Marathon Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2022 (the company’s fiscal second quarter). Comparisons are with the corresponding 2021 periods, or with June 30, 2022 for balance-sheet changes. Amounts are in U.S. dollars.
Business context and financial position
Marathon Bancorp is a Maryland holding company whose wholly owned subsidiary, Marathon Bank, operates four facilities and serves Wisconsin markets, including Marathon and Ozaukee counties. Its lending includes commercial real estate, residential mortgages, multifamily, construction, commercial and industrial, and consumer loans.
- Total assets rose 7.4% to $236.2 million from June 30, 2022. Net loans increased 3.8% to $192.6 million; deposits grew 7.9% to $203.0 million.
- Cash and cash equivalents increased to $19.5 million from $8.4 million. Stockholders’ equity was $31.2 million, up 1.6%.
- The Bank reported no FHLB borrowings at December 31 and a $82.6 million FHLB line of credit. It was classified as well capitalized; its community bank leverage ratio was 11.74%, versus a 9.0% well-capitalized threshold.
Results and key metrics
| Metric | Three months ended Dec. 31, 2022 | Year-over-year | Six months ended Dec. 31, 2022 | Year-over-year |
|---|---|---|---|---|
| Interest income | $2.25 million | Up 31.9% | $4.27 million | Up 18.5% |
| Net interest income | $1.69 million | Up 14.7% | $3.40 million | Up 8.3% |
| Net interest margin | 3.02% | Up 0.02 percentage points | 3.13% | Down 0.05 percentage points |
| Non-interest income | $193,000 | Down 33.4% | $554,000 | Down 0.3% |
| Non-interest expense | $1.49 million | Up 8.0% | $2.94 million | Up 5.7% |
| Net income | $301,000 | Up 5.9% | $813,000 | Up 15.8% |
| Basic and diluted EPS | $0.14 | vs. $0.13 | $0.38 | vs. $0.33 |
- Higher loan balances and yields, plus increased returns on cash as rates rose, supported interest income. Deposit interest expense also increased, reflecting higher rates and growth in certificates of deposit.
- Six-month operating cash flow was $962,000, investing cash outflow was $4.8 million, and financing cash inflow was $14.8 million. Cash and cash equivalents increased $11.0 million during the six months.
- The allowance for loan losses was $2.06 million, or 1.06% of total loans. There was no loan-loss provision in the quarter or six-month period; six-month net charge-offs were $137,000.
Material changes, outlook, and risks
- Loan growth was concentrated in commercial real estate and one-to-four-family residential lending. Commercial real estate loans increased $5.0 million and residential loans increased $4.8 million from June 30; construction loans declined $3.2 million.
- Certificates of deposit increased $22.8 million to $82.8 million. Management attributed the increase to higher-rate products and $4.5 million of brokered CDs. One depositor withdrew approximately $9.0 million from money-market funds.
- Mortgage banking income fell as higher market rates reduced refinancing and loan sales. Six-month secondary-market mortgage loan sales were $973,000, versus $12.4 million in the prior-year period.
- Six-month income included a $173,000 gain from a life-insurance death benefit, an unusual item that helped offset lower mortgage banking income.
- Available-for-sale securities had $939,000 of gross unrealized losses at period-end; held-to-maturity securities had $131,000. 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. Accumulated other comprehensive loss was $712,000.
- Nonperforming assets were $55,000, or 0.02% of assets. The filing reported $1.47 million of commercial real estate loans on watch and no classified loans. Management identified commercial and multifamily real estate as areas of greater credit risk.
- Management said it expected sufficient liquidity and anticipated retaining a substantial portion of time deposits due within one year. Those maturities totaled $46.6 million, including $6.7 million of brokered CDs; failure to retain deposits could increase reliance on potentially higher-cost borrowings.
- The Bank adopted lease accounting on July 1, 2022, recording a $698,837 right-of-use asset and lease liability at adoption. Management expects to adopt CECL on July 1, 2023 and said the effect is under evaluation and could materially change credit-loss accounting.
- No earnings or other quantitative guidance was provided. Forward-looking risks include interest-rate and inflation changes, deposit funding costs and availability, credit quality, real estate conditions, competition, cybersecurity, and regulatory or accounting changes. Management reported effective disclosure controls and no material change in internal controls during the quarter; it reported no material legal proceeding.
- The company adopted a repurchase program permitting repurchases of up to 113,485 shares, with no expiration date. It repurchased and retired 6,781 shares during the quarter at an average $11.254 per share.
Investor facts to verify
- Track deposit pricing, retention, and concentration, especially the $46.6 million of time deposits maturing within one year and the use of brokered CDs.
- Review commercial real estate and multifamily exposure, the $1.47 million watch balance, and whether credit costs or charge-offs rise from the current low level of nonperforming assets.
- Monitor the securities portfolio’s unrealized losses, accumulated other comprehensive loss, and sensitivity to further interest-rate changes.
- Assess whether asset yields continue to outpace deposit-cost increases and whether net interest margin stabilizes or contracts.
- Follow management’s CECL implementation work and any disclosed impact on the allowance, earnings, or capital beginning in fiscal 2024.
- Confirm the company’s subsequent repurchase activity and the effect of the program on outstanding shares and capital.