Business Context and Reporting Period
This Form 10-Q covers the quarter and nine months ended March 31, 2021—not 2020 Q3 as indicated in the request. The unaudited financial statements are for Marathon Bank; Marathon Bancorp, Inc. had no assets, liabilities, or operating activity at March 31, 2021, while its reorganization and stock offering closed on April 14, 2021.
Key Financial Metrics
| Metric | Three months ended March 31, 2021 | Nine months ended March 31, 2021 |
|---|---|---|
| Net interest income | $1.35 million, up 23.3% year over year | $3.84 million, up 12.0% |
| Non-interest income | $382,000, up 105.4% | $1.45 million, up 156.9% |
| Net income | $219,000, versus $29,000 | $975,000, versus $326,000 |
| Net interest margin | 3.11%, versus 3.24% | 3.09%, versus 3.27% |
| Cash flow | Nine-month operating cash use of $54,000; investing cash use of $18.2 million; financing cash provided of $44.6 million |
At March 31, 2021, total assets were $215.9 million, up 26.5% from June 30, 2020. Net loans were $139.7 million, up 19.5%; deposits were $176.9 million, up 32.0%; and total equity was $21.8 million. Cash and cash equivalents were $50.6 million, with an additional $3.1 million in interest-bearing deposits at other financial institutions. Borrowings included $4.0 million of FHLB advances and $12.1 million under the Paycheck Protection Program Liquidity Facility (PPPLF).
The allowance for loan losses was $2.1 million, or 1.49% of loans. The Bank reported regulatory capital ratios of 11.26% for CET1 and Tier 1 risk-based capital, 12.38% for total risk-based capital, and 11.68% for Tier 1 capital to average assets; management said the Bank was well capitalized.
Material Changes Versus Prior Period
- Loan growth was led by one-to-four-family residential, commercial and industrial, and multifamily lending. PPP loans outstanding totaled $12.2 million at quarter-end.
- Mortgage banking income rose with refinancing activity: the Bank sold $43.6 million of mortgage loans during the nine-month period, versus $12.5 million a year earlier.
- Lower deposit costs helped offset lower yields on earning assets. The nine-month net interest spread fell to 2.98% from 3.11%, while net interest margin declined to 3.09% from 3.27%.
- Non-interest expenses increased 9.9% for the nine months, including higher compensation and professional fees; the latter included public-company and temporary employment outsourcing costs.
- Available-for-sale and held-to-maturity securities declined to $12.2 million combined from $17.8 million at June 30, 2020.
Outlook, Risks, and Unusual Items
Management expects further net interest margin compression. It anticipated that COVID-related loan modifications would decrease in the fourth fiscal quarter of 2021. The Bank said it expected sufficient funds to meet current commitments and that maturing time deposits would largely be retained, while noting that deposit runoff could require more expensive borrowing.
COVID-19 effects remain uncertain and could affect borrowers, credit-loss estimates, asset values, and local economic conditions. Other cited risks include interest-rate changes, competition, real estate conditions, funding access, cybersecurity and operational disruptions, and regulatory changes. Management recorded no loan-loss provision for the three- or nine-month periods, but cautioned that future conditions or regulatory reviews could require higher provisions. The filing also identifies material estimation uncertainty involving the allowance, deferred tax assets, and securities impairment.
The April 14, 2021 reorganization and offering were subsequent events: 1,003,274 shares were sold to subscribers at $10 per share, generating $10.0 million in gross proceeds; 55% of post-offering shares were issued to Marathon MHC. The filing states that $800,000 of reorganization costs had been incurred by March 31 and that offering costs and net proceeds would be reported supplementally. The Bank reported no material legal proceedings and effective disclosure controls.
Important Facts for Investors to Verify
- Confirm the correct period: the filing is for the quarter ended March 31, 2021, and its financial statements report Marathon Bank rather than an operating holding company.
- Reconcile asset-quality disclosures: one MD&A passage reports $74,000 of non-performing assets at March 31, while a later passage and the detailed table report zero.
- Review the allowance methodology and credit quality, including the $4.9 million of commercial and industrial loans classified as watch and the Bank’s COVID-related assumptions.
- Check final net proceeds, offering expenses, and the treatment of the $800,000 of reorganization costs after the April offering.
- Monitor PPP balances and forgiveness, deposit retention and upcoming certificate maturities, and the effect of continued margin compression.