MBBC · Read the filing

ITEM 1A: RISK FACTORS

Not required of a smaller reporting company.

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

As of June 30, 2022, the net book value of our office properties was $1.7 million. The following table sets forth information regarding our offices.

Leased or Year Acquired Net Book Value of

Location Owned or Leased Real Property

(In thousands)

Main Office:

Other Properties:

1133 E Grand Avenue, Rothschild, WI Leased 2009 50

307 Third Street, Mosinee, WI Owned 1974 60

We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.

ITEM 3: LEGAL PROCEEDINGS

We are not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business. At June 30, 2022, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

ITEM 4: MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is quoted on the OTC Pink Marketplace operated by the OTC Markets Group under the symbol “MBBC.” There were 198 shareholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms) as of September 26, 2022 and 2,269,700 shares of common stock outstanding. The following table sets forth the quarterly high and low prices for a share of the Company’s common stock since the stock became quoted on the OTC Pink Market Place on April 15, 2021. The information was obtained from

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the OTC Pink Marketplace. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. No dividends were paid in fiscal 2022 or 2021.

Market Value of Common Stock

High Low

The Company did not repurchase any shares of its common stock during its fourth fiscal quarter ended June 30, 2022.

Dividends

We do not currently intend to pay cash dividends to our stockholders. The payment and amount of any dividend payments will be subject to statutory and regulatory limitations, and will depend upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; the ability of mutual holding companies to waive dividends; and general economic conditions.

ITEM 6: RESERVED

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis reflects our audited 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 audited consolidated financial statements, which appear beginning on page 51 of this Form 10-K.

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.

Provision for Loan Losses. The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance for loan losses is increased through charges to the provision for loan losses. Loans are charged against the allowance when management believes that the collectability of the principal loan amount is not probable. Recoveries on loans previously charged-off, if any, are credited to the allowance for loan losses when realized.

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 on securities transactions, net gain or loss on disposal of foreclosed assets and other income.

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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 and other general and administrative expenses, including premium payments we make to the FDIC for insurance of our deposits.

Income Tax Expense. 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.

Impact of COVID-19 Outbreak

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). This was considered Round 1 of the PPP. Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation. We subsequently obtained approval as a qualified SBA lender. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and included new funding for the PPP (Round 2). The PPP program ended in May 2021.

Commercial and industrial loans include loans originated under the PPP, a specialized low-interest (1%) forgivable loan program funded by the U.S. Treasury Department and administered by the SBA. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for other qualifying expenses. As of June 30, 2022, we had originated 109 PPP loans totaling $10.4 million. As of June 30, 2022, all of these PPP loans have been forgiven. As of June 30, 2022, we had no PPP loans outstanding.

We have implemented various consumer and commercial loan modification programs to provide our borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act and COVID-19 related legislation, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under U.S. GAAP through January 1, 2022. In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date are not TDRs. As of June 30, 2022, we had granted short-term payment deferrals on 56 loans, totaling approximately $20.0 million in aggregate principal amount. As of June 30, 2022, all of these loans have returned to normal payment status.

Business Strategy

Our business strategy is to operate as a well-capitalized and profitable community bank dedicated to providing personal service to our individual and business customers. We believe that we have a competitive advantage in the markets we serve because of our 119-year history in the community, our knowledge of the local marketplace and our long-standing reputation for providing superior, relationship-based customer service. The following are the key elements of our business strategy:

Increase our commercial real estate lending into the higher growth Southeastern Wisconsin market. As a result of our recent efforts to better balance the overall loan portfolio between commercial and non-commercial lending and expansion into the Southeastern Wisconsin market, including the Milwaukee metropolitan area, our commercial real estate loans, including multifamily loans, increased to $114.5 million, or 61.0% of our loan portfolio, at June 30, 2022, compared to $69.4 million, or 47.3% of our loan portfolio, at June 30, 2021. We intend to retain our presence as a commercial real estate lender (which includes multifamily loans) in our market area and seek to expand our market share

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in existing and other growth markets in Southeastern Wisconsin, including Milwaukee. We intend to continue to build relationships with small and medium-sized businesses and high net worth individuals in these market areas focusing on lending to manufacturing, wholesale distribution and professional service businesses. We also intend to increase our Southeastern Wisconsin presence by using the capital raised in our stock offering to hire experienced local commercial real estate lenders with credit skills that fit well with our focus on asset quality, as well as possibly expand our branch network, either through acquisitions or organically, in Southeastern Wisconsin. We believe the additional capital raised in the offering will enable us to increase our originations of commercial real estate loans and related lending limits, which will enable us to originate larger loans to new and existing customers. Given their larger balances and the complexity of the underlying collateral, commercial real estate and multifamily real estate loans generally have more risk than the owner-occupied one- to four-family residential real estate loans we originate. Because the repayment of commercial real estate and multifamily real estate loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. Furthermore, the significant loan growth may require an increase in our provision for loan losses as the portfolio growth continues to outpace the growth in our allowance for loan losses.

Continue to originate and sell certain residential real estate loans. Residential mortgage lending has historically been a significant part of our business, and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank. During the year ended June 30, 2022, we originated and sold $16.8 million of one- to four-family residential real estate loans held for sale for gains on sale of loans of $308,000. These amounts are significantly below 2021’s activity due to the increase in market interest rates over the past year. We intend to continue to sell in the secondary market most of the long-term conforming fixed-rate one- to four-family residential real estate loans that we originate for fee income that enhances our non-interest income and mitigates the risks associated with changes in market interest rates that may adversely impact our interest income.

Increase our share of lower-cost core deposit growth. We have made a concerted effort to reduce our reliance on higher cost certificates of deposit in favor of obtaining lower cost retail and commercial deposit accounts. We have also made significant investments in our technology-based products. For example, we have enhanced our suite of deposit products, including remote deposit capture, commercial cash management and mobile deposits in order to accommodate business customers. This has had the dual effect of reducing our concentration of certificates of deposit to approximately 31.9% at June 30, 2022 from 35.4% of total deposits at June 30, 2021, while growing our core deposits to $128.1 million at June 30, 2022 from $112.7 million at June 30, 2021. We intend to continue our focus on core deposit growth by offering our retail and commercial customers a full selection of deposit-related services, and making further investments in technology so that we can deliver high-quality, innovative products and services to our customers.

Manage credit risk to maintain a low level of non-performing assets. We believe that credit risk management is paramount to our long-term success. Over the past several years, we have invested significantly in both personnel and software to effectively manage our portfolio, and we have considerably enhanced our controls. We have established an experienced commercial credit team and we have implemented well-defined policies, a thorough and efficient loan underwriting process, and active credit monitoring. As a result of our continued focus on credit risk management, our non-performing loans to total loans was 0.06% and 0.12% as of June 30, 2022 and June 30, 2021, respectively. We intend to continue to support our investment in our commercial credit department as we grow our loan portfolio in the future.

Grow organically and through opportunistic bank or branch acquisitions or de novo branching. In addition to organic growth, we will also consider acquisition opportunities that we believe would enhance the value of our franchise and yield potential financial benefits for our stockholders. Although we believe opportunities exist to increase our market share in our historical markets, we expect to continue to expand into Southeastern Wisconsin. We will consider expanding our branch network through acquisitions and/or through establishing de novo branches, although we have no current acquisitions or new branches planned. The recent capital we raised provides us the opportunity to make acquisitions of other financial institutions or branches thereof, and will also help fund improvements in our operating facilities, credit reporting and customer delivery services in order to enhance our competitiveness.

Remain a community-oriented institution and relying on high quality service to maintain and build a loyal local customer base. We were established in 1902 and have been operating continuously since that time in our local

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community. Through the goodwill we have developed over the years of providing timely, efficient banking services, we believe that we have been able to attract a solid base of local retail customers on which we hope to continue to build our banking business.

Anticipated Increase in Non-interest Expense

Our non-interest expense is expected to increase because of the increased costs associated with operating as a public company, and the increased compensation expenses associated with the implementation of the Company’s 2022 Equity Incentive Plan.

Summary of Significant Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our audited consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these audited consolidated 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 and estimates. 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 estimates:

Allowance for Loan Losses. The allowance for loan losses established as losses is estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. General components cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability, and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of other external factors such as competition and legal and regulatory requirements. At June 30, 2022 and 2021, the qualitative loan portfolio risk factors were slightly reduced in all loan categories except commercial real estate which

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we believe exhibits the most credit risk related to local and national economic conditions as well as industry conditions and concentrations.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reason for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

As an integral part of their examination process, various regulatory agencies review the allowance for loan losses as well. Such agencies may require that changes in the allowance for loan losses be recognized when such regulatory credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.

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 consolidated 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 consolidated 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. Available-for-sale and held-to-maturity debt securities are reviewed by management on a quarterly basis, and more frequently when economic or market conditions warrant, for possible other-than-temporary impairment. In determining other-than-temporary impairment, management considers many factors, including the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statement of income. The assessment of whether other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. In order to determine other-than-temporary impairment for mortgage-backed securities, asset-backed securities and collateralized mortgage obligations, we compare the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. Other-than-temporary impairment is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Fair Value Measurements. The Company determines the fair value of certain assets in accordance with the provisions of FASB Accounting Standards Codification Topic Accounting Standards Codification 820, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles.

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Fair value is defined as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. It is required that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. The Standard also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels:

● Level 3 inputs are unobservable inputs related to the asset.

Selected Financial Data

The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K for 2022.

At June 30,

(In thousands)

Selected Financial Condition Data:

Debt securities available for sale 10,617 10,910

Debt securities held to maturity 532 709

Federal Home Loan Bank stock, at cost 323 262

Bank owned life insurance 9,193 5,969

Premises and equipment, net 1,676 1,850

Deferred tax asset 97 270

PPPLF Funding — 10,372

For the Years

Ended June 30,

(In thousands)

Selected Operating Data:

Provision for loan losses — —

Net interest income after provision for loan losses 6,209 5,393

Income before income taxes 1,772 1,851

Income tax expense 437 478

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At or For the Years

Ended June 30,

Performance Ratios:

Return on average assets 0.62 % 0.73 %

Return on average equity 4.90 % 6.14 %

Interest rate spread (1) 2.99 % 2.99 %

Net interest margin (2) 3.09 % 3.10 %

Non-interest expenses to average assets 2.59 % 2.90 %

Capital Ratios (4):

Average equity to average assets 12.69 % 11.88 %

Tier 1 capital to average assets 12.17 % 12.47 %

Asset Quality Ratios:

Allowance for loan losses as a percentage of total loans 1.17 % 1.49 %

Net recoveries to average outstanding loans during the year 0.01 % 0.38 %

Non-performing loans as a percentage of total loans 0.06 % 0.12 %

Non-performing loans as a percentage of total assets 0.05 % 0.08 %

Total non-performing assets as a percentage of total assets 0.05 % 0.08 %

Other:

Number of offices 4 4

Number of full-time equivalent employees 35 36

Comparison of Financial Condition at June 30, 2022 and June 30, 2021

Total Assets. Total assets increased $6.4 million, or 3.0%, to $220.0 million at June 30, 2022 from $213.6 million at June 30, 2021. The increase was primarily due to an increase of $41.4 million, or 28.8%, in net loans and an increase in the cash surrender value of life insurance of $3.2 million or 54.0% which was offset by a decrease in cash and cash equivalents of $37.6 million or 81.7%.

Cash and Cash Equivalents. Total cash and cash equivalents decreased $37.6 million, or 81.7%, to $8.4 million at June 30, 2022 from $46.0 million at June 30, 2021 due to the use of cash to fund loan originations, the purchase of $3.5 million of corporate bonds in our debt securities available for sale portfolio and the purchase of an additional $3.0 million of bank owned life insurance.

Debt Securities Available for Sale. Total debt securities available for sale decreased $293,000, or 2.7%, to $10.6 million at June 30, 2022 from $10.9 million at June 30, 2021. The decrease was primarily due to a decrease of $2.0 million in mortgage-backed securities and $819,000 in state and municipal obligations as a result of paydowns and maturities, offset by the purchase of $3.5 million in corporate bonds.

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Debt Securities Held to Maturity. Total debt securities held to maturity decreased $177,000, or 24.9%, to $532,000 at June 30, 2022 from $709,000 at June 30, 2021. The decrease was primarily due to a decrease in mortgage-backed securities as a result of paydowns and maturities.

Net Loans. Net loans increased $41.4 million, or 28.8%, to $185.6 million at June 30, 2022 from $144.2 million at June 30, 2021. The increase was due to a $28.5 million, or 54.6%, increase in commercial real estate loans to $80.6 million at June 30, 2022 from $52.1 million at June 30, 2021 and an increase in multifamily loans of $16.6 million, or 96.6%, to $33.9 million at June 30, 2022 from $17.3 million at June 30, 2021. One-to four-family residential mortgage loans also increased by $3.5 million, or 7.2%, to $51.9 million at June 30, 2022 from $48.4 million at June 30, 2021. Construction loans also increased by $2.6 million, or 32.5%, to $10.6 million at June 30, 2022 from $8.0 million at June 30, 2021. Commercial and industrial loans (including Paycheck Protection Program Loans) decreased by $10.5 million, or 54.5%, to $8.8 million at June 30, 2022 from $19.3 million at June 30, 2021 due to the repayment by the SBA of forgiven PPP loans. The increase in commercial and multifamily real estate loans was primarily due to our strategy to enhance our commercial lending in Southeastern Wisconsin. The increase in one- to four-family residential mortgage loans was due to additional growth with respect to adjustable-rate one-to four-family residential loans. Construction loans increased due to an increase in our construction loan participations.

Deposits. Total deposits increased $16.1 million, or 9.4%, to $188.1 million at June 30, 2022 from $172.0 million at June 30, 2021. The increase in deposits reflected an increase in demand, NOW and money market accounts of $13.4 million, or 30.2%, to $57.8 million at June 30, 2022 from $44.4 million at June 30, 2021 and an increase in savings accounts of $1.9 million, or 4.3%, to $46.6 million at June 30, 2022 from $44.7 million at June 30, 2021. Certificates of deposit also increased by $769,000, or 1.3%, to $60.0 million at June 30, 2022 from $59.2 million at June 30, 2021. The increase in all deposit accounts was related to new customers.

Borrowings. Our borrowings from the Federal Reserve PPP Liquidity Facility to fund our PPP loans decreased by $10.4 million, or 100%, to $0 at June 30, 2022 from $10.4 million at June 30, 2021 due to the repayment by the SBA of forgiven PPP loans and subsequent paydown of the related borrowings.

Stockholders’ Equity. Total stockholders’ equity increased by $893,000, or 3.0%, to $30.7 million at June 30, 2022 from $29.8 million at June 30, 2021. The increase was primarily due to net income of $1.3 million offset by an increase in accumulated other comprehensive loss of $490,000 during the year ended June 30, 2022 as a result of an increase in market interest rates.

Average Balance Sheets

The following table sets forth average balances, average yields and costs, and certain other information for the years 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 were 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

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income or interest expense, as applicable. Loan balances include loans held for sale. Deferred loan fees accreted to interest income totaled $536,000 and $429,000 for the years ended June 30, 2022 and 2021, respectively.

For the Year Ended June 30,

Average Average Average Average

Outstanding Yield/Rate Outstanding Yield/Rate

Balance Interest Balance Interest

(Dollars in thousands)

Interest-earning assets:

Noninterest-earning assets 13,993 13,534

Interest-bearing liabilities:

FHLB advances and other borrowings — — — % 6,441 19 0.29 %

Non-interest-bearing demand deposits 23,684 16,482

Other non-interest-bearing liabilities 1,130 1,216

Total stockholders' equity 27,246 22,265

Total liabilities and stockholders' equity $ 214,766 $ 187,379

Net interest income $ 6,209 $ 5,393

Net interest rate spread (1) 2.99 % 2.99 %

Net interest-earning assets (2) $ 38,067 $ 26,429

Net interest margin (3) 3.09 % 3.10 %

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

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

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the years 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

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and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

Year Ended June 30,

Increase (Decrease) Due to Total

Increase

Volume Rate (Decrease)

(In thousands)

Interest-earning assets:

Debt securities (45) 14 (31)

Cash and cash equivalents — 41 41

Other 1 (7) (6)

Total interest-earning assets 1,330 (657) 673

Interest-bearing liabilities:

Demand, NOW and money market deposits 49 18 67

Savings deposits 6 1 7

Total interest-bearing deposits 214 (322) (108)

FHLB advances and other borrowings (19) — (19)

PPP Liquidity Facility borrowings (19) 3 (16)

Total interest-bearing liabilities 176 (319) (143)

Change in net interest income $ 1,154 $ (338) $ 816

Comparison of Operating Results for the Years Ended June 30, 2022 and 2021

General. Net income was $1.3 million for the year ended June 30, 2022, a decrease of $38,000, or 2.8%, from net income of $1.4 million for the year ended June 30, 2021. The decrease in net income for the year ended June 30, 2022 was primarily attributed to a decrease in non-interest income of $777,000 and an increase in non-interest expenses of $118,000, offset by an increase in net interest income of $816,000. The provision for income taxes decreased $40,000.

Interest Income. Interest income increased by $673,000, or 10.4%, to $7.2 million for the year ended June 30, 2022 from $6.5 million for the year ended June 30, 2021, primarily due to increases in loan interest income and cash and cash equivalents interest income which was offset by a decrease in debt securities interest income.

Loan interest income increased by $669,000, or 11.0%, to $6.8 million for the year ended June 30, 2022 from $6.1 million for the year ended June 30, 2021, due to an increase in the average balance of the loan portfolio, offset by a decrease in the average yield on loans (excluding PPP loans). The average balance of the loan portfolio (excluding PPP loans) increased by $35.9 million, or 30.1%, from $119.1 million for the year ended June 30, 2021 to $155.0 million for the year ended June 30, 2022. The increase in the average balance of loans was due to our continued efforts to increase commercial and multifamily real estate loans in Southeastern Wisconsin. The average balance of PPP loans decreased due to the repayment by the SBA of forgiven PPP loans. There were no outstanding PPP loans as of June 30, 2022. The average yield on the loan portfolio (excluding PPP loans) decreased 75 basis points from 4.79% for the year ended June 30, 2021 to 4.04% for the year ended June 30, 2022. The decrease in the average yield on loans (excluding PPP loans) was primarily due to new loans being booked at low market interest rates prior to the recent increases in market interest rates approved by the Federal Reserve. In addition, loan interest income was positively impacted by the recognition of deferred fee income of $483,000 during the year ended June 30, 2022 on the forgiven PPP loans repaid by the SBA compared to $404,000 for the year ended June 30, 2021.

Debt securities interest income decreased $31,000, or 8.6%, to $331,000 for the year ended June 30, 2022 from $362,000 for the year ended June 30, 2021 due to a decrease of $1.8 million in the average balance of the debt securities portfolio which was offset by a 12 basis points increase in the average yield on the debt securities portfolio to 2.68% for the year ended June 30, 2022 from 2.56% for the year ended June 30, 2021. The decrease in the average balance of the

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debt securities portfolio was primarily due to securities paydowns which was offset by the purchase of $3.5 million in corporate bonds during the year ended June 30, 2022. The increase in the average yield on the debt securities portfolio was due to higher interest rates on the $3.5 million in corporate bonds purchased partially offset by the decrease in average yield of our collateralized mortgage obligations with inverse floating rates.

Cash and cash equivalent interest income increased by $41,000, or 205.0%, to $61,000 for the year ended June 30, 2022 as compared to $20,000 for the year ended June 30, 2021. The average yield increased to 0.19% for the year ended June 30, 2022 from 0.06% for the year ended June 30, 2021, while the average balance of cash and cash equivalents decreased slightly from $32.4 million for the year ended June 30, 2021 to $32.2 million for the year ended June 30, 2022. The increase in the average yield on cash and cash equivalents was primarily due to higher average rates earned on federal funds sold, as a result of the increase in market interest rates since June 30, 2021.

Interest Expense. Interest expense decreased $143,000, or 13.2%, to $948,000 for the year ended June 30, 2022 from $1.1 million for the year ended June 30, 2021, due to a decrease of $108,000 in interest paid on deposits and a decrease of $35,000 in interest paid on borrowings.

Interest expense on deposits decreased $108,000, or 12.8%, to $941,000 for the year ended June 30, 2022 from $1.0 million for the year ended June 30, 2021 due to a decrease in interest expense on certificates of deposit which was offset by an increase in interest expense on interest-bearing core deposits (consisting of demand, NOW, money market and savings accounts). Interest expense on certificates of deposit decreased $182,000, or 21.6%, to $661,000 for the year ended June 30, 2022 from $843,000 for the year ended June 30, 2021 due to a decrease in the average rate paid on certificates of deposit which was offset by an increase in the average balance of certificates of deposit. The average rate paid on certificates of deposit decreased 57 basis points to 1.11% for the year ended June 30, 2022 from 1.68% for the year ended June 30, 2021 primarily due to higher rate certificates of deposit becoming due and reinvested at lower rates and the purchase of lower rate brokered certificates of deposit. The average balance of certificates of deposit increased by $9.5 million to $59.7 million, for the year ended June 30, 2022 compared to the year ended June 30, 2021 due to the purchase of $15.1 million in brokered certificates of deposit in March 2021 and an increase in new customers added by the Bank. Interest expense on interest-bearing core deposits increased by $74,000, or 35.9%, to $280,000 for the year ended June 30, 2022 from $206,000 for the year ended June 30, 2021. The average rate paid on our interest-bearing core deposits was 0.28% for the year ended June 30, 2022 compared to 0.25% for the year ended June 30, 2021. The average balance of our interest-bearing core deposits increased by $18.2 million during the year ended June 30, 2022 compared to the year ended June 30, 2021 and was related to new customers.

Net Interest Income. Net interest income increased $816,000, or 15.1%, to $6.2 million for the year ended June 30, 2022 from $5.4 million for the year ended June 30, 2021 due to an increase in net interest-earning assets. The net interest rate spread remained the same at 2.99% for the years ended June 30, 2022 and 2021. Also included in net interest income for the year ended June 30, 2022 was the recognition of deferred fee income of $483,000 on the forgiven PPP loans repaid by the SBA compared to $404,000 for the year ended June 30, 2021. Net interest-earning assets increased by $11.7 million, or 44.0%, to $38.1 million for the year ended June 30, 2022 from $26.4 million for the year ended June 30, 2021. The net interest margin decreased one basis point to 3.09% for the year ended June 30, 2022 from 3.10% for the year ended June 30, 2021. Even though the net interest rate spread and net interest margin remained relatively unchanged when comparing the years ended June 30, 2022 with 2021, there were several components within the calculation that changed. The average yield on interest-earning assets decreased by 16 basis points while the average rate on interest-bearing liabilities decreased by 16 basis points. The decrease in the average yield on interest earning assets was primarily due to a decrease in the average yield on the loan portfolio (excluding PPP loans) of 75 basis points. The decrease in the average rate paid on interest-bearing liabilities is primarily due to higher rate certificates of deposit becoming due and reinvested at lower rates and the purchase of lower rate brokered certificates of deposit.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, changes in the

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nature, volume and terms of loans, the fair value of underlying collateral, changes in lending personnel, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. At June 30, 2022 and June 30, 2021, the qualitative loan portfolio risk factors were slightly reduced in all loan categories except commercial and multi-family real estate which we believe exhibits the most credit risk related to local and national economic conditions as well as industry conditions and concentrations.

After an evaluation of these factors, we recorded no provision for loan losses for the years ended June 30, 2022 or 2021. Our allowance for loan losses was $2.2 million at June 30, 2022 and 2021, respectively. The allowance for loan losses to total loans was 1.17% at June 30, 2022 and 1.49% at June 30, 2021. We recorded net recoveries of $9,000 for the year ended June 30, 2022 and net recoveries of $486,000 for the year ended June 30, 2021. Non-performing assets decreased to $115,000, or 0.05% of total assets, at June 30, 2022, compared to $178,000, or 0.08% of total assets, at June 30, 2021.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at June 30, 2022. However, future changes in the factors described herein, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the WDFI and the FDIC, as an integral part of their examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses.

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

Year Ended

June 30, Change

(Dollars in thousands)

Service charges on deposit accounts $ 165 $ 168 $ (3) (1.8) %

Increase in cash surrender value of BOLI 225 165 60 36.4 %

Gain on sale of foreclosed real estate — 11 (11) 100.0 %

Net gain on securities transactions 14 — 14 100.0 %

Other 25 25 — — %

Non-interest income decreased by $778,000 to $1.1 million for the year ended June 30, 2022 from $1.9 million for the year ended June 30, 2021 due primarily to a decrease in mortgage banking income. Mortgage banking income (consisting primarily of sales of fixed-rate one- to four-family residential real estate loans) decreased by $838,000 as we sold $16.8 million of mortgage loans into the secondary market during the year ended June 30, 2022 compared to $50.6 million of such sales during the year ended June 30, 2021 due to an increase in market rates, which resulted in decreased demand for mortgage loan refinancing.

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

Year Ended

June 30, Change

(Dollars in thousands)

Salaries and employee benefits $ 3,135 $ 3,345 $ (210) 8.7 %

Debit card expenses 78 89 (11) (12.4)

Directors fees 68 78 (10) (12.8)

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Non-interest expenses were $5.6 million for the year ended June 30, 2022 as compared to $5.4 million for the year ended June 30, 2021. Professional fees increased $290,000 primarily due to costs associated with being a public company including but not limited to preparing and filing the required periodic reports with the Securities and Exchange Commission. Salaries and employee benefits decreased $210,000 due primarily to a reduction in health insurance expense.

Income Tax Expense. Income tax expense was $437,000 for the year ended June 30, 2022 as compared to $478,000 for the year ended June 30, 2021. The effective tax rate was 24.7% for the year ended June 30, 2022 as compared to 25.8% for the year ended June 30, 2021. The decrease in the effective tax rate was a result of an increase in earnings on bank owned life insurance.

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 June 30, 2022, we had a $77.4 million line of credit (subject to providing additional collateral) with the Federal Home Loan Bank of Chicago, and had no borrowings outstanding as of that date. Under the Federal Reserve PPP Liquidity Facility program, we had no borrowings to fund PPP loans as of June 30, 2022 compared to borrowings of $10.4 million to fund PPP loans as of June 30, 2021, which were secured by an equal amount of PPP loans.

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 $826,000 and $1.0 million for the years ended June 30, 2022 and 2021, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, the purchase of securities and the purchase of bank owned life insurance, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $44.2 million for the year ended June 30, 2022 compared to $20.8 million for the year ended June 30, 2021. Net cash provided by financing activities, consisting of activity in deposit accounts and borrowings and net proceeds from our common stock offering, was $5.8 million and $41.6 million for the years ended June 30, 2022 and 2021, 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 June 30, 2022, Marathon Bank was classified as “well capitalized” for regulatory capital purposes. See Note 15 in the Notes to the Audited Consolidated Financial Statements.

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

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loans we make. At June 30, 2022, we had outstanding commitments to originate loans of $10.7 million, and outstanding commitments to sell loans of $696,000. 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 June 30, 2022 totaled $25.9 million. 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 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 financial statements beginning on page 50 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.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required of a smaller reporting company.

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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Marathon Bancorp, Inc.

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Report of Independent Registered Public Accounting Firm (PCAOB ID 1884) 51

Financial Statements

Consolidated Balance Sheets 52

Consolidated Statements of Income 53

Consolidated Statements of Comprehensive Income 54

Consolidated Statements of Changes in Stockholders’ Equity 55

Consolidated Statements of Cash Flows 56

Notes to the Consolidated Financial Statements 57

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Marathon Bancorp, Inc.

Wausau, Wisconsin

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Marathon Bancorp, Inc. (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2022, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022, and 2021, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2020.

/s/ Bonadio & Co., LLP

Syracuse, New York

September 28, 2022

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Marathon Bancorp, Inc.

Consolidated Balance Sheets

June 30, 2022 and 2021

June 30,

Assets

Liabilities and Stockholders' Equity

Liabilities

Deposits

Paycheck protection program lending facility (PPPLF) funding — 10,372,148

Stockholders' Equity

Accumulated other comprehensive (loss) income (369,029) 120,667

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Income

For the Years ended June 30, 2022 and 2021

June 30,

Interest Income

Interest Expense

Provision for Loan Losses — —

Net Interest Income After Provision for Loan Losses 6,209,375 5,392,927

Non-Interest Income

Increase in cash value of life insurance 224,580 164,667

Net gain on securities transactions 14,000 —

Gain on sale of foreclosed assets — 10,840

Non-Interest Expenses

Net income per common shares-basic and diluted $ 0.62 $ 0.64

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Years Ended June 30, 2022 and 2021

June 30,

Other comprehensive (loss) income

Unrealized losses on available for sale debt securities

Unrealized holding loss arising during the period (682,767) (100,981)

Reclassification adjustment for gains included in net income (b) (14,000) —

Tax effect 3,815 —

(b) The reclassification adjustment is reflected in the Consolidated Statement of Income as Net Gains on Securities

Transactions.

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended June 30, 2022 and 2021

Accumulated

Additional Unearned Other

Preferred Common Paid-in Retained ESOP Comprehensive

Stock Stock Capital Earnings Shares Income (Loss) Total

Other comprehensive income — — — — — 53,942 53,942

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Years Ended June 30, 2022 and 2021

June 30,

Operating Activities

Provision for loan losses — —

Amortization of deferred loan fees (535,665) (429,082)

Realized gain on available for sale debt securities (14,000) —

Net gain on foreclosed assets — (10,840)

Earnings on cash value of life insurance (224,580) (164,667)

Increase in interest receivable (13,413) (52,776)

Net change in other liabilities (274,319) (28,213)

Investing Activities

Purchase of debt securities available for sale (3,500,000) (1,112,500)

Purchase of bank owned life insurance (3,000,000) —

Net increase in restricted stock (60,800) —

Proceeds from sale of foreclosed assets — 74,920

Purchases of property and equipment (34,094) (88,471)

Financing Activities

Net cash proceeds from common stock offering — 8,505,977

Purchase of ESOP shares — (873,970)

Repayments of FHLB advances — (8,000,000)

Borrowings (Repayments) of PPPLF funding, net (10,372,148) 3,997,250

Supplemental Disclosure of Cash Flow Information

Cash payments for

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

Note 1 - Significant Accounting Policies

Basis of Presentation and Nature of Operations

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. 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.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. The Company maintains its accounts using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when incurred. The significant accounting policies described below, together with the notes that follow, are an integral part of the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany transactions and balances have been eliminated in consolidation. The Company, as used in the consolidated financial statements, refers to the consolidated group.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, valuation of deferred tax assets, other-than-temporary impairment of debt securities and fair value of financial assets and liabilities.

Concentrations of Credit Risk

The majority of the Company’s loans and commitments to extend credit have been granted to customers in the Company’s market area. Although the Company’s loan portfolio is diversified, a substantial portion of the Company’s customers’ ability to honor their contracts is dependent upon the local business economy in which the Company operates. The concentration of credit by type of loan is set forth in Note 4.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

Cash and Cash Equivalents

For the purposes of the statement of cash flows, cash and cash equivalents include cash and balances due from banks and federal funds sold with other banks, all of which have original maturities of 90 days or less.

Balances in transaction accounts at other financial institutions may exceed amounts covered by federal deposit insurance. Management regularly evaluates the credit risk associated with other financial institutions and believes that the Company is not exposed to any significant credit risks on cash and cash equivalents.

Interest Bearing Deposits in Other Financial Institutions

Interest-bearing deposits with other financial institutions consist of certificates of deposits in other banks with original maturities of less than 90 days.

Debt Securities

The Company classifies its debt securities as available for sale or held to maturity. Debt securities classified as available for sale are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in comprehensive income. Debt securities, which the Company has the positive intent and ability to hold to maturity, are classified as held to maturity and are carried at amortized cost.

Purchase premiums and discounts are recognized in interest income using the interest method to the call date or over the terms of the securities, if there is no call date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For a debt security transferred into the held to maturity category from the available for sale category, the unrealized holding gain or loss at the date of the transfer is reported in accumulated other comprehensive income and amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.

The Company follows the accounting guidance related to recognition and presentation of other-than-temporary impairment. This guidance specifies that (a) if the Company does not have the intent to sell a debt security prior to recovery, and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

Investments in Restricted Stock

Investments in restricted stock consist of Federal Home Loan Bank stock. The Bank, as a member of the Federal Home Loan Bank System, is required to hold a specific number of shares of capital stock in the Federal Home Loan Bank of Chicago. Since ownership of this stock is restricted, the stock is carried at cost and evaluated periodically for impairment. The carrying amount of the Bank’s investment in Federal Home Loan Bank stock was $323,000 and $262,200 as of June 30, 2022 and 2021.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

Fair Value Measurements

The Company determined the fair value of certain assets in accordance with the provisions of FASB Accounting Standards Codification Topic Accounting Standards Codification 820, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles.

● Level 3 inputs are unobservable inputs related to the asset.

See Note 17.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at lower of cost or fair value. For loans carried at the lower of cost or fair value, gains and losses on loan sales (sales proceeds minus carrying value) are recorded in non-interest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in non-interest income upon sale of the loan. The Company had $78,000 and $131,000 of loans held for sale as of June 30, 2022 and 2021, included in net loans on the consolidated balance sheet.

Loans

Loans are reported at their outstanding unpaid principal balance adjusted for the allowance for loan losses.

Interest income is accrued on the unpaid principal balance. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. Loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income.

The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loan Origination Fees and Costs

Loan origination fees and related direct origination costs associated with loans are deferred and amortized over the life of the loan on a level-yield basis as an adjustment to interest income over the contractual life of the loan.

Allowance for Loan Losses

The allowance for loan losses established as losses is estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

The allowance consists of allocated, general and unallocated components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. General components cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions (including COVID-19); changes in the nature and volume of the portfolio; changes in the experience, ability, and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of other external factors such as competition and legal and regulatory requirements.

The unallocated component of the allowance for loan losses covers several considerations that are not specifically measurable through either the allocated or general components. For example, at times the Company could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan loss methodology, or any alternative methodology, for estimating allocated and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reason for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

Troubled debt restructurings (“TDRs”) are individually evaluated for impairment and included in the separately identified impairment disclosures. Loans whose terms are modified are classified as troubled debt restructurings if the Company grants borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a below-market interest rate based on the loan’s risk characteristics, an extension of a loan’s stated maturity date or a significant delay in payment. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period after modification. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

Major categories of loans are further defined by the Company into portfolio segments identified by the Company including commercial and industrial, commercial real estate, construction, one-to-four-family residential, multi-family real estate and consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to-income, collateral type and loan-to-value ratios for consumer loans.

Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments to grant loans. Such financial instruments are recorded when they are funded.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Foreclosed Assets

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.

The recorded investment in 1-4 family owner occupied properties that were in process of foreclosure was $0 and $0 at June 30, 2022 and June 30, 2021, respectively. There were no foreclosed assets at June 30, 2022 and 2021.

Cash Surrender Value Life Insurance

Investment in life insurance contracts is stated at cash surrender value of the various insurance policies. The income on the investment is included in non-interest income.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on its fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is recognized through valuation allowance for individual tranches, to the extent that fair value is less than the capitalized amount for the tranches. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Capitalized servicing rights are included with other assets on the consolidated balance sheet and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Loans serviced for others are not included in the consolidated balance sheet. The unpaid principal balances of mortgage loans serviced for others was approximately $85,493,000 and $80,628,000 as of June 30, 2022 and 2021, respectively. The Company had a mortgage servicing right asset of $790,482 and $601,843 as of June 30, 2022 and 2021, included in other assets on the consolidated balance sheets.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Software amortization is included in depreciation expense. Buildings and related components are depreciated using the straight-line method over the estimated useful lives of the assets ranging from 5 to 40 years for buildings and improvements and 3 to 10 years for furniture and equipment. Leasehold improvements are amortized over the lesser of the related terms of the leases or their useful lives.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment, allowance for loan losses, mortgage servicing rights, and net operating losses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. 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.

The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. As of June 30, 2022 and 2021, the unrecognized tax benefit accrual was zero. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.

Employee Benefit Plans

The Company sponsors a 401(k) salary deferral plan available to substantially all employees. The plan provides for Company-matching contributions based on a percentage of participant contributions as well as Company profit-sharing and safe harbor contributions.

The Company also sponsors an Employee Stock Ownership Plan (“ESOP”) that is available to substantially all employees. Shares are released to employees on a straight-line basis over the loan term and allocated based on participant compensation. See Note 11 of the Notes to Consolidated Financial Statements.

Advertising Costs

Advertising costs are expensed as incurred. Such costs were $77,626 and $62,586 for the years ended June 30, 2022 and 2021, respectively.

Stock-Based Compensation

Compensation costs related to share-based payment transactions are recognized based on the grant-date fair value of the stock-based compensation issued. Compensation costs are recognized over the period that an employee provides service

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

in exchange for the award. Compensation costs related to the Employee Stock Ownership Plan are dependent upon the average stock price and the shares committed to be released to plan participants through the period in which income is reported.

Earnings per Common 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. During the years ended June 30, 2022 and 2021, the Company had no potentially dilutive common stock equivalents. 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. Set forth below is the calculation of earnings per share. See Note 13 of the Notes to Consolidated Financial Statements.

Years Ended June 30,

Less: Average unallocated ESOP shares 84,402 87,023

Earnings per common share:

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains on available for sale debt securities, reclassification of realized gains on sale of available for sale debt securities, and unrealized loss related to debt securities classified as available for sale transferred to debt securities classified as held to maturity.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency between periods presented. The reclassification had no impact on net income or equity.

Revenue Recognition

The majority of the Company’s revenues come from interest income on loans and available for sale debt securities that are outside the scope of FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606). 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.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

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.

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.

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 Issued, But Not Yet Effective Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Topic 842 was subsequently amended by ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842)”. The amendments in this update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For leases with a term of 12 months or less, the amendments permit lessees to make an accounting policy election by class of underlying assets not to recognize lease assets and lease liabilities. For finance leases, the amendments in this update require a lessee to (1) recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payments, on the balance sheet; (2) recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of operations; (3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases, the amendments in this update require a lessee to (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on the balance sheet; (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; (3) classify all cash payments within operating activities in the statement of cash flows. On October 16, 2019, the FASB approved the proposal to delay the effective date for this standard for private and all other entities. Due to the Company’s extended transition period election, the amendments are effective for fiscal years beginning after December 15, 2020. In June 2020, the FASB issued ASU No. 2020-05, Coronavirus Disease 2019 (“COVID-19”) in response to the pandemic which has adversely affected the global economy and caused significant and widespread business and capital market disruptions. The FASB is committed to supporting and assisting stakeholders during this difficult time. The FASB issued ASU 2020-05 as a limited deferral of the effective dates of certain ASUs, including ASU 2016-02 (including amendments issued after the issuance of the original) to provide immediate, near-term relief for certain entities for whom these ASUs are either currently effective or imminently effective.

The Company adopted ASU 2016-02 on July 1, 2022 using the optional transition method. The Company also elected the following practical expedients: the package of practical expedients, combining lease and nonlease components by class of underlying asset, and using hindsight in determining the lease terms. The adoption of this standard resulted in the recording of a ROU asset and lease liability of $698,837 as of July 1, 2022 for the Company’s five operating lease obligations. The

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022 and 2021

adoption of this standard did not have a material impact on the Company’s operations, cash flows or capital ratios, nor did it cause the Company to no longer be well capitalized.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” Topic 326 was subsequently amended by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses; ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”; and ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” This ASU replaces the current incurred loss impairment methodology with a methodology that reflected expected credit losses measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures. On October 16, 2019, the FASB approved the proposal to delay the effective date for this standard for private and all other entities. Due to the Company’s extended transition period election, the update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this pronouncement beginning July 1, 2023. Management is currently evaluating the potential impact on its results of operations, financial position, and cash flows; however, due to the significant differences in the revised guidance from existing U.S. GAAP, the implementation of this guidance may result in material changes in the Company’s accounting for credit losses on financial instruments. In March 2022, the FASB issued ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss ("CECL") model introduced by ASU 2016-13. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

Note 2 - Restrictions on Cash and Due from Banks

Based on the type and amount of deposits received, the Bank must maintain an appropriate cash reserve in accordance with Federal Reserve Bank reserve requirements. The total of those reserve requirements were satisfied by vault cash as of June 30, 2022 and 2021.

Note 3 - Debt Securities

Marathon Bancorp, Inc. /MD/ MBBC US Equity

MBBC · 10-K · period ended 2022-06-30

ITEM 1A: RISK FACTORS

ITEM 1B: UNRESOLVED STAFF COMMENTS

ITEM 2: PROPERTIES

ITEM 3: LEGAL PROCEEDINGS

ITEM 4: MINE SAFETY DISCLOSURE

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6: RESERVED

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Marathon Bancorp, Inc. /MD/ MBBC US Equity☆

MBBC · 10-K · period ended 2022-06-30

ITEM 1A: RISK FACTORS

ITEM 1B: UNRESOLVED STAFF COMMENTS

ITEM 2: PROPERTIES

ITEM 3: LEGAL PROCEEDINGS

ITEM 4: MINE SAFETY DISCLOSURE

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6: RESERVED

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Marathon Bancorp, Inc. /MD/ MBBC US Equity