10-K: Marathon Bancorp Completes Conversion, Returns to Profit

Marathon Bancorp, Inc. successfully converted to a stock holding company, generating $16.9 million in gross proceeds, and reported a net income of $42,000 for fiscal year 2025, reversing a prior year loss.

Summary

• Marathon Bancorp, Inc. completed its conversion from a mutual holding company to a stock holding company on April 21, 2025, with gross proceeds of $16.9 million from the sale of 1,693,411 common shares at $10.00 per share.
• Net proceeds from the conversion were $13.9 million after $1.7 million in offering expenses.
• The company reported a net income of $42,000 for the year ended June 30, 2025, a significant improvement from a net loss of $187,000 in the prior year.
• Total assets increased by $19.5 million, or 8.9%, to $238.8 million at June 30, 2025, driven by loan growth and increased cash and cash equivalents.
• Gross loans grew by $17.3 million, or 9.5%, to $202.6 million, primarily due to a strategic focus on commercial real estate loans (up $17.6 million or 23.6%) and multifamily real estate loans (up $2.7 million or 6.0%).
• Net interest income increased by $203,000, or 3.8%, to $6.0 million, and the net interest margin improved to 2.84% for fiscal year 2025 from 2.75% in fiscal year 2024.
• The allowance for credit losses decreased to $1.7 million, or 0.84% of total loans, at June 30, 2025, from $1.8 million, or 0.97%, at June 30, 2024, reflecting stabilizing economic conditions and increased prepayments.
• Total stockholders' equity increased by $14.4 million, or 46.1%, to $45.7 million, largely due to the net proceeds from the conversion.
• The Bank maintains a 'well capitalized' status for regulatory capital purposes, with a Tier 1 Capital to Average Assets ratio of 15.21% at June 30, 2025, exceeding the 9.0% minimum for well-capitalized institutions under the Community Bank Leverage Ratio framework.
• A valuation allowance of $665,000 was established for Wisconsin net operating loss carryforwards due to a change in state tax law, indicating these carryforwards are unlikely to be realized.

Sentiment

Score: 7

Explanation: The company demonstrated a strong turnaround by returning to profitability and achieving significant asset and loan growth, supported by a successful conversion to a stock holding company. Key financial metrics like net interest margin and efficiency ratio improved, and asset quality remained strong. However, it operates in a competitive market, and some loan categories experienced decreases, indicating ongoing challenges and the need for continued strategic execution.

Positives

• Net income of $42,000 for fiscal year 2025, a 122.7% increase from a net loss of $187,000 in fiscal year 2024.
• Total assets increased by $19.5 million (8.9%) to $238.8 million at June 30, 2025.
• Gross loans increased by $17.3 million (9.5%) to $202.6 million, driven by commercial real estate (up $17.6 million or 23.6%) and multifamily real estate loans (up $2.7 million or 6.0%).
• Net interest income increased by $203,000 (3.8%) to $6.0 million.
• Net interest margin improved to 2.84% for fiscal year 2025 from 2.75% in fiscal year 2024.
• Efficiency ratio improved to 101.21% in fiscal year 2025 from 106.64% in fiscal year 2024.
• Total stockholders' equity increased by $14.4 million (46.1%) to $45.7 million, primarily from conversion proceeds.
• The Bank is classified as 'well capitalized' for regulatory purposes, with a Tier 1 Capital to Average Assets ratio of 15.21% at June 30, 2025.
• Non-performing assets as a percentage of total assets decreased to 0.45% at June 30, 2025, from 0.63% at June 30, 2024.

Negatives

• One-to-four-family residential loans decreased by $1.5 million (2.6%) due to a significant paydown.
• Construction loans decreased by $580,000, primarily due to conversions to permanent financings.
• Commercial and industrial loans decreased due to repayments exceeding new loan growth.
• Debt securities available for sale decreased by $1.4 million (21.3%) due to maturities, calls, and paydowns.
• A provision for valuation allowance of $378,767 was recorded on foreclosed assets in fiscal year 2025, following a $937,100 provision in fiscal year 2024, related to an accepted offer to sell a property for $1.1 million, below its previous valuation.
• Wisconsin income tax provision of $112,000 in fiscal year 2024 related to a change in state tax law, leading to a valuation allowance for net operating loss carryforwards.

Risks

• Inflation, tariffs, and changes in the interest rate environment could reduce margins, mortgage banking revenues, fair value of financial instruments, or loan originations, or increase defaults and losses.
• General economic conditions, nationally or in market areas, that are worse than expected.
• Events involving the failure of financial institutions may adversely affect business and stock price.
• Changes in loan delinquencies, write-offs, and estimates of the adequacy of the allowance for credit losses.
• Ability to access cost-effective funding.
• Fluctuations in real estate values and both residential and commercial real estate market conditions.
• Demand for loans and deposits in the market area.
• Ability to implement and change business strategies.
• Competition among depository and other financial institutions, including fintech and internet banking companies.
• Adverse changes in the securities or secondary mortgage markets, including the ability to sell loans.
• Changes in laws or government regulations or policies affecting financial institutions, including regulatory fees and capital requirements.
• Changes in the quality or composition of loan or investment portfolios.
• Technological changes that may be more difficult or expensive than expected.
• Inability of third-party providers to perform as expected.
• A failure or breach of operational or security systems or infrastructure, including cyberattacks.
• Ability to manage market risk, credit risk, and operational risk.
• Ability to enter new markets successfully and capitalize on growth opportunities.
• Ability to successfully integrate acquired assets, liabilities, customers, systems, and management personnel.
• Changes in consumer spending, borrowing, and savings habits.
• Changes in accounting policies and practices.
• Ability to retain key employees.
• Future FDIC insurance premium increases or special assessments.
• Ability to prevent or mitigate fraudulent activity.
• Ability to evaluate the amount and timing of recognition of future tax assets and liabilities.
• Political instability or civil unrest, acts of war or terrorism, or pandemics.
• Ability to control operating costs and expenses, including compensation expense.
• Changes in the financial condition, results of operations, or future prospects of issuers of owned securities.
• Inability to sell foreclosed assets at an amount equal to or greater than the carrying amount.
• Commercial and multifamily real estate loans involve greater risk due to larger balances, dependence on property operations, and susceptibility to real estate market/economic conditions.
• Construction loans carry risks related to project completion, budget adherence, collateral value, and general contractor performance.
• Commercial and industrial loans have greater credit risk due to reliance on business cash flow and potentially depreciating collateral.
• Consumer loans are more susceptible to borrower financial instability (job loss, divorce, illness, bankruptcy) and may be secured by rapidly depreciating assets.
• Balloon loans may be adversely affected by declining real estate values or rising interest rates prior to maturity.
• Adjustable-rate loans increase potential for default with rising interest rates, and rate caps may limit effectiveness in compensating for interest rate changes.

Future Outlook

We expect to continue our focus on originating commercial real estate and multifamily real estate loans to increase overall yield and manage interest rate risk, with anticipated further growth in the Southeastern Wisconsin market area. We also anticipate having sufficient funds to meet current funding commitments and expect to retain a substantial portion of maturing time deposits.

Management Comments

• We have strengthened and modernized our operations through upgrades to credit, underwriting, information technology, and compliance since February 2014.
• We have developed a commercial real estate lending infrastructure, with a particular focus on expanding into the Southeastern Wisconsin market, including the Milwaukee metropolitan area.
• We remain committed to our local community and intend to continue to be a significant oneto four-family residential mortgage lender, subject to market conditions and the interest rate environment.
• The increase in commercial real estate loans was related to a strategic focus capitalizing on market conditions, specifically focusing on higher-quality, well-capitalized assets from existing and new relationships.
• The increase in multi-family real estate loans was related to improved lending conditions and sustained demand for rental housing.
• We successfully migrated customer funds from fixed-rate certificate of deposit products into more liquid deposit products with potential variable-rate upside, coupled with the initiation of new loan relationships.
• The recovery of credit losses was related to projected future economic conditions in our market area stabilizing over the next two years, an increase in prepayments in both consumer and commercial loans, and continuous recoveries of two legacy charge-offs, aligning with historic charge-off history.

Industry Context

The company operates in a competitive market with large money center and regional banks, community banks, credit unions, mortgage banking firms, consumer finance companies, fintech, and internet banking companies. Its strategy involves expanding into the Southeastern Wisconsin market, including the Milwaukee metropolitan area, to grow commercial real estate and multifamily loan portfolios, while also enhancing deposit products for business customers. The company's market share of FDIC-insured deposits in its primary counties (Marathon, Ozaukee, Waukesha) is relatively small, indicating significant competition and potential for growth.

Corporate Governance

Legal Proceedings

• Not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business.
• At June 30, 2025, not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Related Party Transactions

• No loans to principal officers, directors, or their affiliates were outstanding at June 30, 2025, or June 30, 2024.
• Deposits from related parties amounted to $600,042 at June 30, 2025, down from $824,439 at June 30, 2024.

Stakeholder Impact

• **Shareholders:** Benefited from the conversion to a stock holding company, which facilitated a capital raise and Nasdaq listing. The return to net income and improved financial metrics are positive. The stock repurchase program was terminated, but the company does not currently intend to pay cash dividends.
• **Employees:** Benefited from the Employee Stock Ownership Plan (ESOP) which purchased shares during the conversion, and from stock options and restricted stock awards. The company strives to offer competitive salaries and benefits and invests in employee development.
• **Customers:** Continue to receive a variety of financial products and services from a community-oriented bank. The expansion into Southeastern Wisconsin aims to serve more customers.
• **Depositors:** Deposits are insured by the FDIC up to applicable limits. A liquidation account was established for eligible account holders in connection with the conversion, providing additional protection in a liquidation scenario.
• **Creditors:** The company's 'well capitalized' status and strong liquidity position indicate a healthy financial standing, which is favorable for creditors.

Next Steps

• Continue strategic focus on originating commercial real estate and multifamily real estate loans.
• Pursue further growth in the Southeastern Wisconsin market area, including the Milwaukee metropolitan area.
• Monitor and adapt to new Community Reinvestment Act regulations, with applicability dates of January 1, 2026, and January 1, 2027.
• Complete the sale of the foreclosed property for which an offer of $1.1 million has been accepted, subject to customary due diligence.
• Repay the new ESOP term loan in annual installments over 25 years through 2049.

Key Dates

Recommendation

Marathon Bancorp's successful conversion to a stock holding company and return to profitability are positive indicators. The growth in assets and loans, coupled with improved net interest margin and efficiency, suggests a strengthening financial position. However, the company operates in a highly competitive banking environment with a relatively small market share. While the outlook for commercial and multifamily lending is positive, the stock repurchase program was terminated, and there is no current intention to pay dividends. The valuation allowance on foreclosed assets and the impact of state tax law changes also present some headwinds. Given the recent conversion and the need for sustained performance in a competitive landscape, a 'hold' recommendation is appropriate for seasoned investors to observe continued execution of its growth strategy and further financial stabilization before considering a 'buy' or 'sell'.

Keywords

Marathon Bancorp, MBBC, SEC Filing, 10-K, Annual Report, Financial Results, Bank Holding Company, Stock Conversion, Net Income, Loan Growth, Commercial Real Estate, Multifamily Real Estate, Deposits, Stockholders Equity, Capital Ratios, Wisconsin Banking, Community Bank, Financial Performance, Asset Quality, Regulatory Compliance