Business Context and Reporting Period
Company: Marathon Bancorp, Inc. (Parent holding company for Marathon Bank)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 2024
Business Overview: Marathon Bancorp is a Maryland corporation serving as the mid-tier holding company for Marathon Bank, a Wisconsin-chartered savings bank. The Bank operates five branches in Marathon, Ozaukee, and Waukesha counties, Wisconsin, focusing on commercial real estate, multifamily, and residential lending. The Company is classified as a "smaller reporting company" and an "emerging growth company."
Key Financial Metrics
| Metric | 2024 (Actual) | 2023 (Actual) |
|---|---|---|
| Total Assets | $219.2 million | $238.8 million |
| Total Loans (Gross) | $185.3 million | $199.9 million |
| Total Deposits | $173.0 million | $197.3 million |
| Net Interest Income | $5.8 million | $6.7 million |
| Net Income (Loss) | ($0.2 million) | $1.7 million |
| Stockholders' Equity | $31.3 million | $31.3 million |
| Allowance for Credit Losses | $1.8 million (0.97% of loans) | $2.2 million (1.08% of loans) |
| Non-Performing Assets | $1.4 million (0.64% of assets) | $2.3 million (0.98% of assets) |
| Net Interest Margin | 2.75% | 3.04% |
| Return on Average Assets | (0.08%) | 0.71% |
Material Changes vs. Prior Period
- Net Loss: The Company reported a net loss of $187,000 for 2024, a reversal from a net income of $1.7 million in 2023. This decline was primarily driven by a $1.0 million increase in expenses related to foreclosed assets (OREO) and a decrease in net interest income.
- Balance Sheet Contraction: Total assets decreased by $19.6 million (8.2%) and total deposits fell by $24.3 million (12.3%). The deposit decline was attributed to customers seeking higher rates elsewhere and the maturity of brokered certificates of deposit.
- Loan Portfolio: Gross loans decreased by $14.6 million (7.3%) due to repayments exceeding new originations in most categories, except for multifamily real estate loans which increased slightly.
- Foreclosed Assets: A significant valuation adjustment occurred on a foreclosed construction property. A new appraisal in April 2024 resulted in a $937,000 provision for valuation allowance, reducing the asset's carrying value from $2.3 million to $1.4 million.
- Interest Rates: Net interest margin compressed by 29 basis points to 2.75% as the cost of interest-bearing liabilities rose faster than the yield on earning assets.
Guidance, Outlook, and Risks
Management Commentary: Management anticipates low unemployment and an improving housing price index over the next two years. The Company recorded a recovery of credit losses of $190,000 for the year, reflecting improved economic forecasts. The Bank opened a new branch in Brookfield, Wisconsin, in January 2024 to support growth in Southeastern Wisconsin.
Risks and Contingencies:
- Interest Rate Risk: Rising interest rates have increased funding costs, compressing margins. The Company relies on borrowings from the Federal Home Loan Bank (FHLB) to offset deposit outflows.
- Credit Quality: While there are no non-performing loans, the Company holds $1.4 million in foreclosed assets. Future losses could materialize if real estate values decline or if the Company cannot sell the foreclosed property at a sufficient price.
- Regulatory Capital: The Bank is "well capitalized" and has elected to use the Community Bank Leverage Ratio (CBLR) framework, maintaining a Tier 1 capital to average assets ratio of 13.04% (well above the 9.0% requirement).
- Tax Law Changes: A change in Wisconsin tax law regarding commercial loan interest income led to the establishment of a $321,000 valuation allowance on state deferred tax assets, as management deemed the realization of these assets unlikely.
Investor Verification Checklist
- Foreclosed Asset Valuation: Verify the status and potential sale price of the $1.4 million foreclosed construction asset to assess the risk of further write-downs.
- Deposit Stability: Monitor the trend of deposit outflows and the cost of funds, particularly regarding the reliance on FHLB borrowings ($13.0 million outstanding) to replace lost deposits.
- Loan Growth Strategy: Assess the success of the new Brookfield branch and the ability to grow the commercial real estate portfolio in a higher-rate environment.
- Dividend Policy: Note that the Company does not currently intend to pay cash dividends, and regulatory restrictions on the Mutual Holding Company (Marathon MHC) may limit future distributions.
- Stock Repurchases: Review the ongoing stock repurchase program (up to 5% of outstanding shares) and its impact on liquidity and share count.