10-Q: Marathon Bancorp Reports Lower Net Income for Q2 2025 Amidst Interest Rate Shifts

Marathon Bancorp's net income decreased in the second quarter of fiscal year 2025 due to lower net interest income and a change in the provision for credit losses.

Summary

• Marathon Bancorp's net income for the three months ended December 31, 2024, was $51,000, a decrease of $221,000 compared to the same period in 2023.
• The decrease in net income was primarily due to a $143,000 change in the provision for credit losses, a decrease in net interest income of $80,000, and an increase in the provision for income taxes of $31,000.
• For the six months ended December 31, 2024, net income was $226,000, a decrease of $132,000 compared to the same period in 2023.
• Total assets decreased slightly to $217.9 million at December 31, 2024, from $219.2 million at June 30, 2024, primarily due to a decrease in net loans.
• Gross loans decreased to $178.6 million at December 31, 2024, from $185.3 million at June 30, 2024, with decreases in commercial real estate, multi-family real estate, and construction loans.
• Total deposits increased slightly to $173.4 million at December 31, 2024, from $173.0 million at June 30, 2024.
• FHLB advances decreased to $10.0 million at December 31, 2024, from $13.0 million at June 30, 2024.
• The bank has adopted the CBLR framework and is considered well capitalized with a Tier I Capital to Average Assets ratio of 13.64% as of December 31, 2024.
• The company expects a small recovery in connection with a settlement of litigation relating to a foreclosed property in the quarter ending March 31, 2025.
• The Mutual Holding Company adopted a Plan of Conversion and Reorganization on December 10, 2024, to reorganize from a two-tier mutual holding company structure to a fully-public stock holding company structure.

Sentiment

Score: 5

Explanation: The report presents a mixed picture, with some positive aspects such as increased deposits and stockholders' equity, but also significant negatives such as decreased net income and loan portfolio. The outlook is cautiously optimistic, but the company faces several risks and challenges.

Positives

• Total deposits increased slightly by $436,000, or 0.3%, to $173.4 million at December 31, 2024 from $173.0 million at June 30, 2024.
• Total stockholders equity increased by $390,000 when comparing December 31, 2024 with June 30, 2024 due to net income of $226,000 and a decrease in accumulated other comprehensive loss, net of taxes of $118,000 resulting from an increase in the fair market value of the debt securities available for sale portfolio due to favorable changes in market interest rates.
• Net cash provided by operating activities was $1.1 million for the six months ended December 31, 2024.
• The company expects a small recovery in connection with a settlement of litigation relating to a foreclosed property in the quarter ending March 31, 2025.

Negatives

• Net income decreased by 81.2% for the three months ended December 31, 2024, compared to the same period in 2023, and decreased by 36.9% for the six months ended December 31, 2024, compared to the same period in 2023.
• Gross loans decreased by 3.6% to $178.6 million at December 31, 2024, from $185.3 million at June 30, 2024.
• Net interest income decreased by $80,000, or 5.4%, to $1.4 million for the three months ended December 31, 2024 from $1.5 million for the three months ended December 31, 2023.
• Non-interest income decreased by $31,000 to $374,000 for the six months ended December 31, 2024 from $405,000 for the six months ended December 31, 2023 due primarily to a decrease in mortgage banking income which was related to higher mortgage rates which led to less loan originations.

Risks

• Inflation and changes in the interest rate environment could reduce margins and yields.
• General economic conditions, either nationally or in the company's market areas, that are worse than expected.
• Events involving the failure of financial institutions may adversely affect the business and the market price of the company's common stock.
• Changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses.
• Fluctuations in real estate values and both residential and commercial real estate market conditions.
• Competition among depository and other financial institutions.
• Adverse changes in the securities or secondary mortgage markets, including the ability to sell loans in the secondary market.
• Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements.
• Technological changes that may be more difficult or expensive than expected.
• A failure or breach of operational or security systems or infrastructure, including cyberattacks.
• Changes in consumer spending, borrowing, and savings habits.
• Any future FDIC insurance premium increases or special assessments may adversely affect earnings.
• Political instability or civil unrest.
• Acts of war or terrorism or pandemics such as the recent COVID-19 pandemic.

Future Outlook

The company anticipates having sufficient funds to meet current funding commitments and expects a small recovery in connection with a settlement of litigation relating to a foreclosed property in the quarter ending March 31, 2025.

Management Comments

• Management believes the Bank has met all capital adequacy requirements to which it is subject.
• Management expects that a substantial portion of the maturing time deposits will be renewed.

Industry Context

The report reflects the challenges faced by many financial institutions in a changing interest rate environment, with pressure on net interest margins and the need to carefully manage credit risk. The company's performance is influenced by local economic conditions in Marathon and Ozaukee Counties, Wisconsin, as well as broader national trends.

Comparison to Industry Standards

• Assessing Marathon Bancorp's performance requires comparing its key metrics, such as net interest margin, efficiency ratio, and return on assets, against those of its peers.
• Companies like Nicolet Bankshares, Green Bay, WI, and River Valley Bancorp, Madison, IN, are comparible regional banks.
• Industry averages for community banks can be found in reports published by the FDIC and other financial institutions.
• Marathon Bancorp's net interest margin of 2.85% for the three months ended December 31, 2024, should be compared to the industry average for banks of similar size and geographic location to determine if it is performing above or below expectations.
• The company's allowance for credit losses as a percentage of total loans (0.92%) should also be compared to industry benchmarks to assess the adequacy of its reserves.

Legal Proceedings

• The Company, from time to time, may be a defendant in legal proceedings relating to the conduct of its banking business.
• Most of such legal proceedings are a normal part of the banking business and, in management's opinion as of December 31, 2024, the financial condition and results of operations of the Company would not be materially affected by the outcome of such legal proceedings.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and the potential impact on future dividends.
• Employees may be affected by changes in the company's financial performance and strategic direction.
• Customers may be impacted by changes in interest rates and loan availability.
• The community may be affected by the company's ability to provide financial services and support local economic development.

Next Steps

• The company will continue to monitor its liquidity position and manage its capital resources.
• The company expects a small recovery in connection with a settlement of litigation relating to a foreclosed property in the quarter ending March 31, 2025.
• The company will seek regulatory and depositor approval for the Plan of Conversion and Reorganization.

Key Dates

Keywords

net income, loans, deposits, interest income, interest expense, credit losses, FHLB advances, asset quality, regulatory capital, financial performance, Marathon Bancorp