Marathon Bancorp, Inc. — Form 10-Q Summary
Period: The filing covers the quarter and nine months ended March 31, 2022, with balance-sheet comparisons to June 30, 2021. This is fiscal 2022 Q3; the request metadata’s “2021 Q3” does not match the filing period.
Business context
Marathon Bancorp is the holding company for Marathon Bank, a Wisconsin savings bank operating four offices. The Bank serves Wisconsin markets and provides commercial and residential lending, deposits and related financial services. Marathon MHC owns 55% of the Company. The Company’s shares were issued in an April 2021 reorganization and public offering.
Financial performance and condition
- Quarter earnings: Net income was $248,826, or $0.12 per share, versus $219,111 in the prior-year quarter, an increase of 13.6%. Net interest income rose 13.5% to $1.53 million; non-interest income fell 49.5% to $193,000.
- Nine-month earnings: Net income was $950,782 versus $975,192, down 2.5%. Net interest income increased 21.9% to $4.68 million, while non-interest income declined 47% to $764,000 and non-interest expense increased 5.3% to $4.18 million.
- Interest margins: Nine-month net interest margin increased to 3.18% from 3.09%; net interest spread was 3.05% versus 2.98%. The filing says the margin excluding PPP forgiveness-related deferred fees was approximately 2.83%, compared with 2.89% in the prior period.
- Revenue mix: Mortgage banking income fell to $448,000 for nine months from $1.18 million as secondary-market loan sales declined to $14.4 million from $43.6 million amid higher market rates and weaker refinancing demand. Nine-month net interest income included $483,000 of deferred PPP loan fees recognized upon forgiveness.
- Assets and loans: Total assets grew 3.3% to $220.8 million. Net loans rose 13.6% to $163.8 million, led by commercial real estate and multifamily lending; commercial and industrial loans declined as PPP loans were forgiven. The allowance was $2.19 million, or 1.32% of gross loans. No loan-loss provision was recorded for either comparative period.
- Credit quality: Non-performing assets declined to $64,000, or 0.03% of assets, from $178,000, or 0.08%, at June 30, 2021. No loans were classified substandard or worse; $1.40 million was on special mention/watch. All 56 COVID-related deferral loans, totaling approximately $20.0 million, had returned to normal payment status by March 31, 2022.
- Deposits, debt and liquidity: Deposits increased 9.9% to $189.0 million. The $10.4 million PPPLF balance was fully repaid; no borrowings were outstanding at quarter-end. Cash and cash equivalents were $31.2 million, down from $46.0 million at June 30, 2021. The Bank had a $75.4 million FHLB credit line available. Management stated it expected adequate funding for current commitments and anticipated retaining a substantial portion of maturing time deposits.
- Cash flow: For nine months, operating activities provided $589,000, investing activities used $22.1 million, and financing activities provided $6.7 million. Cash declined by $14.85 million. Loan growth, a $3.5 million securities purchase and a $3.0 million purchase of bank-owned life insurance contributed to investing outflows.
- Capital and equity: Stockholders’ equity was $30.5 million, up 2.2%. The Bank’s Tier 1 leverage ratio was 12.44%; management said the Bank was well capitalized. Accumulated other comprehensive loss increased by $336,000, primarily reflecting market-rate-related declines in securities values.
Material changes, outlook and risks
- Loan growth reflects the Company’s strategy to expand commercial and multifamily real estate lending in southeastern Wisconsin. These categories were identified by management as having comparatively greater economic and concentration risk.
- Mortgage refinancing and related loan-sale revenue weakened as market rates rose. Management also cautioned that inflation and interest-rate changes could affect margins, loan yields, mortgage banking revenue, securities values, originations and credit performance.
- Available-for-sale securities had $290,895 of gross unrealized losses at March 31, 2022, compared with $45,572 at June 30, 2021. Management attributed the losses to interest-rate changes and said it did not intend, and was not more likely than not required, to sell the securities before recovery.
- The filing reports a $1.9 million Level 3 corporate bond valuation using significant unobservable inputs. This security was transferred from Level 2 after observable market data became unavailable.
- Management said COVID-19 had not caused significant business disruption, but noted uncertainty and potential effects on credit-loss and other estimates. Other stated risks include funding access, real estate values, competition, cybersecurity, third-party providers and regulatory changes.
- No specific earnings or growth guidance was provided. The Company expected to adopt lease accounting guidance on July 1, 2022, with no material operating-results or cash-flow impact expected; it was evaluating CECL adoption planned for July 1, 2023, which could materially change credit-loss accounting.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter. The Company reported no material legal proceeding.
Important facts for investors to verify
- Confirm the reporting-period label: the filing is for the quarter ended March 31, 2022, not 2021 Q3.
- Assess whether loan growth—particularly commercial and multifamily real estate—remains consistent with underwriting standards and adequate loss reserves.
- Review the unrealized securities losses, Level 3 bond valuation assumptions and potential effects of further interest-rate changes on equity and liquidity.
- Check sustainability of earnings after the decline in mortgage banking income and the nonrecurring timing of PPP forgiveness-related fee recognition.
- Monitor deposit retention, brokered certificate-of-deposit funding, upcoming time-deposit maturities and available borrowing capacity.
- Reconcile commitment disclosures: the notes list $21.386 million of commitments to grant loans plus $6.984 million of unused credit lines, while MD&A reports $28.4 million of loan-origination commitments and $1.539 million of commitments to sell loans.