Marathon Bancorp, Inc. /MD/ [MBBC] Filings

10-Q 1 mara-20231231x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 000-56269

MARATHON BANCORP, INC.

(Exact name of registrant as specified in its charter)


Maryland		86-2191258
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



500 Scott Street, Wausau, Wisconsin		54403
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (715) 845-7331

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	⌧	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

As of February 13, 2024, there were 2,157,497 shares of the registrant’s common stock issued and outstanding.

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MARATHON BANCORP, INC.

INDEX


		PAGE NO.
PART I - FINANCIAL INFORMATION		2

Item 1.	Consolidated Balance Sheets as of December 31, 2023 (Unaudited) and June 30, 2023	2
	Consolidated Statements of Income for the Three and Six Months ended December 31, 2023 and 2022 (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months ended December 31, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months ended December 31, 2023 and 2022 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months ended December 31, 2023 and 2022 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	51

PART II - OTHER INFORMATION		52

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other information	52
Item 6.	Exhibits	53

SIGNATURES		54

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

MARATHON BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


	Unaudited		June 30,
	December 31, 2023		2023
Assets
Cash and due from banks	$	2,791,541	$	2,272,088
Federal funds sold		5,330,000		9,503,000
Cash and cash equivalents		8,121,541		11,775,088
Interest bearing deposits held in other financial institutions		4,952,272		3,762,139
Debt securities available for sale		7,538,953		8,921,715
Debt securities held to maturity, at amortized cost (fair value $409,902 and $378,046)		509,758		516,089
Loans, net of allowance of $1,890,855 and $2,158,590, respectively		194,476,676		197,713,756
Interest receivable		642,414		612,724
Foreclosed assets (OREO)		2,312,240		2,312,240
Investment in restricted stock, at cost		1,158,325		770,273
Cash surrender value life insurance		8,845,386		8,724,198
Premises and equipment, net		3,974,086		2,128,392
Deferred tax assets		312,887		486,916
Other assets		1,245,262		1,055,069
Total assets	$	234,089,800	$	238,778,599
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest bearing	$	24,992,800	$	26,180,842
Interest bearing		154,354,346		171,073,464
Total deposits		179,347,146		197,254,306
Federal Home Loan Bank (FHLB) advances		20,000,000		8,000,000
Other liabilities		2,910,727		2,244,775
Total liabilities		202,257,873		207,499,081
Commitments and Contingent Liabilities ( see note 12)		—		—
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued		—		—
Common stock, $.01 par value, 20,000,000 shares authorized, 2,157,497 shares issued and outstanding at December 31, 2023 and June 30, 2023		21,141		21,141
Additional paid-in capital		7,327,507		7,252,506
Retained earnings		26,068,972		25,577,300
Unearned ESOP shares, at cost		(769,092)		(786,572)
Accumulated other comprehensive loss		(816,601)		(784,857)
Total stockholders' equity		31,831,927		31,279,518
Total liabilities and stockholders' equity	$	234,089,800	$	238,778,599

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited



	Three Months		Three Months		Six Months		Six Months
	Ended December 31,		Ended December 31,		Ended December 31,		Ended December 31,
	2023		2022		2023		2022
Interest Income
Loans, including fees	$	2,189,698	$	2,022,138	$	4,370,343	$	3,933,538
Debt securities		57,041		59,872		115,004		130,089
Other		155,644		163,452		322,173		208,978
Total interest income		2,402,383		2,245,462		4,807,520		4,272,605
Interest Expense
Deposits		759,390		526,608		1,522,191		831,008
Borrowings and other		157,146		28,989		236,162		38,851
Total interest expense		916,536		555,597		1,758,353		869,859
Net Interest Income		1,485,847		1,689,865		3,049,167		3,402,746
Provision for (Recovery of) Credit Losses		(135,000)		—		(94,000)		—
Net Interest Income After Provision for (Recovery of) Credit Losses		1,620,847		1,689,865		3,143,167		3,402,746
Non-Interest Income
Service charges on deposit accounts		32,543		44,082		63,822		84,948
Mortgage banking income		74,798		54,653		205,402		136,243
Increase in cash value of life insurance		61,214		62,390		121,188		119,416
Gain on proceeds from life insurance death benefit		—		—		—		173,268
Net gain on securities transactions		—		24,000		—		24,000
Other income		7,958		8,337		14,340		15,791
Total non-interest income		176,513		193,462		404,752		553,666
Non-Interest Expenses
Salaries and employee benefits		760,697		831,677		1,533,487		1,663,544
Occupancy and equipment expenses		212,223		177,180		382,045		348,701
Data processing and office		106,750		99,484		216,394		186,534
Professional fees		217,087		188,841		387,823		373,908
Marketing expenses		24,732		33,549		39,921		51,355
Foreclosed assets, net		23,021		—		36,641		—
Other expenses		209,947		159,691		421,029		311,651
Total non-interest expenses		1,554,457		1,490,422		3,017,340		2,935,693
Income Before Income Taxes		242,903		392,905		530,579		1,020,719
Provision for (Benefit from) Income Taxes		(29,197)		91,505		172,282		208,166
Net Income	$	272,100	$	301,400	$	358,297	$	812,553

Net income per common share-basic		$0.13		$0.14		$0.18		$0.38
Net income per common share-diluted		$0.13		$0.14		$0.18		$0.38
Weighted average number of common shares outstanding-basic		2,044,170		2,148,581		2,043,733		2,148,181
Weighted average number of common shares outstanding-diluted		2,044,170		2,152,910		2,043,733		2,151,841

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited


	Three Months Ended
	December 31,
	2023		2022
Net Income	$	272,100	$	301,400
Other comprehensive income (loss)
Unrealized gains (losses) on available for sale debt securities
Unrealized holding gains (losses) arising during the period		79,533		(274,147)
Tax effect		(16,700)		74,680
Net amount		62,833		(199,467)
Reclassification adjustment for gains included in net
income (a)		—		(24,000)
Tax effect		—		6,538
Net amount		—		(17,462)
Reclassification adjustment for amortization of stranded tax effect from change in tax legislation (c)		(3,815)		—
Amortization of unrealized losses on debt securities transferred from available for sale to held to maturity (b)		1,178		1,345
Other comprehensive income (loss)		60,196		(215,584)
Comprehensive Income	$	332,296	$	85,816

(a) The reclassification adjustment is included in the Consolidated Statement of Income as Net Gain on Securities Transactions.

(b) The reclassification adjustment is reflected in the Consolidated Statement of Income as Interest Income-Debt Securities.

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited


	Six Months Ended
	December 31,
	2023		2022
Net Income	$	358,297	$	812,553
Other comprehensive loss
Unrealized losses on available for sale debt securities
Unrealized holding loss arising during the period		(38,783)		(452,637)
Tax effect		8,137		123,899
Net amount		(30,646)		(328,738)

Reclassification adjustment for gains included in net income (a)		—		(24,000)
Tax effect		—		6,538
Net amount		—		(17,462)
Reclassification adjustment for amortization of stranded tax effect from change in tax legislation (c)		(3,815)		—
Amortization of unrealized losses on debt securities transferred from available for sale to held to maturity (b)		2,717		2,806
Other comprehensive loss		(31,744)		(343,394)
Comprehensive Income	$	326,553	$	469,159

(a) The reclassification adjustment is included in the Consolidated Statement of Income as Net Gain on Securities Transactions.

(b) The reclassification adjustment is reflected in the Consolidated Statement of Income as Interest Income-Debt Securities.

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Unaudited


											Accumulated
					Additional				Unearned		Other
	Preferred		Common		Paid-in		Retained		ESOP		Comprehensive
	Stock		Stock		Capital		Earnings		Shares		Loss		Total
Balance, July 1, 2023	$	—	$	21,141	$	7,252,506	$	25,577,300	$	(786,572)	$	(784,857)	$	31,279,518
Cumulative effect adjustment for ASU 2016-13 Current Expected Credit Losses ( Notes 1 and 4)		—		—		—		133,375		—		—		133,375
Net income		—		—		—		86,197		—		—		86,197
Other comprehensive loss		—		—		—		—		—		(91,940)		(91,940)
ESOP shares committed to be released (874 shares)		—		—		1,716		—		8,740		—		10,456
Stock based compensation		—		—		39,775		—		—		—		39,775
Balance, September 30, 2023		—		21,141		7,293,997		25,796,872		(777,832)		(876,797)		31,457,381
Net income		—		—		—		272,100		—		—		272,100
Other comprehensive income		—		—		—		—		—		60,196		60,196
ESOP shares committed to be released (874 shares)		—		—		(6,265)		—		8,740		—		2,475
Stock based compensation		—		—		39,775		—		—		—		39,775
Balance, December 31, 2023	$	—	$	21,141	$	7,327,507	$	26,068,972	$	(769,092)	$	(816,601)	$	31,831,927


												Accumulated
						Additional				Unearned		Other
		Preferred		Common		Paid-in		Retained		ESOP		Comprehensive
		Stock		Stock		Capital		Earnings		Shares		Loss		Total
Balance, July 1, 2022	$	—	$	22,295	$	8,487,400	$	23,423,432	$	(821,531)	$	(369,029)	$	30,742,567
Net income		—		—		—		511,153		—		—		511,153
Other comprehensive loss		—		—		—		—		—		(127,810)		(127,810)
ESOP shares committed to be released (874 shares)		—		—		874		—		8,740		—		9,614
Stock based compensation		—		—		34,620		—		—		—		34,620
Balance, September 30, 2022				22,295		8,522,894		23,934,585		(812,791)		(496,839)		31,170,144
Net income		—		—		—		301,400		—		—		301,400
Other comprehensive loss		—		—		—		—		—		(215,584)		(215,584)
ESOP shares committed to be released (874 shares)		—		—		798		—		8,740		—		9,538
Stock based compensation		—		—		30,727		—		—		—		30,727
Purchase and retirement of common stock (6,781 shares)		—		(68)		(76,557)		—		—		—		(76,625)
Balance, December 31, 2022	$	—	$	22,227	$	8,477,862	$	24,235,985	$	(804,051)	$	(712,423)	$	31,219,600

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended
	December 31,
	2023		2022
Operating Activities
Net income	$	358,297	$	812,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		92,875		101,809
Provision for (recovery of) credit losses		(94,000)		—
Stock based compensation		79,550		65,347
ESOP expense		12,931		19,152
Net amortization of discounts and premiums on debt securities		45,100		53,001
Amortization of deferred loan fees, net		(21,395)		(24,858)
Net gain on sale of loans		(99,853)		(56,352)
Net gain on securities transactions		—		(24,000)
Net change in deferred taxes		143,005		147,625
Gain on proceeds from life insurance death benefit		—		(173,268)
Earnings on cash value of life insurance		(121,188)		(119,416)
Increase in interest receivable		(29,690)		(41,473)
Originations of loans held for sale		(4,113,200)		(972,700)
Proceeds from loans held for sale		4,213,053		1,029,052
Net change in operating leases		1,297		(8,472)
Net change in other assets		(190,193)		2,961
Net change in other liabilities		713,029		151,112
Net Cash Provided by Operating Activities		989,618		962,073
Investing Activities
Net change in interest-bearing deposits in other financial institutions		(1,190,133)		1,345,782
Proceeds from life insurance death benefit		—		641,757
Proceeds from maturities, calls and repayments of debt securities available for sale		1,298,438		698,156
Proceeds from maturities and calls of debt securities held to maturity		9,504		14,188
Increase in restricted stock		(388,052)		(447,273)
Net (increase) decrease in loans		3,527,475		(6,967,246)
Purchases of property and equipment		(1,993,237)		(65,364)
Net Cash Provided by (Used in) Investing Activities		1,263,995		(4,780,000)
Financing Activities
Net change in deposits		(17,907,160)		14,923,740
Proceeds from FHLB advances		12,000,000		—
Purchase and retirement of common stock		—		(76,625)
Net Cash Provided by (Used in) Financing Activities		(5,907,160)		14,847,115
Net Change in Cash and Cash Equivalents		(3,653,547)		11,029,188
Cash and Cash Equivalents, Beginning of Year		11,775,088		8,428,041
Cash and Cash Equivalents, End of Period	$	8,121,541	$	19,457,229
Supplemental Disclosure of Cash Flow Information
Cash payments for
Interest	$	1,564,148	$	873,113
Taxes		191,000		87,000

Supplemental Schedule of Noncash Investing and Financing Activities
Lease liabilities and right-of-use assets arising from adoption of ASC 842	$	—	$	698,837

See accompanying notes to the consolidated financial statements.

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MARATHON BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1- Basis of Presentation

Marathon Bancorp, Inc. (the “Company”) is a Maryland chartered mid-tier stock holding company and was formed in connection with the conversion of Marathon Bank (the “Bank”) from a mutual to the mutual holding company form of organization in April 2021, and it is a subsidiary of Marathon MHC (the “Mutual Holding Company”), a Wisconsin chartered mutual holding company. The Mutual Holding Company received 1,226,223 shares, or 55.0%, of the Company’s issued stock at the time of the reorganization. In connection with the reorganization, Marathon Bancorp, Inc. sold 1,003,274 shares of common stock to the public at $10.00 per share, representing 45.0% of its outstanding shares of common stock at the time of the reorganization. The stock offering resulted in gross proceeds of $10.0 million, net of offering expenses of $1.4 million, resulting in net proceeds of $8.5 million. The Mutual Holding Company activity is not included in the accompanying consolidated financial statements. Marathon Bank is a wholly owned subsidiary of the Company. The same directors and officers, who manage the Bank, also manage the Company and the Mutual Holding Company.

The Bank is a Wisconsin stock savings bank, which conducts its business through four facilities. We opened a new branch in Brookfield, Wisconsin on January 22, 2024. The Bank operates as a full-service financial institution with a primary market area including, but not limited to, Marathon County and Ozaukee County, Wisconsin. Its primary deposit products are demand deposits, savings, and certificates of deposits; and its primary lending products are commercial real estate, commercial and industrial, construction, one-to-four-family residential, multi-family real estate and consumer loans. In addition, the Bank has two nonbank subsidiaries for the purpose of temporarily holding a foreclosed property pending the liquidation of this property and to hold the real estate of its recently opened branch in Brookfield, Wisconsin.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the financial statements. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses, valuation of deferred tax assets, and fair value of financial assets and liabilities.

In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three and six month periods ended December 31, 2023 are not necessarily indicative of the results for the year ending June 30, 2024 or any other period. For further information, refer to the consolidated financial statements and notes thereto for the years ended June 30, 2023 and 2022 contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 20, 2023.

Recent Accounting Pronouncements

This section provides a summary description of recent ASUs issued by the FASB to the ASC that had or that management expects may have an impact on the consolidated financial statements issued upon adoption. The Company is classified as an emerging growth company and has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Effective dates reflect this election.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”).” The ASU, as

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amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. ASU 2016-13 was effective for the Company on July 1, 2023. The adjustment recorded at adoption reduced the allowance for credit losses (“ACL”) by $175,000, net of deferred taxes of $36,750 and resulted in the establishment of a reserve for unfunded loan commitments of $6,702, net of deferred taxes of $1,827. These adjustments, net of tax, increased the opening balance of retained earnings of the Company and the Bank by $133,375 as of the date of adoption.

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ASU 2022-02 was effective for the Company on July 1, 2023. There was no material impact to the Company at adoption.

The following table illustrates the impact of adopting ASC 326 (in thousands):



		June 30, 2023			July 1, 2023			July 1, 2023
		As Previously						As Reported
		Reported			Impact of			Under
		(Incurred Loss)			ASC 326			ASC 326

Assets:
Loans, net	$		197,713,756	$		175,000	$		197,888,756

Deferred income taxes, net			486,916			(34,923)			451,993

Liabilities:
Reserve for credit losses on
unfunded commitments (included in other liabilities)			—			(6,702)			(6,702)

Total equity:	$		31,279,518	$		133,375	$		31,412,893

The following accounting policies have been updated in connection with the adoption of ASC 326 and apply to periods beginning after June 30, 2023. Accounting policies applying to prior periods are described in the 2023 Annual Report.

Allowance for Credit Losses on Loans. The allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance represents management’s current estimate of expected credit losses over the contractual term of loans, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. No allowance for credit loss is recorded on accrued interest receivable and amounts written-off are reversed by an adjustment to interest income. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts

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relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a weighted-average remaining maturity methodology. The weighted-average remaining maturity methodology uses an average annual charge-off rate as a foundation for estimating the credit loss for the remaining balances of all loan pools. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate.

Management’s estimate of the allowance for credit losses on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process. This includes forecast that are reasonable and supportable concerning expectations of future economic conditions. The reasonable and supportable forecast period is 24 months. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

These qualitative risk factors include:

Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

Changes in the value of underlying collateral for collateral dependent loans.

Nature and volume of the portfolio and terms of loans.

Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

Experience, ability, and depth of lending management and other relevant staff.

Quality of loan review and Board of Director oversight.

The effect of other external factors such as competition, legal and regulatory requirements.

Changes in national and local economic conditions related to unemployment, house price index, and gross domestic product.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for credit losses calculation for our loan portfolio.

The evaluation also considers the following risk characteristics of each loan portfolio segment:

●

One-to- four-family residential real estate loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

●

Commercial real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.

●

Construction loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.

●

Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.

●

Multifamily real estate loans are generally secured by properties consisting of five or more rental units in our market area. Our multifamily real estate loans generally have fixed rates, initial terms of five years and

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amortization periods of up to 30 years, with a balloon payment due at the end of the initial term. Virtually all of our multifamily real estate loans are secured by properties located within our primary lending markets in Wisconsin.

●

Consumer loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. These loans are typically either unsecured or secured by rapidly depreciating assets. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances.

Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated costs to sell.

Allowance for Credit Losses on Unfunded Commitments. The Company records an allowance, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The allowance for unfunded commitments is measured based on the principles utilized in estimating the allowance for credit losses on loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the allowance for unfunded commitments are recorded through the provision for credit losses.

Allowance for Credit Losses on Available for Sale (“AFS”) Securities. Prior to implementation of CECL, unrealized losses on AFS debt securities caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach; however, the new standard requires credit losses to be presented as an ACL. The Company is still required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance continues to require the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, the extent to which fair value is less than amortized cost, the current interest rate environment, changes to rating of security or security issuer, and adverse conditions specifically related to the security among other factors. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the CECL standard, and declines due to non-credit factors are recorded in AOCI, net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in accumulated other comprehensive income (“AOCI”), net of taxes, on the unaudited consolidated balance sheets. Accrued interest receivable on AFS securities is excluded from the estimate of credit losses. The Company did not record a cumulative-effect adjustment related to its AFS securities upon adoption of CECL on July 1, 2023. See Note 3, Debt Securities, to the unaudited consolidated financial statements under Part I, Item 1, "Financial Information," for a description of the Company’s investment securities and impairment evaluation.

Allowance for Credit Losses on Held to Maturity (“HTM”) Securities. The Company’s portfolio of held to maturity securities consists of U.S. agency residential mortgage-backed securities which are highly rated by major rating agencies and have a long history of no credit losses. In estimating the net amount expected to be collected for held to maturity securities in an unrealized loss position, a historical loss based method is utilized.

Recently Issued, But Not Yet Effective Accounting Pronouncements

There are no recent ASUs issued by the FASB to the ASC that had or that management expects may have an impact on the consolidated financial statements issued upon adoption.

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Note 2- Earnings Per Share

Basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released. Diluted earnings per share is adjusted for the dilutive effects of stock based compensation and is calculated using the treasury stock method. Set forth below is the calculation of earnings per share.


	For the Three Months					For the Six Months
	Ended December 31,					Ended December 31,
	2023		2022		2023		2022


Net income applicable to common stock	$	272,100	$	301,400	$	358,297	$	812,553

Average number of shares outstanding		2,121,516		2,229,423		2,121,516		2,229,460
Less: Average unallocated ESOP shares		77,346		80,842		77,783		81,279

Average number of common shares outstanding used to calculate basic earnings per share		2,044,170		2,148,581		2,043,733		2,148,181
Effect of dilutive restricted stock awards		-		4,329		-		3,660
Average number of common shares outstanding used to calculate diluted earnings per share		2,044,170		2,152,910		2,043,733		2,151,841

Earnings per common share:
Basic	$	0.13	$	0.14	$	0.18	$	0.38
Diluted		0.13		0.14		0.18		0.38

Note 3- Debt Securities

Debt securities have been classified in the consolidated balance sheet according to management’s intent. The carrying value of securities as of December 31, 2023 and June 30, 2023, consists of the following:


		Unaudited
	December 31, 2023		June 30, 2023
Available for sale debt securities, at fair value	$	7,538,953	$	8,921,715
Held to maturity debt securities, at amortized cost		509,758		516,089
	$	8,048,711	$	9,437,804

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The amortized cost and fair value of debt securities, with gross unrealized gains and losses, are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
December 31, 2023
Available for sale debt securities
States and municipalities	$	904,448	$	572	$	(3,572)	$	901,448
Mortgage-backed		1,628,792		23,163		(105,573)		1,546,382
Corporate bonds		6,061,523		—		(970,400)		5,091,123
	$	8,594,763	$	23,735	$	(1,079,545)	$	7,538,953
Held to maturity debt securities
Mortgage-backed	$	509,758	$	—	$	(99,856)	$	409,902


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
June 30, 2023
Available for sale debt securities
States and municipalities	$	904,308	$	503	$	(16,739)	$	888,072
Mortgage-backed		1,935,106		23,125		(111,217)		1,847,014
Corporate bonds		7,099,328		—		(912,699)		6,186,629
	$	9,938,742	$	23,628	$	(1,040,655)	$	8,921,715
Held to maturity debt securities
Mortgage-backed	$	516,089	$	—	$	(138,043)	$	378,046

There is no allowance for credit losses on available for sale and held to maturity debt securities at December 31, 2023. Securities with a carrying value of approximately $307,000 and $415,000 as of December 31, 2023 and June 30, 2023, respectively, were pledged to secure public deposits and debt.

The amortized cost and fair value of debt securities by contractual maturity at December 31, 2023, follows:


	Available for Sale Debt Securities				Held to Maturity Debt Securities
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
December 31, 2023
Due in one year or less	$	740,018	$	736,729	$	—	$	—
Due from more than one to five years		1,603,069		1,566,808		—		—
Due from more than five to ten years		4,622,884		3,689,034		—		—
		6,965,971		5,992,571		—		—
Mortgage-backed securities		1,628,792		1,546,382		509,758		409,902
	$	8,594,763	$	7,538,953	$	509,758	$	409,902

There were no sales of available for sale debt securities during the three and six month periods ended December 31, 2023 and 2022. The Company did recognize a gain of $24,000 on bonds that matured during the six months ended December 31, 2022 related to previous other than temporary impairment charges taken on these securities.

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The following table shows the gross unrealized losses and fair value of the Company’s securities for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and June 30, 2023:


	Less than 12 Months				12 Months or More				Total
	Gross				Gross				Gross
	Unrealized				Unrealized				Unrealized
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
December 31, 2023
Available for sale debt securities
States and municipalities	$	(1,831)	$	203,169	$	(1,741)	$	363,122	$	(3,572)	$	566,291
Mortgage-backed		(8)		1,179		(105,565)		1,411,574		(105,573)		1,412,753
Corporate bonds		—		—		(970,400)		5,091,123		(970,400)		5,091,123
	$	(1,839)	$	204,348	$	(1,077,706)	$	6,865,819	$	(1,079,545)	$	7,070,167
Held to maturity debt securities
Mortgage-backed securities	$	—	$	—	$	(99,856)	$	409,902	$	(99,856)	$	409,902


	Less than 12 Months				12 Months or More				Total
	Gross				Gross				Gross
	Unrealized				Unrealized				Unrealized
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
June 30, 2023
Available for sale debt securities
States and municipalities	$	(16,739)	$	768,052	$	—	$	—	$	(16,739)	$	768,052
Mortgage-backed		(2,879)		109,037		(108,338)		1,615,016		(111,217)		1,724,053
Corporate bonds		(90,000)		410,000		(822,699)		5,776,629		(912,699)		6,186,629
	$	(109,618)	$	1,287,089	$	(931,037)	$	7,391,645	$	(1,040,655)	$	8,678,734
Held to maturity debt securities
Mortgage-backed securities	$	(138,043)	$	378,046	$	—	$	—	$	(138,043)	$	378,046

There were three securities in an unrealized loss position in the less than 12 months category and 55 securities in the 12 months or more category at December 31, 2023. There were 15 securities in an unrealized loss position in the less than 12 months category and 52 securities in the 12 months or more category at June 30, 2023. Unrealized losses have not been recognized into income because the decline in fair value is largely due to changes in interest rates and other market conditions. The contractual terms of the securities do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investment. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity.

Note 4- Loans

On July 1, 2023, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. All loan information presented as of December 31, 2023 is in accordance with ASC 326. All loan information presented as of June 30, 2023 or a prior date is presented in accordance with previously applicable GAAP (incurred loss method).

The Company’s loans are stated at their face amount, net of deferred fees and costs and discounts, and consist of the classes of loans included in the table below. The Company has elected to exclude accrued interest receivable, totaling $544,627 at December 31, 2023, from the amortized cost basis of loans.

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A summary of loans by major category follows:


	Unaudited
	December 31, 2023		June 30, 2023

	(Dollars in thousands)
Commercial real estate	$	82,877	$	84,581
Commercial and industrial		6,243		6,878
Construction		1,318		1,905
One-to-four-family residential		58,596		59,563
Multi-family real estate		45,569		44,184
Consumer		1,825		2,825
Total loans		196,428		199,936
Deferred loan fees		(60)		(63)
Allowance for credit losses		(1,891)		(2,159)
Loans, net	$	194,477	$	197,714

The following table summarizes the activity in the allowance for credit losses - loans by loan class for the three and six months ended December 31, 2023:


	Allowance for Credit Losses-Loans-Three Months Ended
	(Dollars in thousands)

										Provision
				Impact of						for Credit
		Beginning		Adoption of						Losses-		Ending
		Balance		ASC 326		Charge-offs		Recoveries		Loans		Balance
		October 1, 2023										December 31, 2023
Commercial real estate	$	380	$	—	$	—	$	—	$	(36)	$	344
Commercial and industrial		23		—		—		—		(2)		21
Construction		6		—		—		—		—		6
One-to-four-family residential		1,388		—		—		—		(93)		1,295
Multi-family real estate		225		—		—		—		(7)		218
Consumer		3		—		—		1		3		7
Total loans	$	2,025	$	—	$	—	$	1	$	(135)	$	1,891


	Allowance for Credit Losses-Loans-Six Months Ended
	(Dollars in thousands)

		Beginning								Provision for
		Balance								(Recovery of)
		Prior to		Impact of						Credit
		Adoption of		Adoption of						Losses-		Ending
		ASC 326		ASC 326		Charge-offs		Recoveries		Loans		Balance
		July 1, 2023										December 31, 2023
Commercial real estate	$	1,196	$	(818)	$	—	$	—	$	(34)	$	344
Commercial and industrial		18		5		—		—		(2)		21
Construction		6		2		—		—		(2)		6
One-to-four-family residential		207		1,137		—		—		(49)		1,295
Multi-family real estate		365		(147)		—		—		—		218
Consumer		2		11		—		1		(7)		7
Unallocated		365		(365)		—		—		—		—
Total loans	$	2,159	$	(175)	$	—	$	1	$	(94)	$	1,891

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The following table summarizes the activity in the allowance for credit losses - loans by loan class for the three and six months ended December 31, 2022:


	Commercial		Commercial				One-to-Four		Multi-Family
	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses
Balance at beginning of period	$	1,591,644	$	32,701	$	55,029	$	263,951	$	233,371	$	601	$	17,753	$	2,195,050
Charge-offs		(136,753)		—		—		—		—		—		—		(136,753)
Recoveries		—		—		—		—		—		572		—		572
Provisions		109,130		(5,303)		(30,238)		(41,667)		(17,238)		(553)		(14,131)		—
Balance at September 30, 2022		1,564,021		27,398		24,791		222,284		216,133		620		3,622		2,058,869
Charge-offs		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		602		—		602
Provisions		(279,012)		(6,060)		(7,185)		(13,998)		(20,376)		(619)		327,250		—
Balance at end of period	$	1,285,009	$	21,338	$	17,606	$	208,286	$	195,757	$	603	$	330,872	$	2,059,471

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of June 30, 2023:


	Commercial		Commercial				One-to-Four		Multi-Family
	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
June 30, 2023
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,196,479		17,711		6,302		206,771		365,401		653		365,273		2,158,590
Balance at end of period	$	1,196,479	$	17,711	$	6,302	$	206,771	$	365,401	$	653	$	365,273	$	2,158,590
Loans
Individually evaluated for impairment	$	—	$	—	$	—	$	117,103	$	—	$	—	$	—	$	117,103
Collectively evaluated for impairment		84,580,946		6,878,209		1,905,255		59,445,715		44,183,871		2,824,747				199,818,743
Balance at end of period	$	84,580,946	$	6,878,209	$	1,905,255	$	59,562,818	$	44,183,871	$	2,824,747	$	—	$	199,935,846

The following table presents a breakdown of the provision for (recovery of) credit losses for the periods indicated:


	Three Months				Six Months
	Ended				Ended
	December 31,				December 31,
	2023		2022		2023		2022
Provision for (recovery of) credit losses:
Provision for (recovery of) loans	$	(135,000)	$	—	$	(94,000)	$	—
Provision for unfunded commitments		—		—		—		—
Total provision for (recovery of) credit losses	$	(135,000)	$	—	$	(94,000)	$	—

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, collateral adequacy, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial and industrial and commercial real estate loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass – Loans classified as pass represent loans that are evaluated and are performing under the stated terms. Pass rated assets are analyzed by the paying capacity, the current net worth, and the value of the loan collateral of the obligor.

Special Mention/Watch – Loans classified as watch possess potential weaknesses that require management attention but do not yet warrant adverse classification. While the status of a loan put on this list may not technically

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trigger their classification as substandard or doubtful, it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and does result in a loss for the Company.

Substandard – Loans classified as substandard are inadequately protected by the current net worth, paying capacity of the obligor, or by the collateral pledged. Substandard loans must have a well-defined weakness or weaknesses that jeopardize the repayment of the debt as originally contracted. They are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have the weaknesses of those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are individually evaluated for impairment or charged-off if deemed uncollectible.

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The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2023 based on year of origination:


																	Revolving
																	Loans
															Revolving		Converted to
			2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Total

		(Dollars in thousands)

Commercial real estate
	Pass	$	3,951	$	4,729	$	33,107	$	23,867	$	8,239	$	8,776	$	208	$	—	$	82,877
	Special Mention/Watch		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		—		—		—		—		—		—
	Nonaccrual		—		—		—		—		—		—		—		—		—
Total commercial real estate		$	3,951	$	4,729	$	33,107	$	23,867	$	8,239	$	8,776	$	208	$	—	$	82,877

Commercial and industrial
	Pass	$	200	$	932	$	1,871	$	2,569	$	96	$	560	$	15	$	—	$	6,243
	Special Mention/Watch		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		—		—		—		—		—		—
	Nonaccrual		—		—		—		—		—		—		—		—		—
Total commercial and industrial		$	200	$	932	$	1,871	$	2,569	$	96	$	560	$	15	$	—	$	6,243

Construction
	Pass	$	—	$	1,318	$	—	$	—	$	—	$	—	$	—	$	—	$	1,318
	Special Mention/Watch		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		—		—		—		—		—		—
	Nonaccrual		—		—		—		—		—		—		—		—		—
Total construction		$	—	$	1,318	$	—	$	—	$	—	$	—	$	—	$	—	$	1,318

One-to-four-family residential
	Performing	$	2,297	$	11,316	$	12,361	$	13,957	$	6,236	$	12,429	$	—	$	—	$	58,596
	Non-performing		—		—		—		—		—		—		—		—		—
Total one-to-four-family		$	2,297	$	11,316	$	12,361	$	13,957	$	6,236	$	12,429	$	—	$	—	$	58,596

Multi-family real estate
	Performing	$	1,841	$	8,785	$	16,854	$	13,490	$	1,878	$	2,665	$	56	$	—	$	45,569
	Non-performing		—		—		—		—		—		—		—		—		—
Total multi-family real estate		$	1,841	$	8,785	$	16,854	$	13,490	$	1,878	$	2,665	$	56	$	—	$	45,569

Consumer
	Performing	$	281	$	143	$	163	$	10	$	80	$	—	$	1,148	$	—	$	1,825
	Non-performing		—		—		—		—		—		—		—		—		—
Total consumer		$	281	$	143	$	163	$	10	$	80	$	—	$	1,148	$	—	$	1,825


Total loans		$	8,570	$	27,223	$	64,356	$	53,893	$	16,529	$	24,430	$	1,427	$	—	$	196,428

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The risk category of loans by class of loans as of June 30, 2023, is as follows:


			Special Mention/
	Pass		Watch		Substandard		Doubtful		Total
June 30, 2023
Commercial real estate	$	84,580,946	$	—	$	—	$	—	$	84,580,946
Commercial and industrial		6,878,209		—		—		—		6,878,209
Construction		1,905,255		—		—		—		1,905,255
	$	93,364,410	$	—	$	—	$	—	$	93,364,410

Residential real estate and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are 90 days or more delinquent or are not accruing interest are considered nonperforming. The following table presents the recorded investments in residential real estate and consumer loans by class based on payment activity as of June 30, 2023:


	Performing		Nonperforming		Total
June 30, 2023
One-to-four-family residential	$	59,562,818	$	—	$	59,562,818
Multi-family real estate		44,183,871		—		44,183,871
Consumer		2,824,747		—		2,824,747
	$	106,571,436	$	—	$	106,571,436

The following tables summarize the aging of the past due loans by loan class within the portfolio segments as of December 31, 2023 and June 30, 2023:


	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
	Past Due		Past Due		Past Due		Balance
December 31, 2023
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—
Construction		—		—		—		—
One-to-four-family residential		68,517		—		—		—
Multi-family real estate		55,713		—		—		—
Consumer		—		—		—		—
Total	$	124,230	$	—	$	—	$	—


	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
	Past Due		Past Due		Past Due		Balance
June 30, 2023
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial		16,487		—		—		—
Construction		—		—		—		—
One-to-four-family residential		26,986		—		—		—
Multi-family real estate		—		—		—		—
Consumer		—		—		—		—
Total	$	43,473	$	—	$	—	$	—

There were no loans on nonaccrual status as of December 31, 2023 or June 30, 2023. There were no loans individually evaluated for credit losses as of December 31, 2023 or June 30, 2023.

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Impaired Loans

A loan was considered impaired when based on current information and events, it is probable that the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

The following tables summarize individually impaired loans by class of loans as of June 30, 2023 and for the year then ended:


							For the Year Ended
							June 30, 2023
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
June 30, 2023
With no related allowance recorded
One-to-four-family residential	$	117,103	$	117,103	$	—	$	123,307	$	6,967
	$	117,103	$	117,103	$	—	$	123,307	$	6,967

For the Year Ended

June 30, 2023

Unpaid

Average

Interest

Recorded

Principal

Related

Recorded

Income

Investment

Balance (1)

Allowance

Investment

Recognized

With an allowance recorded

One-to-four-family residential

—

(1) Represents the borrower's loan obligation, gross of any previously charged-off amounts.

The Company’s July 1, 2023 adoption of ASU 2022-02 eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, the Company will no longer recognize an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash flows when a loan is restructured. The adoption of ASU 2022-02 results in a change to reporting for loan modifications to borrowers experiencing financial difficulties. With the adoption of ASU 2022-02 these modifications require enhanced reporting on the type of modifications granted and the financial magnitude of the concessions granted. When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness.

There were no loans during the three and six months ended December 31, 2023 that were modified to borrowers experiencing financial difficulty since the adoption of ASU 2022-02 effective July 1, 2023.

There were no loans modified as TDRs during the three and six months ended December 31, 2022.

The Company maintains a collateral pledge agreement with the FHLB covering secured advances whereby the Company has agreed to retain, free of all other pledges, liens, and encumbrances, commercial and industrial, commercial real estate, and one-to-four family residential and multi-family real estate loans. The pledged loans are discounted at a factor of 24% to 38% when aggregating the amount of loans required by the pledge agreement. The amount of eligible collateral was $94,352,456 and $95,988,835 as of December 31, 2023 and June 30, 2023, respectively. There was also FHLB stock of $1,158,325 and $770,273 pledged as of December 31, 2023 and June 30, 2023.

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Note 5 - Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about the Company’s leases as of and for the three and six months ended December 31, 2023 and 2022 and June 30, 2023:


					As of		As of
					December 31,		June 30,
					2023		2023
Right-to-use assets (included in premises and equipment on consolidated balance sheets)					$	537,314	$	591,982
Lease liability (included in other liabilities on consolidated balance sheets)						531,811		585,182
Weighted average remaining lease term						6.59 years		6.88 years
Weighted average discount rate						3.25%		3.24%

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	December 31,		December 31,		December 31,		December 31,
	2023		2022		2023		2022
Operating lease costs	$	31,929	$	31,929	$	63,859	$	63,859
Short-term lease costs		9,570		9,570		19,140		19,140
Total lease costs	$	41,499	$	41,499	$	82,999	$	82,999

Cash paid for amounts included in measurement of lease liabilities	$	31,281	$	30,999	$	62,562	$	61,998


							As of
							December 31,
							2023
Lease payments due

Six months ending June 30, 2024							$	61,407
Year ending June 30, 2025								104,464
Year ending June 30, 2026								103,720
Year ending June 30, 2027								94,450
Year ending June 30, 2028								43,200
Thereafter								187,200
Total								594,441
Discount								62,630
Lease liability							$	531,811

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Note 6 - Deposits

Major classifications of deposits are as follows as of December 31, 2023 and June 30, 2023. Brokered deposits totaled $17.7 million and $22.2 million at December 31, 2023 and June 30, 2023, respectively.


	Unaudited
	At December 31, 2023				At June 30, 2023
	Amount		Percent		Amount		Percent
Non-interest-bearing demand accounts	$	24,992,800	13.94	%	$	26,180,842	13.27	%
Demand, NOW, money market accounts		41,025,708	22.88	%		44,664,015	22.64	%
Savings accounts		39,837,657	22.21	%		42,554,858	21.57	%
Certificates of deposit		73,490,981	40.98	%		83,854,591	42.51	%
Total	$	179,347,146	100.00	%	$	197,254,306	100.00	%

Note 7- Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component for the three and six months ended December 31, 2023 and 2022, follows:


	Unrealized
	Gains and		Unrealized
	Losses on		Losses on
	Available		Held to
	for Sale Debt		Maturity Debt
	Securities		Securities		Total
December 31, 2023
Balance, beginning of period	$	(739,982)	$	(44,875)	$	(784,857)
Other comprehensive loss before reclassifications (net of tax)		(93,479)		—		(93,479)
Amortization of amounts transferred from debt securities available for sale to held to maturity (a)		—		1,539		1,539
Balance, September 30, 2023		(833,461)		(43,336)		(876,797)
Other comprehensive income before reclassifications (net of tax)		62,833		—		62,833
Amortization of amounts transferred from debt securities available for sale to held to maturity (a)		—		1,178		1,178
Reclassification adjustment for amortization of stranded tax effect from change in tax legislation (b)		(3,815)		—		(3,815)
Balance, end of period	$	(774,443)	$	(42,158)	$	(816,601)

(a)	The reclassification adjustment is reflected in the Consolidated Statements of Income as Interest Income-Debt Securities.

(b)	The reclassification adjustment is included in the Consolidated Statements of Income as Other Expenses.


	Unrealized
	Gains and		Unrealized
	Losses on		Losses on
	Available		Held to
	for Sale Debt		Maturity Debt
	Securities		Securities		Total
December 31, 2022
Balance, beginning of period	$	(318,344)	$	(50,685)	$	(369,029)
Other comprehensive loss before reclassifications (net of tax)		(129,271)		—		(129,271)
Amortization of amounts transferred from debt securities available for sale to held to maturity (a)		—		1,461		1,461
Balance, September 30, 2022		(447,615)		(49,224)		(496,839)
Other comprehensive loss before reclassifications (net of tax)		(199,467)		—		(199,467)
Amounts reclassified from accumulated other comprehensive income, (net of tax) (b)		(17,462)		—		(17,462)
Amortization of amounts transferred from debt securities available for sale to held to maturity (a)		—		1,345		1,345
Balance, end of period	$	(664,544)	$	(47,879)	$	(712,423)

(a)	The reclassification adjustment is reflected in the Consolidated Statements of Income as Interest Income-Debt Securities.

(b)	The reclassification adjustment is reflected in the Consolidated Statements of Income as Net Gain on Securities Transactions ($24,000) and Provision for Income Taxes ($6,538).

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Note 8- Income Taxes

Income tax expense was $172,000 for the six months ended December 31, 2023, a decrease of $36,000, as compared to income tax expense of $208,000 for the six months ended December 31, 2022. The decrease in income tax expense was primarily the result of a decrease in income before income taxes of $490,000 which was offset by a change in Wisconsin tax law that provides for a subtraction from the Bank’s state taxable income for loan and fee interest income from certain commercial and agricultural loans. Based upon the provisions of this new state tax law, management determined that the Company was highly unlikely to incur a material Wisconsin tax liability in the foreseeable future, instead generating Wisconsin net operating loss carryforwards that would never be realized. Since the state rate at which net deferred tax assets are expected to be realized is 0%, the Company eliminated its state net deferred tax asset balances as of July 1, 2023, resulting in deferred tax expense of approximately $112,000 for the six months ended December 31, 2023. A summary of income tax expense compared to the federal income tax statutory rate is set forth below.


	2023		2022
At Federal statutory rate at 21%	$	111,421	$	214,350
Adjustments resulting from:
Wisconsin change in tax law		112,058		-
Earnings on bank owned life insurance		(25,449)		(61,463)
State tax, net of federal benefit		-		51,511
Other		(25,748)		3,768
Income tax expense	$	172,282	$	208,166

Note 9- Minimum Regulatory Capital Requirements

Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy.

The risk-based capital standards require financial institutions to maintain: (a) a minimum ratio of common equity tier 1 (“CET1”) to risk weighted assets of at least 4.5%, (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%; (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%; and (d) a minimum leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% above the minimum standards stated in (a) - (c) above.

In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. A qualifying community bank may elect to utilize the CBLR in lieu of the general capital requirements and will be considered well capitalized if it exceeds the minimum CBLR of 9.0%. The CBLR framework also provides a two-quarter grace period for qualifying banks whose leverage ratio falls no more than 1.00% below the required ratio for that reporting quarter. The Bank opted into the CBLR framework as of December 31, 2023 and June 30, 2023.

As of December 31, 2023 and June 30, 2023, management believes the Bank has met all capital adequacy requirements to which it is subject. As of December 31, 2023 and June 30, 2023, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.

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The Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands):


										Minimum To Be Well
										Capitalized Under
					Minimum Capital					Prompt Corrective
	Actual				Requirements					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio

December 31, 2023	(Dollars in thousands)
Tier I Capital to Average Assets	$	29,820	12.35	%	$	19,317	>	8.0	%	$	21,731	>	9.0	%


										Minimum To Be Well
										Capitalized Under
					Minimum Capital					Prompt Corrective
	Actual				Requirements					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio

June 30, 2023	(Dollars in thousands)
Tier I Capital to Average Assets	$	29,030	12.02	%	$	19,321	>	8.0	%	$	21,736	>	9.0	%

A Wisconsin state-chartered savings bank is required by state law to maintain minimum net worth, as defined, in an amount equal to at least 6.0% of its total assets. At December 31, 2023, the Bank’s net worth was $29,332,502 and general loan loss reserve was $1,890,855, totaling 12.44% of total assets, which meets the state of Wisconsin’s minimum net worth requirements. At June 30, 2023, the Bank’s net worth was $28,246,139 and general loan loss reserve was $2,158,590, totaling 12.67% of total assets, which meets the state of Wisconsin’s minimum net worth requirements.

Note 10 - Employee Benefit Plans

The Company provides a 401(k) salary deferral plan to substantially all employees. Employees are allowed to make voluntary contributions to the plan up to 15% of their compensation. In addition, the Company provides discretionary matching and profit-sharing contributions as well as a safe harbor contribution.

Effective upon the completion of the Company’s initial public stock offering in April 2021, the Company established an Employee Stock Ownership Plan (“ESOP”) for all eligible employees. The ESOP used $873,970 in proceeds from a term loan obtained from the Company to purchase 87,397 shares of common stock in the initial public offering at a price of $10.00 per share. The ESOP loan will be repaid principally from the Company’s contribution to the ESOP in annual payments through 2045 at a fixed interest rate per annum at 3.25%. Shares are released to participants on a straight-line basis over the loan term and allocated based on participant compensation. The Company recognizes compensation benefit expense as shares are committed for release at their current market price. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated shares, if applicable, are recorded as a reduction of retained earnings and dividends on unallocated shares are recorded as a reduction of debt. The Company recognized $12,931 (upon the release of 1,748 shares) and $19,152 (upon the release of 1,748 shares) of compensation expense related to this plan for the six months ended December 31, 2023 and 2022, respectively. At December 31, 2023, there were 76,909 shares not yet released having an aggregate market value of approximately $718,330. Participants will become fully vested upon completion of three years of credited service. Eligible employees who were employed with the Company shall receive credit for vesting purposes for each year of continuous employment prior to adoption of the ESOP.

Note 11 - Stock Based Compensation

On May 24, 2022, the stockholders of Marathon Bancorp, Inc. approved the Company’s 2022 Equity Incentive Plan (the “Plan”), which provides for the grant of stock-based awards to officers, employees and directors of the Company and Marathon Bank. Under provisions of the Plan, while active, awards may consist of grants of incentive stock options, nonqualified stock options, restricted stock and restricted stock units. Stock options totaling 109,245 and restricted stock awards totaling 43,698 were authorized for award under the Plan.

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Stock Options

On June 28, 2022, a total of 73,194 stock option awards were granted to the Bank’s directors, executive officers, senior officers and other officers (18,572 and 54,622 options were awarded to directors and employees, respectively). Director awards are considered non-qualified stock options while employee awards are considered incentive stock options. During the year ended June 30, 2023, a director and employee retired resulting in the forfeiture of 7,647 options. The awards vest ratably over five years (20% per year for each year of the participant’s service with the Company) and will expire ten years from the date of the grant, or June 2032. The fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the following weighted average assumptions: risk-free interest rate of 3.27%; volatility factors of the expected market price of the Company's common stock of 20.76%; weighted average expected lives of the options of 6.5 years; cash dividend yield of 0%. Based upon these assumptions, the weighted average fair value of options granted was $3.33.

On May 16, 2023, a total of 39,330 stock option awards were granted to the Bank’s directors, executive officers, senior officers and other officers (4,368 and 34,962 options were awarded to directors and employees, respectively). The fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the following weighted average assumptions: risk-free interest rate of 3.53%; volatility factors of the expected market price of the Company's common stock of 20.71%; weighted average expected lives of the options of 6.5 years; cash dividend yield of 0%. Based upon these assumptions, the weighted average fair value of options granted was $2.72.

Stock option expense amortized to expense for the six months ended December 31, 2023 and 2022 was $32,525 and $22,918, respectively. At December 31, 2023, total unrecognized compensation expense related to stock options was $245,504, and will be amortized to expense over a period of 4.0 years. As of December 31, 2023, there were 4,368 stock option awards available for future awards under this plan.

The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options prior to the expiration date. The intrinsic value can change based on fluctuations in the market value of the Company’s stock.

A summary of stock option activity and related information for the three and six months ended December 31, 2023 was as follows.




				Weighted-Average
				Remaining	Aggregate
		Weighted-Average		Contractual Life	Intrinsic
	Options	Exercise Price		(in years)	Value
Outstanding, July 1, 2023	104,877	$	10.31	9.33	$	—
Granted	—		—	—		—
Exercised	—		—	—		—
Forfeited	—		—	—		—
Outstanding, September 30, 2023	104,877		10.31	9.08	$	—
Granted	—		—	—		—
Exercised	—		—	—		—
Forfeited	—		—	—		—
Outstanding, December 31, 2023	104,877		10.31	8.84		—

Exercisable, December 31, 2023	23,597	$	10.78	8.65	$	10,383

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Restricted Stock

On June 28, 2022, a total of 40,203 restricted stock awards were granted to the Bank’s directors, executive officers, senior officers and other officers under the Plan (9,614 and 30,589 shares were granted to directors and employees, respectively). On May 16, 2023, a total of 6,261 restricted stock awards were granted to the Bank’s directors, executive officers, senior officers and other officers under the Plan (1,311 and 4,950 shares were granted to directors and employees, respectively). During the year ended June 30, 2023, a director and employee retired resulting in the forfeiture of 3,059 restricted stock awards. The restricted stock awards vest ratably over five years (20% per year for each year of the participant’s service with the Company). Restricted stock expense was $47,025 and $42,429 for the six months ended December 31, 2023 and 2022, respectively. At December 31, 2023, future compensation expense related to non-vested restricted stock outstanding was $338,462 which will be amortized over a remaining period of 4.0 years. As of December 31, 2023, there were 293 shares of restricted stock available for issuance.

A summary of restricted stock activity and related information for the three and six months ended December 31, 2023, is as follows:


		Weighted-Average
	Number of	Grant Date
	Shares	Fair Value
Non-vested, July 1, 2023	35,981	$	10.77
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding, September 30, 2023	35,981		10.77
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding, December 31, 2023	35,981	$	10.77

Note 12- Commitments and Contingencies

The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

As of December 31, 2023 and June 30, 2023, the following financial instruments were outstanding where contract amounts represent credit risk:


	December 31, 2023		June 30, 2023
Commitments to grant loans	$	—	$	407,904
Unused commitments under lines of credit		4,248,304		4,718,652
MPF credit enhancements		634,285		625,701

Commitments to grant loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Mortgage Partnership Finance (MPF) credit enhancements allow the Company to share the credit risk associated with home mortgage finance with Federal Home Loan Bank (FHLB). MPF provides the Company the ability

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to originate, sell, and service fixed-rate, residential mortgage loans, and receive a Credit Enhancement Fee based on the performance of the loans. FHLB manages the liquidity, interest rate, and prepayment risks of the loans while the Company manages the credit risk of the loans. The Company will incur an obligation on a foreclosure loss only after a foreclosure loss exceeds the borrower’s equity, any private mortgage insurance, and the funded first loss account. Based on the delinquency results for states where properties are located and the Company’s historical loss experience, the estimated foreclosure losses are immaterial.

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, 2023, the financial condition and results of operations of the Company would not be materially affected by the outcome of such legal proceedings.

Note 13- Fair Value of Assets and Liabilities

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value accounting guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with this guidance, the Company groups its financial assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities may include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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The following table sets forth assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and June 30, 2023:


			Quoted Prices in		Other Observable		Unobservable
			Active Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2023
Available for sale debt securities
States and municipalities	$	901,448	$	—	$	901,448	$	—
Mortgage-backed		1,546,382		—		1,546,382		—
Corporate bonds		5,091,123		—		3,631,123		1,460,000
Total assets	$	7,538,953	$	—	$	6,078,953	$	1,460,000


			Quoted Prices in		Other Observable		Unobservable
			Active Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2023
Available for sale debt securities
States and municipalities	$	888,072	$	—	$	888,072	$	—
Mortgage-backed		1,847,014		—		1,847,014		—
Corporate bonds		6,186,629		—		4,606,629		1,580,000
Total assets	$	8,921,715	$	—	$	7,341,715	$	1,580,000

For those available for sale debt securities where quoted prices are unavailable, fair values are calculated based on market prices of similar securities and, therefore, are classified as Level 2 within the valuation hierarchy.

The following table represents changes in the Company’s available for sale debt securities measured at fair value on a recurring basis using unobservable inputs (Level 3). The Company had one investment security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2023 and June 30, 2023. This security was purchased during the three months ended September 30, 2021 and was reclassified to Level 3 during the three months ended December 31, 2021 because of the lack of observable market data for this investment. The investment is valued on a quarterly basis by a third-party valuation expert. The Level 3 valuation is based on the 5/30 swap curve, floated at 1%, which is considered a significant unobservable input.



	Six Months		Six Months
	Ended December 31,		Ended December 31,
	2023		2022


Balance at June 30,	$	1,580,000	$	1,900,000

Unrealized losses included in other comprehensive loss		(120,000)		(60,000)

Balance at September 30,		1,460,000		1,840,000

Unrealized losses included in other comprehensive loss		—		(240,000)

Balance at December 31,	$	1,460,000	$	1,600,000

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Under certain circumstances the Company may make adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The Company had Level 3 financial assets measured at fair value on a nonrecurring basis, which are summarized below:

Unaudited

December 31,

June 30,

Valuation

Unobservable

Range

2023

Technique

Input

(Weighted Avg.)

Foreclosed assets (OREO)

2,312,240

Collateral valuation

Discount from market value

0% - 65%

Financial Disclosures about Fair Value of Financial Instruments

Accounting guidance requires disclosures of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Certain financial instruments and all non-financial instruments are excluded from the scope of the guidance.

The estimated fair values of financial instruments are as follows:


	December 31, 2023				June 30, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and due from banks	$	2,791,541	$	2,791,541	$	2,272,088	$	2,272,088
Federal funds sold		5,330,000		5,330,000		9,503,000		9,503,000
Interest bearing deposits in other financial institutions		4,952,272		4,952,272		3,762,139		3,762,139
Available for sale debt securities		7,538,953		7,538,593		8,921,715		8,921,715
Held to maturity debt securities		509,758		409,902		516,089		378,046
Loans, net		194,476,676		176,648,000		197,713,756		177,582,000
Investment in restricted stock		1,158,325		1,158,325		770,273		770,273
Interest receivable		642,414		642,414		612,724		612,724
Financial Liabilities
Deposits	$	179,347,146	$	162,023,000	$	197,254,306	$	179,325,000
Federal Home Loan Bank (FHLB) advances		20,000,000		20,000,000		8,000,000		8,000,000
Accrued interest payable		268,785		268,785		74,580		74,580

The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fair value on a recurring and non-recurring basis have been previously disclosed. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Cash and due from banks – Due to their short -term nature, the carrying amount of cash and due from banks approximates fair value and is categorized in level 1 of the fair value hierarchy.

Federal funds sold – Due to their short-term nature, the carrying amount of federal funds sold approximates the fair value and is categorized in level 1 of the fair value hierarchy.

Interest bearing deposits in other financial institutions- Due to their short -term nature, the carrying amount of interest- bearing deposits in other financial institutions approximates fair value and is categorized in level 1 of the fair value hierarchy.

Available for sale securities – For those available for sale debt securities where quoted prices are unavailable, fair values are calculated based on market prices of similar securities and, therefore, are classified as level 2 within the valuation hierarchy. For those available for sale debt securities where market prices of similar securities are not

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available because of the lack of observable market data, they are valued on a quarterly basis by a third-party valuation expert and, therefore, are classified as level 3 within the valuation hierarchy.

Held to maturity debt securities-The fair value is estimated using quoted market prices or by pricing models and is categorized as level 2 of the fair value hierarchy.

Loans– The fair value of variable rate loans that reprice frequently are based on carrying values. The fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and is categorized in level 3 of the fair value hierarchy. Loans held for sale are included with loans, net above, with fair value based on commitments on hand from investors or prevailing market prices and is categorized in level 3 of the fair value hierarchy.

Investments in restricted stock – No secondary market exists for FHLB stock. The stock is bought and sold at par by the FHLB and management believes the carrying amount approximates fair value and is categorized in level 2 of the fair value hierarchy.

Interest receivable – Due to their short -term nature, the carrying amount approximates fair value and is categorized in level 1 of the fair value hierarchy.

Deposits – Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently offered on similar time deposits. Deposits are categorized in level 2 of the fair value hierarchy.

Federal Home Loan Bank (FHLB) advances – The carrying amount approximates fair value and is categorized in level 2 of the fair value hierarchy.

Accrued interest payable – Due to their short-term nature, the carrying amount approximates fair value and is categorized in level 1 of the fair value hierarchy.

The estimated fair value of fee income on letters of credit at December 31, 2023 and June 30, 2023 is insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at December 31, 2023 and June 30, 2023.

Note 14- Revenue Recognition

In accordance with FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) and all subsequent amendments, the Company’s services that fall within the scope of Topic 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. All of the Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within non-interest income which includes service charges on deposit accounts and the sale of foreclosed assets.

A description of the Company’s revenue streams accounted for under Topic 606 follows:

Service Charges on Deposit Accounts: Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees, and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.

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Gains (Losses) on Sales of Foreclosed Assets: The Company records a gain or loss from a sale of foreclosed assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. If the Company finances the sale of foreclosed asset to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed asset is derecognized, and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the accompanying consolidated financial statements. You should read the information in this section in conjunction with the business and financial information regarding Marathon Bancorp, Inc. provided in this Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 as filed with the Securities and Exchange Commission on September 20, 2023.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains certain forward-looking statements, which are included pursuant to the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995, and reflect management’s beliefs and expectations based on information currently available. These forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “potential,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

statements regarding our business plans, prospects, growth and operating strategies;

●

statements regarding the quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

●

general economic conditions, either nationally or in our market areas, that are worse than expected;

●

events involving the failure of financial institutions may adversely affect our business, and the market price of our 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;

●

our 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 our market area;

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●

our ability to implement and change our business strategies;

●

competition among depository and other financial institutions;

●

adverse changes in the securities or secondary mortgage markets, including our 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;

●

changes in the quality or composition of our loan or investment portfolios;

●

technological changes that may be more difficult or expensive than expected;

●

the inability of third-party providers to perform as expected;

●

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

●

our ability to manage market risk, credit risk and operational risk in the current economic environment;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

●

changes in consumer spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

our ability to retain key employees;

●

any future FDIC insurance premium increases or special assessments may adversely affect our earnings;

●

our ability to prevent or mitigate fraudulent activity;

●

our ability to evaluate the amount and timing of recognition of future tax assets and liabilities;

●

our ability to control operating costs and expenses, including compensation expense associated with equity allocated or awarded to our employees; and

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Overview

Net Interest Income. Our primary source of income is net interest income. Net interest income is the difference between interest income, which is the income we earn on our loans and investments, and interest expense, which is the interest we pay on our deposits and borrowings.

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Provision for (Recovery of) Credit Losses. We charge (credit) provisions for (recovery of) credit losses to operations in order to maintain our allowance for credit losses on loans and reserve for unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are expected to be advanced at the consolidated balance sheet date. In determining the level of the allowance for credit losses, we consider our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for (recovery of) credit losses on a quarterly basis and make provisions for credit losses in order to maintain the allowance.

Non-interest Income. Our primary sources of non-interest income are mortgage banking income, service charges on deposit accounts and net gains in the cash surrender value of bank owned life insurance. Other sources of non-interest income include net gain or losses on sales and calls of securities, net gain or loss on disposal of foreclosed assets and other income.

Non-Interest Expenses. Our non-interest expenses consist of salaries and employee benefits, net occupancy and equipment, data processing and office, professional fees, marketing expenses, foreclosed assets and other general and administrative expenses, including premium payments we make to the FDIC for insurance of our deposits.

Provision for (Benefit from) Income Taxes. Our income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized.

Summary of Significant Accounting Policies and Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

In 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies and estimates:

Allowance for Credit Losses. We establish the allowance for credit losses through charges (credits) to earnings in the form of a provision for (recovery of) credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

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rate conditional on a forecast of economic parameters and other qualitative adjustments, for the loans’ expected remaining term.

Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. In addition, management’s estimate of expected credit losses is based on the discounted cash flows over the remaining life of loans held for investment, and changes in expected prepayment behavior may result in changes in the remaining life of loans and expected credit losses.

The allowance may be affected materially by a variety of qualitative factors that the Company considers to reflect its current judgement of various events and risks that are not measured in our statistical procedures. These qualitative risk factors include: (1) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; (2) changes in the value of underlying collateral for collateral dependent loans; (3) nature and volume of the portfolio and terms of loans; (4) volume and severity of past due, classified and nonaccrual loans as well as loan modifications; (5) existence and effect of any concentrations of credit and changes in the level of such concentrations; (6) experience, ability, and depth of lending department management and other relevant staff; (7) quality of loan review and board of directors oversight; (8) the effect of other external factors such as competition, legal and regulatory requirements; and (9) changes in national and local economic conditions related to unemployment, house price index, and gross domestic product. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. The level of the allowance is particularly sensitive to changes in the actual and forecasted probability of default of benchmarked banks and changes in current conditions or reasonably expected future conditions affecting the collectability of loans.

Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the FDIC and the WDFI, as an integral part of their examination process, periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Provision for (Benefit from) Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We recognize the tax effects from an uncertain tax position in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized, upon ultimate settlement with the relevant tax authority. We recognize interest and penalties accrued or released related to uncertain tax positions in current income tax expense or benefit.

Debt Securities. For available-for-sale and held to maturity debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit losses. For debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit

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losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Comparison of Financial Condition at December 31, 2023 and June 30, 2023

Total Assets. Total assets decreased $4.7 million, or 1.9%, to $234.1 million at December 31, 2023 from $238.8 million at June 30, 2023. The decrease was primarily due to a decrease of $3.7 million, or 31.0%, in cash and cash equivalents, a decrease in net loans of $3.2 million, or 1.6% and a decrease in debt securities available for sale of $1.4 million, or 15.5%. These decreases were partially offset by increases of $1.2 million in interest bearing deposits at other financial institutions and an increase in premises and equipment of $1.8 million. The increase in premises and equipment was associated with the Bank’s new branch in Brookfield, Wisconsin which opened on January 22, 2024.

Cash and Cash Equivalents. Total cash and cash equivalents decreased $3.7 million, or 31.0%, to $8.1 million at December 31, 2023 from $11.8 million at June 30, 2023, primarily due to a decrease in total deposits of $17.9 million offset by an increase in FHLB borrowings of $12.0 million and a decrease in net loans of $3.2 million. The Bank also purchased a building for $1.6 million for a future new branch location.

Debt Securities Available for Sale. Total debt securities available for sale decreased $1.4 million, or 15.5%, to $7.5 million at December 31, 2023 from $8.9 million at June 30, 2023. The decrease was primarily due to the call of a $1.0 million corporate bond. Debt securities available for sale are carried at fair value with the unrealized gain or loss reflected in accumulated other comprehensive income (loss).

Loans. Gross loans decreased $3.5 million, or 1.8%, to $196.4 million at December 31, 2023 from $199.9 million at June 30, 2023. The decrease was primarily due to a decrease in all categories of loans with the exception of multi-family real estate loans which increased by $1.4 million, or 3.1%, to $45.6 million at December 31, 2023 from $44.2 million at June 30, 2023. Consumer loans decreased by $1.0 million, or 35.4%, primarily due to the payoff of a consumer loan which was secured by a $650,000 certificate of deposit account. The decrease in construction loans was primarily due to two construction loans totaling $613,000 which were converted to permanent financings. The remaining categories of loan decreases (commercial real estate, commercial and industrial and one-to-four-family residential) were primarily due to repayments exceeding new loan growth.

Deposits. Total deposits decreased $17.9 million, or 9.1%, to $179.3 million at December 31, 2023 from $197.2 million at June 30, 2023. All categories of deposits decreased when comparing December 31, 2023 to June 30, 2023 with certificates of deposit decreasing the most by $10.4 million, or 12.4%. The decrease in all deposit categories was related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates. Finally, we had a $4.5 million brokered certificate of deposit that matured at the end of September 2023. Brokered certificates of deposit totaled $17.7 million and $22.2 million at December 31, 2023 and June 30, 2023, respectively.

Federal Home Loan Bank (FHLB) Advances. FHLB advances increased $12.0 million to $20.0 million at December 31, 2023 compared to $8.0 million in FHLB advances at June 30, 2023 to provide additional funding associated with the decrease in deposits and the acquisition of a building for a future new branch location. We were able to obtain more favorable borrowing rates from the FHLB than what customers were requesting for certificates of deposit.

Stockholders’ Equity. Total stockholders’ equity increased by $552,000, or 1.8%, to $31.8 million at December 31, 2023 from $31.3 million at June 30, 2023. The increase was primarily due to the implementation of CECL (notes 1 and 4), net of tax of $133,000 and net income of $358,000 for the six months ended December 31, 2023.

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Average Balance Sheets

The following tables set forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans, if applicable, are included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense, as applicable. Loan balances include loans held for sale.


	For the Three Months Ended December 31,
	2023							2022
	Average					Average		Average					Average
	Outstanding					Yield/Rate		Outstanding					Yield/Rate
	Balance			Interest		(1)		Balance			Interest		(1)

	(Dollars in thousands)
Interest-earning assets:
Loans	$	195,512		$	2,190	4.52	%	$	194,530		$	2,022	4.19	%
Debt securities		8,778			57	2.60	%		10,336			60	2.32	%
Cash and cash equivalents		10,270			140	5.52	%		18,883			159	3.38	%
Other		1,052			15	5.78	%		770			4	2.08	%
Total interest-earning assets		215,612			2,402	4.49	%		224,519			2,245	4.03	%
Noninterest-earning assets		21,119							14,100
Total assets	$	236,731						$	238,619
Interest-bearing liabilities:
Demand, NOW and money market deposits	$	44,825			151	1.34	%	$	53,961			116	0.86	%
Savings deposits		40,214			14	0.14	%		44,140			14	0.13	%
Certificates of deposit		78,784			593	3.02	%		81,111			396	1.95	%
Total interest-bearing deposits		163,823			758	1.85	%		179,212			526	1.17	%
FHLB advances and other borrowings		16,344			158	3.87	%		3,370			29	3.46	%
Total interest-bearing liabilities		180,167			916	2.03	%		182,582			555	1.21	%
Non-interest bearing demand deposits		24,864							25,940
Other non-interest bearing liabilities		2,250							1,943
Total liabilities		207,281							210,465
Total stockholders' equity		29,450							28,154
Total liabilities and stockholders' equity	$	236,731						$	238,619
Net interest income				$	1,486						$	1,690
Net interest rate spread (2)						2.46	%						2.82	%
Net interest-earning assets (3)	$	35,445						$	41,937
Net interest margin (4)						2.76	%						3.02	%
Average interest-earning assets to interest-bearing liabilities		119.67	%						122.97	%

(1)	Annualized.

(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

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	For the Six Months Ended December 31,
	2023							2022
	Average					Average		Average					Average
	Outstanding					Yield/Rate		Outstanding					Yield/Rate
	Balance			Interest		(1)		Balance			Interest		(1)

	(Dollars in thousands)
Interest-earning assets:
Loans	$	196,323		$	4,370	4.46	%	$	192,047		$	3,933	4.10	%
Debt securities		9,042			115	2.54	%		10,648			130	2.44	%
Cash and cash equivalents		11,514			294	5.13	%		13,766			202	2.93	%
Other		917			28	6.37	%		562			8	2.49	%
Total interest-earning assets		217,796			4,807	4.43	%		217,023			4,273	3.94	%
Noninterest-earning assets		19,675							14,595
Total assets	$	237,471						$	231,618
Interest-bearing liabilities:
Demand, NOW and money market deposits	$	45,999			312	1.35	%	$	57,450			234	0.81	%
Savings deposits		40,691			29	0.14	%		45,171			30	0.13	%
Certificates of deposit		81,783			1,181	2.88	%		70,807			567	1.59	%
Total interest-bearing deposits		168,473			1,522	1.80	%		173,428			831	0.95	%
FHLB advances and other borrowings		13,058			236	3.62	%		2,307			39	3.38	%
Total interest-bearing liabilities		181,531			1,758	1.93	%		175,735			870	0.98	%
Non-interest-bearing demand deposits		24,574							26,194
Other non-interest-bearing liabilities		2,036							1,685
Total liabilities		208,141							203,614
Total stockholders' equity		29,330							28,004
Total liabilities and stockholders' equity	$	237,471						$	231,618
Net interest income				$	3,049						$	3,403
Net interest rate spread (2)						2.50	%						2.96	%
Net interest-earning assets (3)	$	36,265						$	41,288
Net interest margin (4)						2.80	%						3.13	%
Average interest-earning assets to interest-bearing liabilities		119.98	%						123.49	%

(1)	Annualized.

(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

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The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.


	Three Months Ended December 31,						Six Months Ended December 31,
	2023 vs. 2022						2023 vs. 2022
	Increase (Decrease) Due to				Total		Increase (Decrease) Due to				Total
					Increase						Increase
	Volume		Rate		(Decrease)		Volume		Rate		(Decrease)

		(In thousands)						(In thousands)
Interest-earning assets:
Loans	$	10	$	158	$	168	$	88	$	350	$	438
Debt securities		(9)		6		(3)		(20)		5		(15)
Cash and cash equivalents		(73)		54		(19)		(33)		125		92
Other		1		10		11		5		15		20
Total interest-earning assets		(71)		228		157		40		495		535
Interest-bearing liabilities:
Demand, NOW and money market deposits		(20)		55		35		(47)		125		78
Savings deposits		—		1		1		(3)		2		(1)
Certificates of deposit		(11)		208		197		88		527		615
Total interest-bearing deposits		(31)		264		233		38		654		692
FHLB advances and other borrowings		112		16		128		182		15		197
Total interest-bearing liabilities		81		280		361		220		669		889
Change in net interest income	$	(152)	$	(52)	$	(204)	$	(180)	$	(174)	$	(354)

Comparison of Operating Results for the Three Months Ended December 31, 2023 and 2022

General. Net income was $272,100 for the three months ended December 31, 2023, a decrease of $29,300, or 9.7%, from net income of $301,400 for the three months ended December 31, 2022. The decrease in net income for the three months ended December 31, 2023 was primarily attributable to a decrease of $204,000 in net-interest income offset by a recovery of credit losses of $135,000. Non-interest income also decreased by $17,000 while non-interest expenses increased by $64,000. Finally, the provision for (benefit from) income taxes decreased by $121,000, from a provision for income taxes of $92,000 for the three months ended December 31, 2022 to a benefit from income taxes of $29,000 for the three months ended December 31, 2023.

Interest Income. Interest income increased by $157,000, or 7.0%, to $2.4 million for the three months ended December 31, 2023 compared to $2.2 million for the three months ended December 31, 2022 primarily due to an increase in loan interest income of $168,000.

Loan interest income increased by $168,000, or 8.3%, to $2.2 million for the three months ended December 31, 2023 from $2.0 million for the three months ended December 31, 2022, due to a slight increase in the average balance of the loan portfolio and an increase in the average yield on loans. The average balance of the loan portfolio increased by $982,000, or 0.5%, from $194.5 million for the three months ended December 31, 2022 to $195.5 million for the three months ended December 31, 2023. The average yield on the loan portfolio increased by 33 basis points from 4.19% for the three months ended December 31, 2022 to 4.52% for the three months ended December 31, 2023 as a result of rising interest rates.

Interest Expense. Interest expense increased $361,000, or 65.0%, to $917,000 for the three months ended December 31, 2023 from $556,000 for the three months ended December 31, 2022, due to an increase of $233,000 in interest paid on deposits and an increase of $128,000 in interest paid on borrowings.

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Interest expense on deposits increased $233,000, or 44.2%, to $759,000 for the three months ended December 31, 2023 from $526,000 for the three months ended December 31, 2022 due to an increase in the average rate paid on all deposit categories. The increase in the average rate paid on all deposit categories was due to the Bank raising the interest rates on these deposit categories to maintain customers and keep the rates in line with those competitors are offering. The increase in interest expense related to the increase in the average rate paid on all deposit categories was partially offset by a decrease in the average balances of all deposit categories. All categories of deposit accounts decreased when comparing the three months ended December 31, 2023 with the three months ended December 31, 2022. Demand, NOW and money market deposits decreased the most by $9.1 million, or 16.9%. The decrease in all deposit categories was related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates. Finally, we had a $4.5 million brokered certificate of deposit that matured at the end of September 2023.

Interest paid on FHLB borrowings increased $129,000, or 444.8%, from $29,000 for the three months ended December 31, 2022 to $158,000 for the three months ended December 31, 2023. The increase in interest paid on borrowings was due to the average balance of FHLB advances increasing by $13.0 million and an increase in the average rate paid on borrowings of 41 basis points from 3.46% for the three months ended December 31, 2022 to 3.87% for the three months ended December 31, 2023. We were able to obtain more favorable borrowing rates from the FHLB than what customers were requesting for certificates of deposit.

Net Interest Income. Net interest income decreased by $204,000, or 12.1%, to $1.5 million for the three months ended December 31, 2023 from $1.7 million for the three months ended December 31, 2022. Net interest-earning assets decreased by $6.5 million, or 15.5%, to $35.4 million for the three months ended December 31, 2023 from $41.9 million for the three months ended December 31, 2022. Net interest rate spread decreased by 36 basis points to 2.46% for the three months ended December 31, 2023 from 2.82% for the three months ended December 31, 2022, reflecting an 82 basis points increase in the average rate paid on interest-bearing liabilities which was offset by a 46 basis points increase in the average yield on interest-earning assets. The net interest margin decreased by 26 basis points to 2.76% for the three months ended December 31, 2023 from 3.02% for the three months ended December 31, 2022. The increase in the average yield on interest earning assets for the three months ended December 31, 2023 compared to the three months ended December 31, 2022 was primarily due to an increase in the average yield of all interest-earning asset categories related to the increase in market interest rates over the past year. The increase in the average interest rate paid on interest-bearing liabilities was due to the Bank raising the interest rates on all deposit categories to maintain customers and keep the rates in line with what the competitors were offering and to attract new funds to the Bank.

Provision for (Recovery of) Credit Losses. We charge (credit) provisions for (recovery of) credit losses to operations in order to maintain our allowance for credit losses on loans and reserve for unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are expected to be advanced at the consolidated balance sheet date. In determining the level of the allowance for credit losses, we consider our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for credit losses on a quarterly basis and make provisions for (recovery of) credit losses in order to maintain the allowance.

Based on our evaluation of the above factors, we recorded a recovery of credit losses of $135,000 for the three months ended December 31, 2023 compared to no provision for credit losses for the three months ended December 31, 2022, respectively. The recovery was related to an improvement in current and future economic conditions in our market area and the decline in the overall loan portfolio. We anticipate that unemployment and the housing price index (HPI) will improve over the next two years due to continued high demand and the low inventory of residential real estate. These predictions align with the Bank’s historic charge-off history over the past 8-10 years.

The allowance for credit losses was $1.9 million, or 0.96%, of loans outstanding at December 31, 2023 and $2.1 million, or 1.06%, of loans outstanding at December 31, 2022.

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To the best of our knowledge, we have recorded our best estimate of expected losses in the loan portfolio and for unfunded commitments at December 31, 2023. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for credit losses. In addition, the WDFI and the FDIC, as an integral part of their examination process, will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-interest Income. Non-interest income information is as follows.


	Three Months Ended
	December 31,				Change
	2023		2022		Amount		Percent

	(Dollars in thousands)
Service charges on deposit accounts	$	33	$	44	$	(11)	(25.0)	%
Mortgage banking		75		55		20	36.4	%
Increase in cash surrender value of BOLI		61		62		(1)	(1.6)	%
Gain on sale of foreclosed real estate		—		—		—	100.0	%
Net gain on securities transactions		—		24		(24)	(100.0)	%
Other		8		8		—	—	%
Total non-interest income	$	177	$	193	$	(16)	(8.3)	%

Non-interest income decreased by $16,000 to $177,000 for the three months ended December 31, 2023 from $193,000 for the three months ended December 31, 2022 due primarily to a net gain on securities transactions of $24,000 for the three months ended December 31, 2022 compared to no gains for the three months ended December 31, 2023. The gain was related to bonds that matured during the three months ended December 31, 2022 which had previous other than temporary impairment charges taken on these securities.

Non-interest Expenses. Non-interest expenses information is as follows.


	Three Months Ended
	December 31,				Change
	2023		2022		Amount		Percent

	(Dollars in thousands)
Salaries and employee benefits	$	761	$	832	$	(71)	(8.5)	%
Occupancy and equipment		212		177		35	19.8	%
Data processing and office		107		99		8	8.1	%
Professional fees		217		189		28	14.8	%
Marketing expenses		25		34		(9)	(26.5)	%
Foreclosed assets, net		23		—		23	100.0	%
Other		209		159		50	31.4	%
Total non-interest expenses	$	1,554	$	1,490	$	64	4.3	%

Non-interest expenses were $1.6 million for the three months ended December 31, 2023 compared to $1.5 million for the three months ended December 31, 2022. The increase was related to minor increases in the majority of expense accounts which were offset by a decrease of $71,000 in salaries and employee benefits when comparing the two periods. The increase in other expenses was primarily related to an increase in FDIC premiums and to a lesser extent, check fraud losses. The decrease in salaries and employee benefits was primarily related to the prior year period including a bonus accrual compared to no bonus accrual for the current three month period.

Provision for (Benefit from) Income Taxes. Income tax expense was a benefit of $29,000 for the three months ended December 31, 2023, a decrease of $121,000, as compared to income tax expense of $92,000 for the three months

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ended December 31, 2022. The decrease in income tax expense was primarily due to a change in the Company’s effective tax rate. The effective tax rate for the three months ended December 31, 2023 and 2022 was (12.0)% and 23.3%, respectively. The effective tax rate decreased during the three months ended December 31, 2023 as compared to the prior year period as a result of a change in Wisconsin tax law that provides for a subtraction from the Bank’s state taxable income for loan and fee interest income from certain commercial and agricultural loans. Management reassessed the impact of this change in Wisconsin tax law during the current quarter resulting in additional reversals of previously recorded tax expense.

Comparison of Operating Results for the Six Months Ended December 31, 2023 and 2022

General. Net income was $358,000 for the six months ended December 31, 2023, a decrease of $454,000, or 55.9%, from net income of $812,000 for the six months ended December 31, 2022. The decrease in net income for the six months ended December 31, 2023 was primarily attributable to decreases of $354,000 in net-interest income, and $149,000 in non-interest income and an increase in non-interest expenses of $82,000. These changes were partially offset by a decrease in the provision for income taxes of $36,000 and a recovery of loan losses of $94,000.

Interest Income. Interest income increased by $535,000, or 12.5%, to $4.8 million for the six months ended December 31, 2023 compared to $4.3 million for the six months ended December 31, 2022 primarily due to increases in loan interest income and other interest income (cash and cash equivalents and other). The increase in other interest income was primarily due to an increase in the average yield of 220 basis points on our cash and cash equivalents investments due to the increases in the federal funds rate which was offset by a decrease in the average balance of cash and cash equivalents of $2.3 million when comparing the six months ended December 31, 2023 with the six months ended December 31, 2022.

Loan interest income increased by $437,000, or 11.1%, to $4.4 million for the six months ended December 31, 2023 from $3.9 million for the six months ended December 31, 2022, due to an increase in the average balance of the loan portfolio and an increase in the average yield on loans. The average balance of the loan portfolio increased by $4.3 million, or 2.2%, from $192.0 million for the six months ended December 31, 2022 to $196.3 million for the six months ended December 31, 2023. The average yield on the loan portfolio increased by 36 basis points from 4.10% for the six months ended December 31, 2022 to 4.46% for the six months ended December 31, 2023 as a result of rising interest rates.

Interest Expense. Interest expense increased $888,000, or 102.1%, to $1.8 million for the six months ended December 31, 2023 from $870,000 for the six months ended December 31, 2022, due to an increase of $691,000 in interest paid on deposits and an increase of $198,000 in interest paid on borrowings.

Interest expense on deposits increased $691,000, or 83.2%, to $1.5 million for the six months ended December 31, 2023 from $831,000 for the six months ended December 31, 2022 due to an increase in interest expense on all deposit categories. The average balance of certificates of deposit increased $11.0 million, or 15.5%, from $70.8 million for the six months ended December 31, 2022 to $81.8 million for the six months ended December 31, 2023. The average balance of interest-bearing demand, NOW and money market and savings accounts decreased by $11.5 million and $4.5 million, respectively. The increase in the average balance of certificates of deposit was due to the purchase of brokered certificates of deposit of $4.5 million and the remaining increase in the average balance of certificates of deposit accounts was due to offering higher rate deposit products during the six months ended December 31, 2023. The decrease in the average balance of interest-bearing demand, NOW, money market and savings deposits was related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates. The average rate paid on demand, NOW and money market accounts and certificates of deposit also increased with the average rate paid on demand, NOW and money market accounts increasing by 54 basis points and the average rate paid on certificates of deposit increasing 129 basis points. The increase in the average rate paid on all deposit categories was due to the Bank raising the interest rates on these deposit categories to maintain customers and keep the rates in line with what the competitors were offering and to attract new funds to the Bank.

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Interest paid on FHLB borrowings increased $197,000, or 505.1%, from $39,000 for the six months ended December 31, 2022 to $236,000 for the six months ended December 31, 2023. The increase in interest paid on borrowings was due to the average balance of FHLB advances increasing by $10.8 million and an increase in the average rate paid on borrowings of 24 basis points from 3.38% for the six months ended December 31, 2022 to 3.62% for the six months ended December 31, 2023. We were able to obtain more favorable borrowing rates from the FHLB than what customers were requesting for certificates of deposits.

Net Interest Income. Net interest income decreased by $354,000, or 10.4%, to $3.0 million for the six months ended December 31, 2023 from $3.4 million for the six months ended December 31, 2022. Net interest-earning assets decreased by $5.0 million, or 10.4%, to $36.3 million for the six months ended December 31, 2023 from $41.3 million for the six months ended December 31, 2022. Net interest rate spread decreased by 46 basis points to 2.50% for the six months ended December 31, 2023 from 2.96% for the six months ended December 31, 2022, reflecting a 95 basis points increase in the average rate paid on interest-bearing liabilities offset by a 49 basis points increase in the average yield on interest-earning assets. The net interest margin decreased 33 basis points to 2.80% for the six months ended December 31, 2023 from 3.13% for the six months ended December 31, 2022. The increase in the average yield on interest earning assets for the six months ended December 31, 2023 compared to the six months ended December 31, 2022 was primarily due to an increase in market interest rates. The increase in the average interest rate paid on interest-bearing liabilities was due to the Bank raising the interest rates on all deposit categories to maintain customers and keep the rates in line with what the competitors were offering and to attract new funds to the Bank.

Provision for (Recovery of) Credit Losses. We charge (credit) provisions for (recovery of) credit losses to operations in order to maintain our allowance for credit losses on loans and reserve for unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are expected to be advanced at the consolidated balance sheet date. In determining the level of the allowance for credit losses, we consider our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for credit losses on a quarterly basis and make provisions for (recovery of) credit losses in order to maintain the allowance.

Based on our evaluation of the above factors, we recorded a recovery of credit losses of $94,000 for the six months ended December 31, 2023 compared to no provision for credit losses for the six months ended December 31, 2022, respectively. The recovery was related to an improvement in the current and future economic conditions in our market area and the decline in the overall loan portfolio. We anticipate that unemployment and the housing price index (HPI) will improve over the next two years due to continued high demand and the low inventory of residential real estate. These predictions align with the Bank’s historic charge-off history over the past 8-10 years. The allowance for credit losses was $1.9 million, or 0.96%, of loans outstanding at December 31, 2023 and $2.1 million, or 1.06%, of loans outstanding at December 31, 2022.

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Non-interest Income. Non-interest income information is as follows.


	Six Months Ended
	December 31,				Change
	2023		2022		Amount		Percent

	(Dollars in thousands)
Service charges on deposit accounts	$	64	$	85	$	(21)	(24.7)	%
Mortgage banking		206		136		70	51.47	%
Increase in cash surrender value of BOLI		121		120		1	0.8	%
Net gain on securities transactions		—		24		(24)	(100.0)	%
Gain on proceeds from life insurance death benefit		—		173		(173)	(100.0)	%
Other		14		16		(2)	(12.5)	%
Total non-interest income	$	405	$	554	$	(149)	(26.9)	%

Non-interest income decreased by $149,000 to $405,000 for the six months ended December 31, 2023 from $554,000 for the six months ended December 31, 2022 due primarily to a gain on proceeds from a life insurance death benefit and net gain on securities transactions of $173,000 and $24,000, respectively, being recognized during the six months ended December 31, 2022 compared to no such amounts being recognized during the six months ended December 31, 2023. These decreases were partially offset by an increase in mortgage banking income of $70,000. The increase in mortgage banking income (consisting primarily of sales of fixed-rate one- to four-family residential real estate loans) increased as we sold $4.1 million of mortgage loans into the secondary market during the six months ended December 31, 2023 compared to $973,000 of such sales during the six months ended December 31, 2022 as well as an increase in the mortgage servicing fees we receive. Mortgage activity has started to pick up recently as a result of a slight decline in mortgage rates.

Non-interest Expenses. Non-interest expenses information is as follows.


	Six Months Ended
	December 31,				Change
	2023		2022		Amount		Percent

	(Dollars in thousands)
Salaries and employee benefits	$	1,533	$	1,664	$	(131)	(7.9)	%
Occupancy and equipment		382		349		33	9.5	%
Data processing and office		216		186		30	16.1	%
Professional fees		388		374		14	3.7	%
Marketing expenses		40		51		(11)	(21.6)	%
Foreclosed assets, net		37		—		37	100.0	%
Other		421		312		109	34.9	%
Total non-interest expenses	$	3,017	$	2,936	$	81	2.8	%

Non-interest expenses were $3.0 million for the six months ended December 31, 2023 compared to $2.9 million for the six months ended December 31, 2022. The increase was related to minor increases in the majority of expense accounts which were offset by a decrease of $131,000 in salaries and employee benefits when comparing the two periods. The increase in other expenses was primarily related to an increase in FDIC premiums and to a lesser extent, check fraud losses. The decrease in salaries and employee benefits was primarily related to the prior year period including a bonus accrual compared to no bonus accrual for the current six month period.

Provision for Income Taxes. Income tax expense was $172,000 for the six months ended December 31, 2023, a decrease of $36,000, as compared to income tax expense of $208,000 for the six months ended December 31, 2022. The decrease in income tax expense was primarily the result of a decrease in income before income taxes of $490,000 which was offset by a change in Wisconsin tax law that provides for a subtraction from the Bank’s state taxable income for loan and fee interest income from certain commercial and agricultural loans. Based upon the provisions of this new state tax law, management determined that the Company was highly unlikely to incur a material Wisconsin tax liability in the foreseeable future, instead generating Wisconsin net operating loss carryforwards that would never be

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realized. Since the state rate at which net deferred tax assets are expected to be realized is 0%, the Company eliminated its state net deferred tax asset balances as of July 1, 2023, resulting in deferred tax expense of approximately $112,000 for the six months ended December 31, 2023.

Asset Quality

Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.


	At December 31, 2023								At June 30, 2023
	30-59		60-89		90 Days				30-59		60-89		90 Days
	Days		Days		or More			Nonaccrual	Days		Days		or More			Nonaccrual
	Past Due		Past Due		Past Due			Balance	Past Due		Past Due		Past Due			Balance

	(In thousands)
Real estate loans:
One- to- four-family residential	$	68	$	—	$	—	$	—	$	27	$	—	$	—	$	—
Multifamily		56		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		16		—		—		—
Consumer		—		—		—		—		—		—		—		—
Total	$	124	$	—	$	—	$	—	$	43	$	—	$	—	$	—

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Non-Performing Assets. The following table sets forth information regarding our non-performing assets.


	At December 31,			At June 30,
	2023			2023

	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	—		$	—
Multifamily		—			—
Commercial		—			—
Construction		—			—
Commercial and industrial		—			—
Consumer		—			—
Total non-accrual loans		—			—
Accruing loans past due 90 days or more		—			—
Real estate owned:
One- to four-family residential		—			—
Multifamily		—			—
Commercial		—			—
Construction		2,312			2,312
Commercial and industrial		—			—
Consumer		—			—
Total real estate owned		2,312			2,312
Total non-performing assets	$	2,312		$	2,312
Total non-performing loans to total loans		—	%		—	%
Total non-performing loans to total assets		—	%		—	%
Total non-performing assets to total assets		0.99	%		0.97	%

Non-performing assets includes other real estate owned of $2.3 million related to the foreclosure of collateral supporting a construction loan which was valued at $2.3 million and is included in foreclosed assets. The valuation was based on recently obtained independent appraisals subject to certain discounts less estimated costs to sell.

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of an allowance for credit loss is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” or “Watch” by our management.

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On the basis of our review of our loans, our classified and special mention or watch loans at the dates indicated were as follows:


	At December 31,		At June 30,
	2023		2023

	(In thousands)

Classification of Loans:
Substandard	$	—	$	—
Doubtful		—		—
Loss		—		—
Total Classified Loans	$	—	$	—
Special Mention/Watch	$	—	$	—

Allowance for Credit Losses

Allowance for Credit Losses. We establish the allowance for credit losses through charges (credits) to earnings in the form of a provision for (recovery of) credit losses. Credit losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance for credit losses (“ACL”) at December 31, 2023 represents the Company’s current estimate of the lifetime credit losses expected from its loan portfolio. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of economic parameters and other qualitative adjustments, for the loans’ expected remaining term.

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the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

The following table sets forth activity in our allowance for credit losses for the periods indicated.


	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2023			2022			2023			2022

	(Dollars in thousands)						(Dollars in thousands)
Allowance at beginning of period	$	2,025		$	2,059		$	2,159		$	2,195
Implementation of CECL (notes 1 and 4)		—			—			(175)			—
Provision for (recovery of) credit losses		(135)			—			(94)			—
Charge offs:
Real estate loans:
One- to four-family residential		—			—			—			—
Multifamily		—			—			—			—
Commercial		—			—			—			(137)
Construction		—			—			—			—
Commercial loans and industrial		—			—			—			—
Consumer		—			—			—			—
Total charge-offs		—			—			—			(137)
Recoveries:
Real estate loans:
One- to four-family residential		—			—			—			—
Multifamily		—			—			—			—
Commercial		—			—			—			—
Construction		—			—			—			—
Commercial and industrial		—			—			—			—
Consumer		1			—			1			1
Total recoveries		1			—			1			1
Net (charge-offs) recoveries		1			—			1			(136)
Allowance at end of period	$	1,891		$	2,059		$	1,891		$	2,059
Allowance to non-performing loans		—	%		3,743.64	%		—	%		3,743.64	%
Allowance to total loans outstanding at the end of the period		0.96	%		1.06	%		0.96	%		1.06	%
Net (charge-offs) recoveries to average loans outstanding during the period		0.00	%		0.00	%		0.00	%		(0.07)	%

Net (charge-offs) recoveries to average loans outstanding during the period

Real estate loans:
One- to four-family residential		—	%		—	%		—	%		—	%
Multifamily		—	%		—	%		—	%		—	%
Commercial		—	%		—	%		—	%		(0.07)	%
Construction		—	%		—	%		—	%		—	%
Commercial and industrial		—	%		—	%		—	%		—	%
Consumer		—	%		—	%		—	%		—	%
Net (charge-offs) recoveries to average loans outstanding during the period		0.00	%		0.00	%		0.00	%		(0.07)	%

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Allocation of Allowance for Credit Losses. The following table sets forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.


	At December 31, 2023						At June 30, 2023

			Percent of		Percent of Loans				Percent of		Percent of Loans
			Allowance to		In Category to Total				Allowance to		In Category to Total
	Amount		Total Allowance		Loans		Amount		Total Allowance		Loans

	(Dollars in thousands)
Commercial real estate	$	344	18.2	%	42.2	%	$	1,196	55.4	%	42.3	%
Commercial and industrial		21	1.1	%	3.2	%		18	0.8	%	3.4	%
Construction		6	0.3	%	0.7	%		6	0.3	%	1.0	%
One-to-four-family residential		1,295	68.5	%	29.8	%		207	9.6	%	29.8	%
Multi-family real estate		218	11.5	%	23.2	%		365	16.9	%	22.1	%
Consumer		7	0.4	%	0.9	%		2	0.1	%	1.4	%
Unallocated		—	—	%	—			365	16.9	%	—	%
Total	$	1,891	100	%	100	%	$	2,159	100.0	%	100.0	%

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Chicago. At December 31, 2023, we had a $83.0 million line of credit with the Federal Home Loan Bank of Chicago, which had $20.0 million in borrowings outstanding as of that date. The Bank also has $25.0 million available to borrow from the Federal Reserve Bank when pledging acceptable assets and an unsecured Federal Funds purchasing limit of $5.0 million with the Bank’s correspondent bank. At December 31, 2023, the Bank did not borrow any additional funds from the Federal Reserve or from the correspondent bank.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $990,000 and $962,000 of cash provided by operating activities for the six months ended December 31, 2023 and 2022, respectively. Net cash provided by (used in) investing activities, which consists primarily of disbursements for loan origination, the purchase of securities, and the purchase of premises and equipment offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $1.3 million provided by investing activities compared to $4.8 million used in investing activities for the six months ended December 31, 2023 and 2022, respectively. Net cash (used in) provided by financing activities, consisting of activity in deposit accounts and borrowings, was $5.9 million used in financing activities compared to $14.8 million being provided by financing activities for the six months ended December 31, 2023 and 2022, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience, current pricing strategy and regulatory restrictions, we anticipate that a substantial portion of maturing time deposits will be retained, and that we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.

At December 31, 2023, Marathon Bank was classified as “well capitalized” for regulatory capital purposes. See Note 9-Minimum Regulatory Capital Requirements in the accompanying consolidated financial statements for additional information.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2023, we had outstanding commitments to originate loans of $4.2 million, and $285,000 in outstanding commitments to sell loans. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in one year or less from December 31, 2023 totaled $46.7 million, which include $4.2 million in brokered certificates of deposit. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize additional Federal Home Loan Bank advances or other borrowings, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Recent Accounting Pronouncements

Please refer to Note 1 to the consolidated financial statements for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

Impact of Inflation and Changing Price

The financial statements and related data presented herein have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

A smaller reporting company is not required to provide the information related to this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must necessarily reflect the fact that there are resource constraints and that management is required to apply its judgement in evaluating the benefits of possible controls and procedures relative to their costs.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer , the Company has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15 and 15d-15(e) under the Exchange Act as of December 31, 2023.

We identified a material weakness in our controls over accounting that occurred beginning in the fourth quarter of fiscal year 2021 through the second quarter of fiscal year 2024 relating to special provisions in the tax laws regarding a Bank’s allowable tax bad debt deductions and related tax bad debt reserves as described below. Based upon that discovery, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at a level that provides reasonable assurance as of the last day of the period covered by this report.

The material weakness in internal control over financial reporting resulted from the lack of controls which allowed for the Company to erroneously maintain a deferred tax liability, which it will not be required to recapture as management does not intend to redeem stock, make distributions or take other actions that would result in the recapture of this reserve. The Company erroneously applied the Section 585 reserve method, whereby it was allowed to, in 1996, change to the specific charge-off method (with no reserve) and recapture the thrift reserves in their entirety if it switched from a thrift charter to a commercial charter prior to 1996. This material weakness resulted in the correction of the material errors and restatement of prior financial statements as disclosed in Note 1 to the consolidated audited financial statements contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 20, 2023.

We have been and are actively engaged in the implementation of remediation efforts to address the material weakness in our internal control over financial reporting. These remediation efforts include a robust review of all current and previous income tax laws impacting the Company including the preparation of a detailed checklist governing income taxes for financial institutions. Management believes that the new procedures and controls will provide an appropriate remediation of the material weakness; however, the effectiveness of the controls have not been fully tested by management. The material weakness will be fully remediated when, in the opinion of management, the revised control processes have been operating for a sufficient period of time and independently validated by management.

Internal Control over Financial Reporting

Other than the remediation described above, there has been no change in the Company’s internal control over financial reporting during the second quarter of the fiscal year ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of December 31, 2023, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material effect on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

A smaller reporting company is not required to provide the information related to this item.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

On December 22, 2023, the Company announced it had adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 107,875 shares of its common stock, or approximately 5.0% of the then outstanding shares. Shares may be repurchased in open market or private transactions, through block trades, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The repurchase program has no expiration date. No repurchases were made during the three months ended December 31, 2023. All shares of common stock repurchased will be retired.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the second fiscal quarter of 2024, none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.

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Item 6. Exhibits


Exhibit No.		Description

31.1		Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
31.2		Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
32.1		Section 1350 Certification of the Chief Executive Officer
32.2		Section 1350-Certification of the Chief Financial Officer
101		The following materials from Marathon Bancorp, Inc. Form 10-Q for the three and six months ended December 31, 2023 and 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) related notes
104		Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Marathon Bancorp, Inc.

Date: February 14, 2024	By:	/s/ Nicholas W. Zillges
		Nicholas W. Zillges
		President and Chief Executive
		Officer (Principal Executive Officer)

Date: February 14, 2024	By:	/s/ Joy Selting-Buchberger
		Joy Selting-Buchberger
		Senior Vice President and Chief
		Financial Officer (Principal
		Financial and Accounting Officer)

Marathon Bancorp, Inc. /MD/ [MBBC] Filings
10-Q	[2024-02-14]
10-Q	[2023-11-14]
10-K	[2023-09-20]
10-Q	[2023-05-12]
10-Q	[2023-02-14]
10-Q	[2022-11-14]
10-K	[2022-09-28]
10-Q	[2022-05-13]
10-Q	[2022-02-11]
10-Q	[2021-11-12]
10-K	[2021-09-28]
10-Q	[2021-05-13]
10-Q	[2021-03-26]
S-1	[2020-12-11]