MBBC · Read the filing

ITEM 1A: RISK FACTORS

Not required of a smaller reporting company.

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 1C: CYBERSECURITY

The Company has developed an information security program to assess, identify, and monitor cybersecurity risks. The Company regularly assesses cybersecurity risks arising from the operating environment and attempts to identify the likelihood and severity of the risk and the possible impact of the risk on the Company, its customers, and employees.

The Company conducts periodic testing of software, hardware, defensive capabilities, and other information security systems utilizing both internal processes and third-party consultants. Testing procedures are supplemented by regular cyber threat exercises and employee training. Threat simulation exercises are used to develop and refine the Company’s incident response plans and employees undergo cybersecurity awareness training on a regular basis.

The Company also addresses cyber risks posed by its relationships with third-party vendors. The Company assesses vendor risk as a part of its vendor management process. The vendor management process also requires a review of all critical vendors annually and all critical vendors are reported to the Board of Directors.

The Chief Administrative Officer in conjunction with Management, Board of Directors, and the IT Steering Committee leads the Company’s information security program. The IT Steering Committee is responsible for oversight of the Company’s cybersecurity and information security program and regularly reviews and evaluates information security and cybersecurity risks provided by Management. The IT Steering Committee meets at least quarterly to evaluate and review the information presented by Management. The IT Steering Committee meeting minutes are presented to the Board of Directors. The Company uses a third-party vendor for its managed IT services which includes cybersecurity. The vendor evaluates threat intelligence and response, patch management and vulnerability management among other things.

To date, the Company has not experienced any cybersecurity threats or incidents that have materially affected or are reasonably likely to affect its business strategy, results of operations, or financial condition. However, the sophistication of and risks from cybersecurity threats and incidents continues to increase, and the preventative actions the Company has taken and continues to take to reduce the risk of cybersecurity threats and incidents and protect its systems and information may not successfully protect against all cybersecurity threats and incidents.

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ITEM 2: PROPERTIES

As of June 30, 2024, the net book value of our office properties was $3.6 million (excluding right-to-use-assets). The following table sets forth information regarding our offices. See Note 5 to the Consolidated Financial Statements for additional information regarding the Company’s property and equipment.

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 40

307 Third Street, Mosinee, WI Owned 1974 41

Land, Weston, WI Owned 2024 158

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, 2024, 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.

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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 189 shareholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms) as of September 25, 2024 and 2,135,412 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 for fiscal years 2024 and 2023. The information was obtained from 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 2024 or 2023.

Market Value of Common Stock

High Low

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.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

On December 22, 2023, the Company announced it had adopted a stock repurchase program. Under the repurchase program, the Company could repurchase up to 107,875 shares of its common stock, or approximately 5.0% of the then outstanding shares. Shares are to be repurchased in open market or private transactions, through block trades, or pursuant to any trading plan that may have been adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. All shares of common stock repurchased will be retired.

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Set forth below is the share repurchase activity for the three months ended June 30, 2024.

Approximate Number

Total Number of Shares of Shares That

Repurchased as Part of May Yet Be Purchased

Period Repurchased Per Share Or Programs Programs

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

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, gain on proceeds from life insurance death benefit, and other income.

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

Income Tax Expense (Benefit). Our income tax expense (benefit) 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.

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

The allowance represents management’s current estimate of expected credit losses over the contractual term of loans, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. No allowance for credit loss is recorded on accrued interest receivable and amounts written-off are reversed by an adjustment to interest income. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a weighted-average remaining maturity methodology. The weighted-average remaining maturity methodology uses an average annual charge-off rate as a foundation for estimating the credit loss for the remaining balances of all loan pools. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate.

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

These qualitative risk factors include:

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

3. Nature and volume of the portfolio and terms of loans.

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7. Quality of loan review and Board of Director oversight.

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

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

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

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As an integral part of their examination process, various regulatory agencies review the allowance for credit losses on loans as well. Such agencies may require that changes in the allowance for credit losses on loans 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.

Allowance for Credit Losses on Available for Sale (“AFS”) Securities.Prior to implementation of CECL, unrealized losses on AFS debt securities caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach; however, the new standard requires credit losses to be presented as an ACL. The Company is still required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance continues to require the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, the extent to which fair value is less than amortized cost, the current interest rate environment, changes to rating of security or security issuer, and adverse conditions specifically related to the security among other factors. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the CECL standard, and declines due to non-credit factors are recorded in AOCI, net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in accumulated other comprehensive income (“AOCI”), net of taxes, on the unaudited consolidated balance sheets. Accrued interest receivable on AFS securities is excluded from the estimate of credit losses. The Company did not record a cumulative-effect adjustment related to its AFS securities upon adoption of CECL on July 1, 2023.See Note 3, Debt Securities, to the audited consolidated financial statements under Part II, Item 8, "Financial Statements and Supplementary Data," for a description of the Company’s investment securities and impairment evaluation.

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

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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.

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 2024.

At June 30,

(In thousands)

Selected Financial Condition Data:

Debt securities available for sale 6,607 8,922

Debt securities held to maturity 510 516

Foreclosed assets (OREO), net 1,397 2,335

Federal Home Loan Bank stock, at cost 1,329 770

Bank owned life insurance 8,973 8,724

Premises and equipment, net 4,086 2,128

Deferred tax asset 580 487

Federal Home Loan Bank (FHLB) advances 13,000 8,000

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For the Years

Ended June 30,

(In thousands)

Selected Operating Data:

Provision for (recovery of) credit losses (190) —

Non-interest income 726 1,301

Income (loss) before income taxes (benefit) (246) 2,117

Provision for (benefit from) income taxes (59) 445

Net income (loss) $ (187) $ 1,672

At or For the Years

Ended June 30,

Performance Ratios:

Return (loss) on average assets (0.08) % 0.71 %

Return (loss) on average equity (0.62) % 5.91 %

Interest rate spread (1) 2.40 % 2.81 %

Net interest margin (2) 2.75 % 3.04 %

Non-interest expenses to average assets 3.00 % 2.50 %

Book value per share $ 14.62 $ 14.50

Capital Ratios (4):

Average equity to average assets 13.00 % 12.01 %

Tier 1 capital to average assets 13.04 % 12.02 %

Asset Quality Ratios:

Allowance for credit losses as a percentage of total loans 0.97 % 1.17 %

Non-performing loans as a percentage of total loans — % — %

Non-performing loans as a percentage of total assets — % — %

Other:

Number of offices 5 4

Number of full-time equivalent employees 35 35

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Comparison of Financial Condition at June 30, 2024 and June 30, 2023

Total Assets. Total assets decreased $19.6 million, or 8.2%, to $219.2 million at June 30, 2024 from $238.8 million at June 30, 2023. The decrease was primarily due to a decrease of $1.3 million, or 11.1%, in cash and cash equivalents, a decrease in net loans of $14.3 million, or 7.2%, a decrease in interest bearing deposits held in other financial institutions of $3.6 million, or 94.7%, a decrease in debt securities available for sale of $2.3 million, or 25.9% and finally, a decrease in foreclosed assets, net of $914,780, or 39.6%. These decreases were partially offset by an increase in premises and equipment of $2.0 million. The increase in premises and equipment was associated with the Bank’s new branch in Brookfield, Wisconsin which opened on January 22, 2024.

Cash and Cash Equivalents. Total cash and cash equivalents decreased $1.3 million, or 11.1%, to $10.5 million at June 30, 2024 from $11.8 million at June 30, 2023, primarily due to a decrease in total deposits of $24.3 million offset by an increase in FHLB borrowings of $5.0 million, a decrease in net loans of $14.3 million, a decrease in interest bearing deposits held in other financial institutions of $3.6 million, and finally, a decrease in debt securities available for sale of $2.3 million. The Bank also purchased a building for $1.6 million for a new branch location.

Debt Securities Available for Sale. Total debt securities available for sale decreased $2.3 million, or 25.9%, to $6.6 million at June 30, 2024 from $8.9 million at June 30, 2023. The decrease was primarily due to the call of $1.7 million in corporate bonds. Debt securities available for sale are carried at fair value with the unrealized gain or loss reflected in accumulated other comprehensive income (loss).

Loans. Gross loans decreased $14.6 million, or 7.3%, to $185.3 million at June 30, 2024 from $199.9 million at June 30, 2023. The decrease was primarily due to a decrease in all categories of loans with the exception of multi-family real estate loans which increased by $0.9 million, or 2.1%, to $45.1 million at June 30, 2024 from $44.2 million at June 30, 2023. Consumer loans decreased by $1.2 million, or 43.0%, primarily due to the payoff of a consumer loan which was secured by a $650,000 certificate of deposit account. The decrease in construction loans was primarily due to two construction loans totaling $613,000 which were converted to permanent financings. The remaining categories of loan decreases (commercial real estate, commercial and industrial and one-to-four-family residential) were primarily due to repayments exceeding new loan growth.

Foreclosed Assets (OREO), net. Foreclosed assets decreased by $937,100, or 40.1%. During the year ended June 30, 2023, the Company foreclosed on collateral supporting a construction loan which was valued at $2.3 million and was included in foreclosed assets. The valuation was based on independent appraisals subject to certain discounts less estimated costs to sell. A subsequent independent appraisal was obtained in April 2024 subject to certain discounts less estimated costs to sell. After adjusting for estimated costs to sell, the revised valuation was $1.4 million resulting in a provision for valuation allowance of $937,000 being recorded in non-interest expenses during the year ended June 30, 2024.

Deposits. Total deposits decreased $24.3 million, or 12.3%, to $173.0 million at June 30, 2024 from $197.3 million at June 30, 2023. All categories of deposits decreased when comparing June 30, 2024 to June 30, 2023 with certificates of deposit decreasing the most by $16.1 million, or 19.2%. The decrease in all deposit categories was related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates. Finally, we had a $4.2 million brokered certificate of deposit that matured in March 2024 and a $4.5 million brokered certificate of deposit that matured at the end of September 2023. Brokered certificates of deposit totaled $13.4 million and $22.2 million at June 30, 2024 and June 30, 2023, respectively.

Federal Home Loan Bank (FHLB) Advances. FHLB advances increased $5.0 million to $13.0 million at June 30, 2024 compared to $8.0 million in FHLB advances at June 30, 2023 to provide additional funding associated with the decrease in deposits and the acquisition of a building for a new branch location. We were able to obtain more favorable borrowing rates from the FHLB than the rates that customers were requesting for certificates of deposit.

Stockholders’ Equity. Total stockholders’ equity remained virtually unchanged when comparing June 30, 2024 with June 30, 2023 with stockholders’ equity totaling $31.3 million at both dates.

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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 income or interest expense, as applicable. Loan balances include loans held for sale. Deferred loan fees accreted to interest income totaled $42,000 and $50,000 for the years ended June 30, 2024 and 2023, 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 21,215 15,146

Interest-bearing liabilities:

Non-interest-bearing demand deposits 25,048 25,829

Other non-interest-bearing liabilities 2,018 1,726

Total stockholders' equity 30,372 28,282

Total liabilities and stockholders' equity $ 233,581 $ 235,447

Net interest income $ 5,840 $ 6,699

Net interest rate spread (1) 2.40 % 2.81 %

Net interest-earning assets (2) $ 36,223 $ 40,691

Net interest margin (3) 2.75 % 3.04 %

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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 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 (9) 62 53

Cash and cash equivalents (218) 108 (110)

Total interest-earning assets (302) 755 453

Interest-bearing liabilities:

Demand, NOW and money market deposits (94) 200 106

Savings deposits (6) 2 (4)

Certificates of deposit (53) 717 664

Total interest-bearing deposits (153) 919 766

FHLB advances and other borrowings — 546 546

Total interest-bearing liabilities (153) 1,465 1,312

Change in net interest income $ (149) $ (710) $ (859)

Comparison of Operating Results for the Years Ended June 30, 2024 and 2023

General.Net loss was $187,000 for the year ended June 30, 2024, a decrease of $1.9 million, or 111.2%, from net income of $1.7 million for the year ended June 30, 2023. The decrease in net income (loss) for the year ended June 30, 2024 was primarily attributable to an increase in expenses associated with foreclosed assets of $1.0 million, a decrease of $859,000 in net-interest income, and a decrease of $576,000 in non-interest income. These changes were partially offset by a recovery of loan losses of $190,000 and a decrease in the provision for income taxes of $504,000.

Interest Income. Interest income increased by $453,000, or 5.0%, to $9.4 million for the year ended June 30, 2024 compared to $9.0 million for the year ended June 30, 2023 primarily due to an increase in loan interest income associated with an increase in the average yield on loans offset by a slight decrease in the average balance of the loan portfolio.

Loan interest income increased by $455,000, or 5.6%, to $8.6 million for the year ended June 30, 2024 from $8.2 million for the year ended June 30, 2023. The average yield on the loan portfolio increased by 28 basis points from 4.18% for the year ended June 30, 2023 to 4.46% for the year ended June 30, 2024 as a result of the high interest rate environment. The average balance of the loan portfolio decreased by $2.2 million, or 1.1%, from $195.7 million for the year ended June 30, 2023 to $193.5 million for the year ended June 30, 2024. The decrease in the average balance of the loan portfolio was primarily due to repayments exceeding new loan growth.

Debt securities interest income increased by $53,000, or 18.2%, to $345,000 for the year ended June 30, 2024 from $292,000 for the year ended June 30, 2023 due to a 58 basis points increase in the average yield on the debt securities portfolio to 3.21% for the year ended June 30, 2024 from 2.63% for the year ended June 30, 2023 offset in part by a $351,000 decrease in the average balance of debt securities to $10.8 million for the year ended June 30, 2024 due to

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securities paydowns. The increase in the average yield on debt securities was related to previous purchases of new securities at higher interest rates.

Interest Expense. Interest expense increased $1.3 million, or 57.6%, to $3.6 million for the year ended June 30, 2024 from $2.3 million for the year ended June 30, 2023, due to an increase of $766,000 in interest paid on deposits and an increase of $546,000 in interest paid on borrowings.

Interest expense on deposits increased $766,000, or 35.2%, to $2.9 million for the year ended June 30, 2024 from $2.2 million for the year ended June 30, 2023 due to an increase in interest expense on all deposit categories except savings deposits as a result of an increase in the average rates paid on all deposit categories except savings deposits offset by a decrease in the average balances of all deposit categories. The average rate paid on demand, NOW and money market accounts and certificates of deposit increased with the average rate paid on demand, NOW and money market accounts increasing by 46 basis points and the average rate paid on certificates of deposit increasing 96 basis points. The increase in the average rate paid on all deposit categories except savings deposits was due to the Bank raising the interest rates on these deposit categories to maintain customers and keep the rates in line with what competitors were offering and to attract new funds to the Bank. The average balance of certificates of deposit decreased slightly by $2.7 million, or 3.3%, from $77.7 million for the year ended June 30, 2023 to $75.1 million for the year ended June 30, 2024. The average balance of interest-bearing demand, NOW and money market and savings accounts decreased by $10.1 million and $4.4 million, respectively. The decrease in the average balance of certificates of deposit accounts was due to the maturity of two brokered certificates of deposit totaling $8.7 million during the year ended June 30, 2024 offset by the offering of higher rate certificate of deposit balances due to higher market interest rates. The decrease in the average balance of interest-bearing demand, NOW, money market and savings deposits were related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates.

Interest paid on FHLB borrowings increased $545,000, from $103,000 for the year ended June 30, 2023 to $648,000 for the year ended June 30, 2024. The increase in interest paid on borrowings was due to the average balance of FHLB advances increasing by $13.6 million and an increase in the average rate paid on borrowings of 69 basis points from 3.15% for the year ended June 30, 2023 to 3.84% for the year ended June 30, 2024. We were able to obtain more favorable borrowing rates from theFHLB than the rates that customers were requesting for certificates of deposit while also improving liquidity.

Net Interest Income. Net interest income decreased by $859,000, or 12.8%, to $5.8 million for the year ended June 30, 2024 from $6.7 million for the year ended June 30, 2023. Net interest-earning assets decreased by $4.5 million, or 11.0%, to $36.2 million for the year ended June 30, 2024 from $40.7 million for the year ended June 30, 2023. Net interest rate spread decreased by 41 basis points to 2.40% for the year ended June 30, 2024 from 2.81% for the year ended June 30, 2023, reflecting a 77 basis points increase in the average rate paid on interest-bearing liabilities offset by a 36 basis points increase in the average yield on interest-earning assets. The net interest margin decreased 29 basis points to 2.75% for the year ended June 30, 2024 from 3.04% for the year ended June 30, 2023. The increase in the average yield on interest earning assets for the year ended June 30, 2024 compared to the year ended June 30, 2023 was primarily due to an increase in market interest rates. The increase in the average interest rate paid on interest-bearing liabilities was due to the Bank raising the interest rates on all deposit categories to maintain customers and keep the rates in line with what competitors were offering, to attract new funds to the Bank and an increase in market interest rates on borrowings.

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

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Based on our evaluation of the above factors, we recorded a recovery of credit losses of $190,000 for the year ended June 30, 2024 compared to no provision for credit losses for the year ended June 30, 2023. The recovery was related to an improvement in the current and projected future economic conditions in our market area and the decline in the overall loan portfolio. We anticipate low unemployment and that the housing price index (HPI) will improve over the next two years due to continued high demand and the low inventory of residential real estate. These predictions align with the Bank’s historic charge-off history over the past 8-10 years. The allowance for credit losses was $1.8 million, or 0.97%, of loans outstanding at June 30, 2024 and $2.2 million, or 1.08%, of loans outstanding at June 30, 2023.

To the best of our knowledge, we have recorded our best estimate of expected losses in the loan portfolio and for unfunded commitments at June 30, 2024. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for credit losses. In addition, the WDFI and the FDIC, as an integral part of their examination process, will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

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

Year Ended

June 30, Change

(Dollars in thousands)

Service charges on deposit accounts $ 125 $ 153 $ (28) (18.3) %

Increase in cash surrender value of BOLI 249 236 13 5.5 %

Gain on acquisition of foreclosed assets — 247 (247) 100.0 %

Net gain on securities transactions — 24 (24) (100.0) %

Non-interest income decreased by $576,000 to $726,000 for the year ended June 30, 2024 from $1.3 million for the year ended June 30, 2023 due primarily to a gain on proceeds from a life insurance death benefit, a gain on the acquisition of foreclosed assets, and net gain on securities transactions of $261,000, 247,000 and $24,000, respectively, being recognized during the year ended June 30, 2023 compared to no such amounts being recognized during the year ended June 30, 2024. Service charges on deposit accounts and mortgage banking income also decreased slightly.

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

Year Ended

June 30, Change

(Dollars in thousands)

Salaries and employee benefits $ 3,082 $ 3,296 $ (214) (6.5) %

Debit card expenses 96 90 6 6.7 %

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Non-interest expenses were $7.0 million for the year ended June 30, 2024 compared to $5.9 million for the year ended June 30, 2023. The increase was primarily related to an increase in expenses associated with foreclosed assets of $1.0 million, an increase in occupancy and equipment expenses of $127,000 and minor increases in other expense which were offset by a decrease of $214,000 in salaries and employee benefits when comparing the two years. The increase in expenses associated with foreclosed assets was primarily related to the recording of a valuation allowance of $937,000 during the year ended June 30, 2024 associated with a new appraisal obtained on the Company’s only foreclosed asset. For further information, please see Comparison of Financial Condition at June 30, 2024 and June 30, 2023- Foreclosed Assets above. The increase in occupancy and equipment expense was related to the new branch opening in January 2024. The increase in other expenses was primarily related to an increase in FDIC insurance premiums and to a lesser extent, check fraud losses. The decrease in salaries and employee benefits was primarily related to the prior year including a bonus accrual compared to no bonus accrual for the current year.

Provision for (Recovery from) Income Taxes. Income tax benefit was $59,000 for the year ended June 30, 2024, a decrease of $504,000, as compared to income tax expense of $445,000 for the year ended June 30, 2023. The decrease in income tax expense was primarily the result of a decrease in income (loss) before income taxes of $2.4 million which was offset by a change in Wisconsin tax law that provides for a subtraction from the Bank’s state taxable income for loan and fee interest income from certain commercial and agricultural loans. Based upon the provisions of this new state tax law, management determined that the Company was highly unlikely to incur a material Wisconsin tax liability in the foreseeable future, instead generating Wisconsin net operating loss carryforwards that would never be realized. Since the state rate at which net deferred tax assets are expected to be realized is 0%, the Company eliminated its state net deferred tax asset balances as of July 1, 2023, resulting in deferred tax expense of approximately $112,000 for the year ended June 30, 2024. A summary of income tax expense (benefit) compared to the federal income tax statutory rate is set forth in Note 12 to the Notes to the Audited Consolidated Financial Statements.

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, 2024, we had a $79.5 million line of credit with the Federal Home Loan Bank of Chicago, which had $13.0 million in borrowings outstanding as of that date. The Bank also has $25.0 million available to borrow from the Federal Reserve Bank when pledging acceptable assets and an unsecured Federal Funds purchasing limit of $5.0 million with the Bank’s correspondent bank. There were no borrowings under these arrangements at June 30, 2024.

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 $417,000 and $2.0 million for the years ended June 30, 2024 and 2023, respectively. Net cash flows provided by (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 $17.7 million provided by investing activities for the year ended June 30, 2024 compared to $14.4 million used in investing activities for the year ended June 30, 2023. Net cash provided by (used in) financing activities, consisting of activity in deposit accounts and borrowings was $19.4 million used in financing activities compared to $15.8 million provided by financing activities for the years ended June 30, 2024 and 2023, 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

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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, 2024, Marathon Bank was classified as “well capitalized” for regulatory capital purposes. See Note 16 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 loans we make. At June 30, 2024, we had outstanding commitments to originate loans of $1.3 million, and outstanding commitments to sell loans of $418,000. 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, 2024 totaled $44.8 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 of the notes to consolidated the financial statements beginning on page 60 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) 54

Financial Statements

Consolidated Balance Sheets 55

Consolidated Statements of Income (Loss) 56

Consolidated Statements of Comprehensive Income (Loss) 57

Consolidated Statements of Changes in Stockholders’ Equity 58

Consolidated Statements of Cash Flows 59

Notes to the Consolidated Financial Statements 60

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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, 2024 and 2023, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2024, 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, 2024 and 2023, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1, on January 1, 2023, the Company adopted Accounting Standard Update (ASU) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Our opinion is not modified with respect to this matter.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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

Pittsford, New York

September 26, 2024

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Marathon Bancorp, Inc.

Consolidated Balance Sheets

June 30, 2024 and 2023

June 30,

Assets

Liabilities and Stockholders' Equity

Liabilities

Deposits

Commitments and Contingent Liabilities (See note 18)

Stockholders' Equity

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Income (Loss)

For the Years ended June 30, 2024 and 2023

June 30,

Interest Income

Interest Expense

Provision for (Recovery of) Credit Losses (190,000) —

Non-Interest Income

Gain on proceeds from life insurance death benefit — 261,297

Net gain on securities transactions — 24,000

Gain on acquisition of foreclosed assets — 246,751

Non-Interest Expenses

Foreclosed assets, net 1,034,592 —

Income (Loss) Before Income Taxes (Benefit) (246,102) 2,116,805

Provision for (Benefit from) Income Taxes (59,108) 444,735

Net income (loss) per common share-basic ($ 0.09) $ 0.79

Net income (loss) per common share-diluted ($ 0.09) $ 0.79

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended June 30, 2024 and 2023

June 30,

Other comprehensive income (loss)

Unrealized gains (losses) on available for sale debt securities

Unrealized holding gains (losses) arising during the period 47,619 (556,318)

Tax effect — 6,538

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, 2024 and 2023

Accumulated

Additional Unearned Other

Preferred Common Paid-in Retained ESOP Comprehensive

Stock Stock Capital Earnings Shares Loss Total

Stock based compensation — — 130,628 — — — 130,628

Other comprehensive loss — — — — — (415,828) (415,828)

Net loss — — — (186,994) — — (186,994)

Stock based compensation — — 159,100 — — — 159,100

Other comprehensive income — — — — — 32,069 32,069

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Years Ended June 30, 2024 and 2023

June 30,

Operating Activities

Provision for (recovery of) credit losses (190,000) —

Amortization of deferred loan fees (41,552) (50,036)

Realized gain on available for sale debt securities — (24,000)

Net gain on foreclosed assets (OREO), net — (246,751)

Gain from proceeds on life insurance death benefit — (261,297)

Earnings on cash value of life insurance (248,587) (236,420)

Decrease (Increase) in interest receivable 14,956 (46,795)

Net change in operating leases 2,406 (6,800)

Net change in other assets (750) (21,880)

Investing Activities

Proceeds from life insurance death benefit — 966,834

Purchases of property and equipment (2,264,879) (65,363)

Financing Activities

Purchase and retirement of common stock (156,220) (1,371,844)

Supplemental Disclosure of Cash Flow Information

Cash payments for

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Transfer of loans to foreclosed assets $ — $ 2,087,809

See Notes to Consolidated Financial Statements

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

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 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 five 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. In addition, the Bank has two nonbank subsidiaries for the purpose of temporarily holding a foreclosed property pending the liquidation of this property and to hold the real estate of its recently opened branch in Brookfield, Wisconsin.

The 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, the Bank, and its two nonbank subsidiaries. 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 credit losses, valuation of deferred tax assets, 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 of the notes to consolidated financial statements.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

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 one year.

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 (loss). 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.

Prior to implementation of Financial Accounting Standards Board (FASB) ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”), unrealized losses on Availablefor Sale(“AFS”) debt securities caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach; however, the new standard requires credit losses to be presented as an allowance for credit losses (“ACL”). The Company is still required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance continues to require the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, the extent to which fair value is less than amortized cost, the current interest rate environment, changes to rating of security or security issuer, and adverse conditions specifically related to the security among other factors. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the CECL standard, and declines due to non-credit factors are recorded in accumulated other comprehensive income (“AOCI”), net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

increases above its amortized cost, the unrealized gain will be recorded in AOCI, net of taxes, on the consolidated balance sheets. Accrued interest receivable on AFS securities is excluded from the estimate of credit losses.

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

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 $1,329,413 and $770,273 as of June 30, 2024 and 2023.

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 19 of the notes to consolidated financial statements.

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 no loans held for sale as of June 30, 2024 and 2023.

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.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

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 Credit Losses-Loans

The following accounting policies have been updated in connection with the adoption of ASC 326 and apply to periods beginning after June 30, 2023.

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

These qualitative risk factors include:

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

3. Nature and volume of the portfolio and terms of loans.

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

7. Quality of loan review and Board of Director oversight.

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

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

The accounting policies for the year ended June 30, 2023 are as follows.

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, 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; 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

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

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.

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.

Allowance for Credit Losses on Unfunded Commitments

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

Loans to Borrowers Experiencing Financial Difficulty

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

Leases

The Company evaluates its contracts at inception to determine if an arrangement either is a lease or contains one. Operating lease right-of-use (“ROU”) assets are included in premises and equipment and operating lease liabilities in other liabilities in the consolidated balance sheets. The Company had no finance leases at June 30, 2024.

ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company's leases do not provide an implicit rate, so the Company's incremental borrowing rate is used, which approximates its fully collateralized borrowing rate, based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is reevaluated upon lease modification. The operating lease ROU asset also includes any initial direct costs and prepaid lease payments made less any lease incentives. In calculating the present value of lease payments, the Company may include options to extend the lease when it is reasonably certain that it will exercise that option.

In accordance with ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), the Company keeps leases with an initial term of 12 months or less off of the consolidated balance sheet. The Company recognizes these lease payments in the

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

June 30, 2024 and 2023

consolidated statements of income on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components and has elected the practical expedient to account for them as a single lease component.

The Company's operating leases relate primarily to bank branches.

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 at June 30, 2024 and June 30, 2023. Foreclosed assets were $1,397,460 and $2,334,560 at June 30, 2024 and 2023, respectively.

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, 2024 and 2023

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 $81,058,000 and $81,849,000 as of June 30, 2024 and 2023, respectively. The Company had a mortgage servicing right asset of $776,659 and $818,151 as of June 30, 2024 and 2023, 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, 2024 and 2023, 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 12 of the Notes to Consolidated Financial Statements.

Advertising Costs

Advertising costs are expensed as incurred. Such costs were $61,234 and $87,179 for the years ended June 30, 2024 and 2023, 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, 2024 and 2023

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 (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released. Diluted earnings (loss) per share is adjusted for the dilutive effects of stock based compensation and is calculated using the treasury stock method. Set forth below is the calculation of earnings (loss) per share. See Note 15 of the Notes to Consolidated Financial Statements.

Years Ended June 30,

Net income (loss) applicable to common stock $ (186,994) $ 1,672,070

Less: Average unallocated ESOP shares 76,909 80,405

Effect of dilutive restricted stock awards - 3,897

Earnings (loss) per common share:

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains (losses) on available for sale debt securities, reclassification of realized gains on sale of available for sale debt securities, unrealized loss related to debt securities classified as available for sale transferred to debt securities classified as held to maturity, and the stranded tax effect from change in tax legislation.

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

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Marathon Bancorp, Inc.

Notes to the Consolidated Financial Statements

Marathon Bancorp, Inc. /MD/ MBBC US Equity

MBBC · 10-K · period ended 2024-06-30

ITEM 1A: RISK FACTORS

ITEM 1B: UNRESOLVED STAFF COMMENTS

ITEM 1C: CYBERSECURITY

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 2024-06-30

ITEM 1A: RISK FACTORS

ITEM 1B: UNRESOLVED STAFF COMMENTS

ITEM 1C: CYBERSECURITY

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