Marathon Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
Marathon Bancorp is the holding company for Marathon Bank, a Wisconsin community bank operating four facilities and focusing on lending and deposits in Wisconsin. The filing covers the quarter and nine months ended March 31, 2023, with comparisons to the same periods in 2022. The request metadata says “2022 Q3,” but the filing itself is for fiscal 2023 Q3.
Financial performance and condition
- Quarterly results: Net income was $366,000, up 47.0% from $249,000; diluted EPS was $0.17 versus $0.12. Net interest income rose 7.6% to $1.65 million.
- Nine-month results: Net income was $1.18 million, up 23.9% from $951,000; diluted EPS was $0.55 versus $0.44. Net interest income increased 8.1% to $5.05 million.
- Revenue and costs: Nine-month interest income rose 22.3% to $6.56 million, while interest expense more than doubled to $1.51 million. Non-interest income increased 6.4% to $813,000; non-interest expense increased 5.8% to $4.42 million. Mortgage banking income declined 53.3% to $209,000.
- Margins: Net interest margin was 3.06% for the quarter, down from 3.14%; for the nine months it was 3.09%, down from 3.18%. Deposit repricing pressured the net interest spread despite higher yields on loans and cash.
- Balance sheet: Assets grew 8.3% from June 30, 2022, to $238.3 million. Net loans rose 8.9% to $202.1 million, led by residential, commercial real estate, and multifamily lending. Deposits increased 6.9% to $201.1 million.
- Funding and liquidity: Cash and cash equivalents were $9.4 million. The Bank had $5.0 million of FHLB advances outstanding and reported an $82.8 million FHLB line, $25.0 million available from the Federal Reserve subject to eligible collateral, and a $5.0 million unsecured federal funds limit. Nine-month operating cash flow was $1.26 million; investing used $16.88 million and financing provided $16.64 million.
- Credit and capital: The allowance for loan losses was $2.06 million, or 1.01% of loans, versus 1.32% a year earlier. There were no nonperforming assets at March 31, 2023; nine-month net charge-offs were $135,000. The Bank reported a 12.02% Tier 1 leverage ratio and was categorized as well capitalized.
- Equity and securities: Stockholders’ equity was $30.4 million, down 1.2% since June 30, 2022, reflecting share repurchases and accumulated other comprehensive losses, partly offset by earnings. Available-for-sale securities had $918,704 of gross unrealized losses; held-to-maturity securities had $124,986 of unrealized losses.
Material changes and unusual items
- Higher rates lifted interest income on cash and loans, but the average cost of interest-bearing deposits increased and compressed margins. Certificates of deposit grew to $83.6 million; management cited higher-rate offers and $4.5 million of brokered CDs. One depositor withdrew approximately $9.0 million from money-market funds.
- Nine-month non-interest income included a $261,000 life-insurance death-benefit gain, which management said was not taxable. Mortgage banking income fell as higher rates reduced refinancing and secondary-market loan sales.
- The Company repurchased and retired 113,485 shares under its program for an average $11.769 per share; the program was completed by March 31, 2023. Total nine-month repurchase cash outflow was $1.34 million.
- The Company adopted lease accounting on July 1, 2022, recognizing right-of-use assets and lease liabilities of $698,837 at adoption. It plans to adopt CECL on July 1, 2023; management said implementation could materially change credit-loss accounting and was still evaluating the impact.
Outlook, risks, and contingencies
No quantitative earnings or growth guidance is provided. Management said it expects sufficient liquidity for current funding needs and expects a substantial portion of maturing time deposits to renew, while noting that deposit outflows could require additional, potentially higher-cost borrowing. Principal disclosed risks include interest-rate and margin changes, access to cost-effective funding, economic and real-estate conditions, loan quality and concentrations, competition, cybersecurity and third-party risks, and regulatory changes. Management identified commercial and multifamily real estate as areas of comparatively greater credit risk. The filing reports no material legal proceeding and says management did not expect ordinary-course legal matters to materially affect results.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2022 Q3, but the filing reports the quarter ended March 31, 2023.
- Reconcile off-balance-sheet loan commitment figures: the note reports $652,250 of commitments to grant loans, while MD&A reports $6.2 million of commitments to originate loans.
- Monitor deposit pricing, certificate maturities and retention, and the effect of funding costs on net interest margin.
- Review commercial and multifamily real-estate exposures, the allowance, and the impact of the $135,000 charge-off; assess whether the allowance remains adequate as CECL is adopted.
- Assess the duration and potential liquidity implications of unrealized securities losses, along with the effect of any further interest-rate changes.