Marathon Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the company’s fiscal first quarter of fiscal 2023. The request metadata says “2022 Q1,” but the filing itself covers the quarter ended September 30, 2022. Financial statements are unaudited.
Key financial metrics
| Metric | Quarter / period-end result | Comparison |
|---|---|---|
| Net interest income | $1.713 million | Up 2.6% from $1.669 million |
| Net interest margin | 3.28% | Down 11 basis points from 3.39% |
| Net income | $511,153; $0.24 per share | Up 22.6% from $417,091; $0.19 per share |
| Revenue components | Interest income: $2.027 million; non-interest income: $360,204 | Interest income up 6.5%; non-interest income up 28.1% |
| Non-interest expense | $1.445 million | Up 3.3% from $1.399 million |
| Operating cash flow | $1.476 million provided | $451,484 provided in the prior-year quarter |
| Total assets | $235.8 million | Up 7.2% from $220.0 million at June 30, 2022 |
| Loans, net | $193.4 million | Up 4.2% from $185.6 million at June 30, 2022 |
| Deposits | $187.8 million | Down 0.2% from $188.1 million at June 30, 2022 |
| Borrowings | $14.0 million in FHLB advances | None outstanding at June 30, 2022 |
| Stockholders’ equity | $31.2 million | Up 1.4% from $30.7 million |
Business context and material changes
- The company is the holding company for Marathon Bank, a Wisconsin community bank operating through four facilities. Its lending includes commercial real estate, commercial and industrial, construction, residential, multifamily and consumer loans.
- Asset growth reflected higher cash and loan balances. Net loans increased primarily through commercial real estate, one-to-four-family residential and multifamily lending; construction loans fell as a $3.5 million construction loan moved to permanent financing.
- Deposits were nearly unchanged overall, but the mix shifted: certificates of deposit rose $5.9 million and non-interest-bearing demand deposits rose $2.7 million, while demand/NOW/money-market accounts declined $8.7 million.
- Cash and cash equivalents increased to $17.9 million, supported in part by $14.0 million of new FHLB borrowing used to fund loan originations. The bank reported a $77.1 million FHLB credit line.
Performance, risks and outlook
- Quarterly earnings growth included a $173,268 gain from life-insurance death-benefit proceeds, which management said was not taxable. Mortgage banking income fell 55.9% as higher market rates reduced refinancing demand and mortgage loan sales.
- Net interest income rose, but net interest margin declined. Management attributed the margin pressure to higher deposit costs; the average rate on interest-bearing liabilities rose faster than the yield on earning assets. Prior-year results also included $119,000 of deferred PPP loan fees not repeated this quarter.
- No loan-loss provision was recorded. The allowance was $2.059 million, or 1.05% of total loans, after $137,000 of charge-offs and $572 of recoveries. The charge-off related to a participation loan. Nonperforming assets were $6,000, down from $115,000 at June 30, 2022.
- Management identified commercial and multifamily real estate as the loan categories with the greatest exposure to economic, industry and concentration risks. It also cited interest-rate and inflation changes, funding access and cost, real estate conditions, competition, cybersecurity and operational risks among factors that could affect results.
- Unrealized losses on available-for-sale debt securities increased; the quarter recorded a $127,810 other comprehensive loss. Management attributed securities losses to interest-rate changes and stated it did not intend, and was not more likely than not required, to sell the affected securities before recovery.
- The bank reported a 12.32% Tier 1 leverage ratio and was categorized as well capitalized. Management said it anticipated sufficient liquidity for current commitments and expected a substantial portion of maturing time deposits to renew; runoff could require additional borrowings and raise funding costs.
- There is no specific earnings or financial guidance in the filing. Management cautioned that quarterly results are not necessarily indicative of full-year results. The company plans to adopt CECL on July 1, 2023 and said implementation could materially change credit-loss accounting; the impact was still under evaluation.
- The company adopted lease accounting on July 1, 2022, recording a $698,837 right-of-use asset and lease liability at adoption; management said the adoption did not materially affect operations, cash flows or capital ratios. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. No material legal proceedings were reported.
Important facts for investors to verify
- Separate recurring earnings from the $173,268 life-insurance benefit and assess the outlook for mortgage banking revenue and net interest margin as rates and deposit costs change.
- Review deposit retention, certificate maturities and the use and cost of FHLB advances; the filing reports $29.2 million of time deposits maturing within one year.
- Monitor commercial and multifamily real estate concentration, watch and classified loans, charge-offs, and whether the allowance remains adequate as CECL adoption approaches.
- Track unrealized securities losses and potential effects of further rate changes on accumulated other comprehensive loss and capital.
- Reconcile off-balance-sheet commitment disclosures: the notes list $3.551 million of commitments to grant loans and $6.266 million of unused credit lines, while MD&A reports $9.8 million of loan-origination commitments and $176,000 of commitments to sell loans.