource costs increased with the rising costs of employee benefits and insurance costs were up with increased costs for workmen's compensation insurance. For the first six months of 2002 noninterest expense also decreased. Expenses declined $62,000 or 2.8% compared to the six-month period ended June 30, 2001. Human resource costs, occupancy, business promotion, customer costs and legal expenses declined. Banking equipment, equipment maintenance and professional services were areas where expenses increased. Provision for Credit Losses: Loans that the Bank classified as substandard or doubtful as of the end of the second quarter totaled $1,177,000 compared to $1,410,000 at December 31, 2001 Nonperforming loans, which consist of loans past due over 90 days plus loans on nonaccural, totaled $1,058,000 at June 30, 2002 compared to $1,151,000 at December 31, 2001. The Company does not currently have any other real estate owned but is in the process of legal settlement on a $1,000,000 loan that is in the nonaccrual total and where the company does not anticipate any a loss. The portfolio is analyzed for changes in the risk category ratings, criticized and classified loans, loan personnel, delinquency trends and general economic indicators. The risk aspects of the loan portfolio did not materially change during the first quarter but the size of the portfolio did increase. Loan portfolio increases came in the loans classified as low risk that did not require a large increase in the reserve for loan losses. The economic conditions appear to be improving and our classified loans and delinquencies have declined. We also use a number of different statistical assessments such as historical loss experience, migration analysis, trend analysis and peer comparison to determine the correct level of the reserve. During the quarter, the Bank had charge-offs of $16,000 and collected loan recoveries of $109,000. The Company made a provision to the reserve for credit losses of $20,000. The net change to the reserve for credit losses for the quarter was an increase of $113,000. The current reserve is $1,246,000, or 1.94% of outstanding loans. Based upon the factors previously discussed and management's assessment of the overall quality of the loan portfolio, management felt the current level in the reserve for credit losses was adequate at June 30, 2002. ASSETS AND LIABILITIES During the second quarter of 2002 the Company increased the asset base to over $110 million. Loans outstanding decreased from the first quarter but are still up 5.6% from yearend. Securities increased to $27,001,000 with the majority categorized in the available for sale portfolio for liquidity purposes. The Company increased the federal funds sold to $7,390,000 at June 30, 2002. Deposits increased to $97,207,000 up 8.4% from yearend December 31, 2001 and are up $10,247,000 or 11.8% from June 30, 2001. Almost all the growth has been in noninterest bearing demand deposits which has helped us to maintain a low cost of funds and offset the declining interest rates on the assets. The Company had no borrowed funds at June 30, 2002. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS The lease on the Company's head banking office and corporate space expires on August 31, 2002 and the Company has negotiated a five-year extension of its lease on the banking office and a two-year extension on the corporate office space. LIQUIDITY AND CAPITAL Asset/Liability Management Liquidity and asset/liability management is the responsibility of the Company's Asset/Liability Committee (ALCO). They are responsible for managing the risks associated with changing interest rates and their impact on earnings, as well as, the liquidity needs of the Company within the guidelines of policy. The ALCO monitors the Company's liquidity position continuously in relation to trends in loans and deposits, and relates the data to short and long term expectations. In order to serve customers effectively, funds must be available to meet credit needs as well as 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 liquid assets to deposits was 30.4% as of June 30, 2002 and the loan to deposit ratio was 66.2%. Interest rate risk management focuses on the maturity and repricing of interest-bearing 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 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 that provides for good earnings but acceptable interest rate risk. 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. Our Company is currently asset sensitive but we have decreased its overall asset sensitivity during the last two years and currently has a positive one-year cumulative gap as a percent of total assets at of 17.7%. Capital Shareholders' equity increased by $724,000, or 6.1% during the first six month's of 2002. Unrealized gain/loss on available-for-sale securities decreased $123,000, stock options exercised by employees were $1,000 and earnings for the period added $846,000. 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, 2002, the Bank had a risk based capital ratio of 15.9 percent, and a Tier 1 capital leverage ratio of 11.3 percent. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS FUTURE EVENTS As previously announced on May 14, 2002, the Company has entered into an agreement to merge with First Community Bancorp. A special meeting of shareholders has been scheduled for August 19, 2002 at which time shareholders will vote upon the proposed merger. First Community filed a registration statement with the Securities and Exchange Commission for the issuance of shares of common stock in connection with the proposed merger on June 28, 2002, and amended it on July 17, 2002. On July 19, 2002, a proxy statement-prospectus was mailed to Marathon's shareholders of record as of July 3, 2002. Registration Statement Investors and security holders are urged to read the proxy statement-prospectuses regarding the business combination transactions referred to in this press release because they contain important information. Investors and security holders may obtain free copies of the proxy statement-prospectus at the Securities and Exchange Commission's website at www.sec.gov. The proxy statement-prospectus may also be obtained for free from Marathon Bancorp by directing a request to: Marathon Bancorp, 11150 W. Olympic Boulevard, Los Angeles, CA 90064. Attention: Howard Stanke. Telephone: 310-996-9100. Management's discussion and analysis includes forward-looking statements that involve inherent risks and uncertainties and Marathon Bancorp cautions readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include economic conditions and competition in the geographic and business areas in which Marathon Bancorp operates, inflation, deflation, fluctuations in interest rates, legislation and governmental regulation. 10 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 As previously disclosed in a 8-K filing on May 14, 2002 the Company entered into an agreement to merge with First Community Bancorp. A special meeting of shareholders has been scheduled for August 19, 2002 at which time shareholders will vote upon the proposed merger. First Community filed a registration statement with the Securities and Exchange Commission for the issuance of shares of common stock in connection with the proposed merger on June 28, 2002, and amended it on July 17, 2002. On July 19, 2002, a proxy statement-prospectus was mailed to Marathon's shareholders of record as of July 3, 2002. Item 6. Exhibits and Reports on Form 8-K Exhibit 99. Certification of Chief Executive Officer and Chief Financial Officer 11 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 1, 2002 Craig D. Collette ------------------- Craig D. Collette President and Chief Executive Officer Howard J. Stanke ------------------ Howard J. Stanke Executive Vice President and Chief Financial Officer 12. Exhibit 99. MARATHON BANCORP Certification of Chief Executive Officer and Chief Financial Officer Regarding Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2002 Craig Collette and Howard Stanke, the Chief Executive Officer and Chief Financial Officer, respectively, of Marathon Bancorp (the "Company"), hereby certify that, to the best of their knowledge, based upon a review of the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2002 (the "Covered Report") and, except as corrected or supplemented in a subsequent covered report: ? the Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and ? the information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. In Witness Whereof, each of the undersigned has signed this Certification as of this August 12, 2002. Craig Collette Howard Stanke - -------------- ------------- Craig Collette Howard Stanke -----END PRIVACY-ENHANCED MESSAGE-----