Marathon Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2024, the company’s fiscal third quarter of 2024, and was filed May 13, 2024. The request metadata says “2023 Q3,” but the filing itself is for fiscal 2024 Q3. Financial statements are unaudited. Amounts below are U.S. dollars.
Business context and financial performance
Marathon Bancorp is the holding company for Marathon Bank, a Wisconsin community bank operating four facilities. Its lending includes commercial real estate, residential mortgages, commercial and industrial, multifamily, construction and consumer loans. A new Brookfield, Wisconsin branch opened January 22, 2024.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Interest income | $2.32 million in 2024; $2.29 million in 2023 | $7.13 million; $6.56 million |
| Net interest income | $1.40 million; $1.65 million | $4.45 million; $5.05 million |
| Net interest margin | 2.73%; 3.06% | 2.77%; 3.09% |
| Net income (loss) | $(631,000); $366,000 | $(273,000); $1.18 million |
| Basic earnings (loss) per share | $(0.31); $0.17 | $(0.13); $0.55 |
| Net cash from operating activities | Not presented by quarter | $188,000; $1.26 million |
For the nine months, total assets were $225.8 million, down 5.4% from June 30, 2023. Net loans were $191.9 million, down $5.8 million; deposits were $169.7 million, down $27.6 million; and stockholders’ equity was approximately $31.3 million, essentially unchanged. Cash and cash equivalents were $8.1 million, versus $11.8 million at June 30, 2023.
FHLB advances rose to $23.0 million from $8.0 million, partly offsetting deposit outflows and helping fund a building purchase. Nine-month cash flows were $8.7 million provided by investing activities and $12.6 million used in financing activities. The Bank reported a 12.71% tier 1 leverage ratio and was categorized as well capitalized.
Material changes and management commentary
- Earnings and margin pressure: Nine-month net interest income fell 11.9%, although interest income rose 8.7%. Interest expense increased 77.5% as deposit and borrowing costs rose. The nine-month net interest margin declined 32 basis points to 2.77%.
- Deposit runoff and funding: Deposits declined 14.0%; management attributed outflows to customers seeking higher rates and the Bank’s decision to be less aggressive in matching competitors. Brokered deposits fell to $13.4 million from $22.2 million. Management used FHLB funding, citing more favorable rates than rates requested on certificates of deposit.
- Foreclosed property valuation: A revised appraisal of the Bank’s foreclosed construction-loan collateral led to a $937,000 valuation allowance in the quarter. The property’s net carrying value was $1.4 million at March 31, 2024, compared with $2.3 million at June 30, 2023. The Bank is pursuing legal remedies against the former owner.
- Credit quality and CECL: The Bank recorded a $216,000 nine-month recovery of credit losses, citing improved current and forecast local economic conditions and a smaller loan portfolio. The allowance was $1.77 million, or 0.91% of loans. One $56,000 multifamily loan was on nonaccrual at quarter-end and returned to accrual status in April 2024. The Bank adopted CECL on July 1, 2023; the net $133,000 adoption adjustment increased opening retained earnings.
- Other income and costs: Nine-month non-interest income fell $261,000, mainly because the prior-year period included a $261,000 life-insurance death-benefit gain and a $24,000 securities gain. Foreclosed-asset costs rose about $1.0 million; other expenses also increased, including FDIC premiums and check-fraud losses.
Outlook, risks and contingencies
The filing provides no formal earnings or financial guidance. Management said it expects low unemployment and improving home prices locally over the next two years, and anticipates sufficient funds to meet current commitments. It expects a substantial portion of time deposits maturing within one year ($44.3 million) to renew; if they do not, further borrowing could increase interest expense. The Bank had an $82.0 million FHLB line with $23.0 million outstanding, plus access to Federal Reserve borrowing subject to eligible collateral and a $5.0 million correspondent-bank limit.
Risks identified include changes in interest rates, economic conditions, real estate values, deposit competition and funding access; credit losses; securities-market conditions; operational, fraud and cybersecurity risks; and regulatory or tax changes. The company reported a material weakness in income-tax accounting controls related to historical tax bad-debt reserves. Management has implemented remediation procedures, but had not fully tested them; remediation depends on operation for two fiscal quarters and independent validation. The filing says the weakness resulted in correction of material errors and restatement of prior financial statements, as described in the 2023 Form 10-K.
Commitments included $689,000 to grant loans, $4.1 million of unused credit lines and $635,000 of MPF credit enhancements. Management stated that ordinary-course legal proceedings were not expected to materially affect results; the Bank is separately pursuing remedies concerning the foreclosed property. A repurchase program authorizes purchases of up to 107,875 shares, but none were repurchased during the quarter.
Important facts for investors to verify
- Whether the foreclosed property’s valuation, sale prospects and legal recovery support the recorded $1.4 million net value and whether further losses arise.
- Whether deposit outflows stabilize, how the $44.3 million of near-term time-deposit maturities renew, and the effect of borrowing costs on liquidity and margins.
- Whether credit quality and the $1.77 million allowance remain adequate under updated economic and collateral assumptions.
- Whether the tax-control remediation is independently validated and the material weakness is formally remediated.
- Whether the filing’s period is correctly identified as fiscal Q3 2024, notwithstanding the request metadata’s “2023 Q3.”