Marathon Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021, the first quarter of fiscal 2022. The filing is dated November 12, 2021. The company is a bank holding company for Marathon Bank, a Wisconsin community bank operating four facilities. The filing’s income and cash-flow comparisons are with the three months ended September 30, 2020; balance-sheet comparisons are with June 30, 2021.
Key financial metrics
| Metric | Period-end or quarter result | Comparison |
|---|---|---|
| Total assets | $206.6 million | Down $7.0 million, or 3.3%, from June 30, 2021 |
| Net loans | $147.7 million | Up $3.5 million, or 2.5%, from June 30 |
| Total deposits | $173.4 million | Up $1.5 million, or 0.9%, from June 30 |
| Cash and cash equivalents | $31.4 million | Down $14.6 million, or 31.7%, from June 30 |
| Net interest income | $1.67 million | Up 42.2% year over year |
| Net interest margin | 3.39% | Up from 2.85%; excluding $365,000 in recognized PPP fees, management estimated 2.65% |
| Net income | $417,000; $0.19 per share | Up 14.2% from $365,000; prior-year EPS was not applicable |
| Operating cash flow | $451,000 provided | Compared with $885,000 provided in the prior-year quarter |
| Investing and financing cash flow | $7.4 million used in investing; $7.7 million used in financing | Cash and equivalents fell by $14.6 million during the quarter |
| Allowance for loan losses | $2.19 million, or 1.46% of loans | No provision recorded in the quarter; allowance was $1.77 million a year earlier |
| Regulatory capital | Bank Tier 1 leverage ratio: 12.40% | Management reported the Bank as well capitalized |
Material changes and operating results
- Net interest income increased $496,000 year over year, reflecting loan growth, lower deposit costs, and $365,000 of deferred PPP loan fees recognized as forgiven loans were repaid by the SBA.
- Mortgage banking income declined $293,000 to $186,000 as secondary-market mortgage loan sales fell to $6.6 million from $17.4 million, amid higher market rates and weaker refinancing demand.
- Non-interest expense rose $121,000 to $1.40 million, principally because professional fees increased $98,000, primarily for public-company reporting costs.
- Loan growth included commercial real estate loans, up $7.8 million from June 30, and one-to-four-family residential loans, up $2.8 million. Commercial and industrial loans fell $8.8 million, largely as PPP loans were forgiven and repaid.
- PPPLF funding declined to $1.24 million from $10.37 million at June 30 as the SBA repaid forgiven PPP loans. The Bank reported no FHLB borrowings and a $74.9 million FHLB credit line available at quarter-end.
Outlook, risks and contingencies
- Management expects further net interest margin compression. The reported quarter’s margin benefited materially from PPP fee recognition.
- COVID-19’s continuing economic effects remain uncertain. Management said the company had not experienced significant business disruption, and all 56 loans granted short-term COVID-related payment deferrals, totaling about $20.0 million, had returned to normal payment status by September 30.
- Credit indicators included $204,000 of nonperforming assets, or 0.10% of total assets, versus $178,000, or 0.08%, at June 30. Special-mention/watch loans totaled $3.36 million, down from $5.26 million; no loans were classified as substandard or doubtful. Management identified commercial real estate as the portfolio category with the greatest perceived economic and concentration risk.
- At quarter-end, commitments to grant loans were $12.4 million and unused lines of credit were $8.8 million. Management reported total outstanding loan-origination commitments of $21.2 million and commitments to sell loans of $1.3 million, and expected available funding to meet current commitments.
- Management cited risks from economic conditions, interest rates and inflation, real estate values, loan and deposit demand, funding costs, competition, cybersecurity and third-party systems, regulation, and credit quality. It provided no quantitative earnings or revenue guidance.
- The company completed its initial public offering in April 2021, raising $8.5 million net of offering expenses. The mutual holding company retained 55% ownership; approximately $4.5 million of net proceeds was contributed to the Bank, $874,000 funded the ESOP loan, and about $3.4 million was retained by the company.
- The company plans to adopt lease accounting guidance in fiscal 2023 and expected-credit-loss guidance in fiscal 2024; management said the latter may materially change credit-loss accounting. No material legal proceedings were reported.
Important facts for investors to verify
- How much of future net interest income and margin is sustainable after the $365,000 PPP fee benefit, and whether margin compression develops as management expects.
- Whether commercial real estate growth and the portfolio’s geographic and borrower concentrations remain manageable, including changes in watch loans and nonperforming loans.
- Whether liquidity remains sufficient as cash has declined, loan commitments have increased, and $21.8 million of time deposits were scheduled to mature within one year.
- Whether mortgage banking income, public-company expenses, and loan growth develop in line with the assumptions behind current profitability.
- The impact of adopting lease and expected-credit-loss accounting standards, and any changes in regulatory capital or credit-loss estimates.