Executive Summary / Key Takeaways

• Marathon Bancorp, Inc. (NASDAQ:MBBC) has successfully transitioned to a stock holding company, completing a conversion that injected $15.2 million in net proceeds, significantly bolstering its capital base and positioning it for strategic growth.
• The company returned to profitability in fiscal year 2025, reporting net income of $42,000, a substantial improvement from a net loss of $187,000 in the prior year, driven by increased net interest income and reduced non-interest expenses.
• MBBC's strategic pivot towards commercial and multifamily real estate lending is yielding results, with gross loans increasing by 9.5% to $202.6 million, primarily fueled by a 23.6% rise in commercial real estate loans and a 6% increase in multifamily real estate loans.
• Operating as a community-focused bank in Wisconsin, Marathon Bancorp leverages deep local market knowledge and personalized service to compete against larger regional and national institutions, enhancing customer loyalty and deposit stability.
• Key risks include sensitivity to interest rate fluctuations, potential deterioration in the commercial real estate market, and intense competition from diverse financial institutions, necessitating agile strategic execution.

A Century of Community Banking and a Strategic Transformation

Marathon Bancorp, Inc., through its wholly-owned subsidiary Marathon Bank, traces its roots back to 1902 as a Wisconsin-chartered savings bank. For over a century, the institution served its communities primarily as a traditional thrift, focused on residential mortgages and savings accounts. A pivotal shift began in February 2014 with the appointment of Nicholas W. Zillges as President and CEO, initiating a comprehensive modernization effort. This included significant upgrades to credit, underwriting, information technology, and compliance operations, alongside a strategic expansion into commercial real estate lending, particularly in the burgeoning Southeastern Wisconsin market, including the Milwaukee metropolitan area.

This strategic evolution culminated in a significant corporate restructuring. Initially forming Marathon Bancorp, Inc. as a mid-tier holding company in December 2020, the company completed its full conversion from a mutual holding company to a stock holding company on April 21, 2025. This "Conversion" dissolved the Marathon MHC and resulted in the sale of 1.69 million shares of common stock to the public, generating gross proceeds of $16.9 million and net proceeds of $15.2 million. This capital infusion has not only strengthened MBBC's financial foundation but also enhanced its access to capital markets, providing flexibility for future strategic initiatives, including potential acquisitions.

Business Model and Operational Technology as an Enabler

Marathon Bancorp operates as a community-oriented bank, offering a diverse array of financial products and services. Its core business involves attracting deposits from the general public and deploying these funds into a diversified loan portfolio and debt securities. The bank's deposit offerings include non-interest-bearing checking, interest-bearing checking, money market, savings, and certificate of deposit accounts. On the lending side, the primary focus is on commercial and multifamily real estate loans, complemented by one-to-four-family residential real estate, commercial and industrial, construction, and consumer loans.

Operational technology plays a crucial role in supporting Marathon Bank's strategic objectives and enhancing its service delivery. The company has invested in upgrades to its information technology infrastructure, which underpins its credit, underwriting, and compliance operations. These enhancements are not about proprietary, cutting-edge inventions but rather about modernizing core banking functions to improve efficiency and risk management. For instance, the bank has "enhanced its suite of deposit products, including remote deposit capture, commercial cash management and mobile deposits in order to accommodate business customers, and thereby grow our core deposits." These technological improvements enable the bank to offer competitive services to businesses, streamline operations, and manage its loan portfolio more effectively. While not a unique technological moat, these capabilities are essential for a modern community bank to remain competitive and responsive to customer needs. The company also utilizes a third-party vendor for managed IT services, including cybersecurity, demonstrating a commitment to protecting its systems and customer information.

Competitive Landscape and Strategic Positioning

Marathon Bancorp operates in a highly competitive financial services market within Wisconsin, facing a diverse array of institutions. Its competitors range from large money center and regional banks like Associated Banc-Corp (ASB) and BMO Financial Group (BMO) to other community banks, credit unions, and increasingly, fintech and internet banking companies. This intense competition impacts both the bank's ability to attract deposits and originate loans.

Marathon Bancorp's strategic positioning hinges on its community orientation and personalized service, which it believes distinguishes it from larger institutions. This local expertise and relationship-based approach are critical advantages in its primary market areas of Marathon, Ozaukee, and Waukesha Counties. For instance, as of June 30, 2025, Marathon Bank held a 2.99% market share of FDIC-insured deposits in Marathon County, ranking ninth among 17 institutions. However, its market share is smaller in more competitive areas like Ozaukee County (0.53%, 13th out of 15) and Waukesha County (0.06%, 34th out of 34), highlighting the challenges of competing against larger, more established players with broader offerings.

Compared to larger regional competitors like Associated Banc-Corp, MBBC's offerings are more localized, allowing for deeper community ties and potentially more tailored services. However, larger banks often possess more advanced technological capabilities and broader geographic footprints, which can lead to greater operational efficiency and a wider customer base. Similarly, against a major player like BMO Financial Group, MBBC's community focus provides a distinct value proposition for customers seeking personalized interactions, but it may lag in innovation speed and the breadth of digital services. Wintrust Financial Corporation (WTFC), another regional player, shares MBBC's focus on commercial and consumer lending, but WTFC's broader Midwest presence likely offers greater growth opportunities. MBBC's smaller scale can result in higher per-unit costs compared to these larger rivals, and its technological capabilities, while modernized, may not offer the same level of differentiation or efficiency as those of its more technologically advanced competitors. The increase in the average rate paid on deposits in 2025, partly due to "increased competition for deposits," underscores the ongoing competitive pressures.

Financial Performance and Capital Strength

Marathon Bancorp demonstrated a notable turnaround in its financial performance for the fiscal year ended June 30, 2025. The company reported net income of $42,000, a significant improvement from a net loss of $187,000 in the prior year. This return to profitability was primarily driven by a $203,000, or 3.8%, increase in net interest income to $6.04 million, and a $128,000 decrease in non-interest expenses. The net interest margin also improved to 2.84% for the year ended June 30, 2025, up from 2.75% in the prior year, largely due to an increase in the average yield on loans, the bank's largest interest-earning asset category.

Total assets expanded by $19.5 million, or 8.9%, reaching $238.8 million at June 30, 2025. This growth was primarily fueled by a $17.3 million, or 9.5%, increase in net loans and a $3.9 million increase in cash and cash equivalents. The loan portfolio composition reflects the strategic shift, with commercial real estate loans growing by $17.6 million (23.6%) to $91.9 million, and multifamily real estate loans increasing by $2.7 million (6%) to $47.8 million. This growth in commercial real estate was attributed to a strategic focus on "higher-quality, well-capitalized assets from existing and new relationships," while multifamily loan growth benefited from "improved lending conditions and the sustained demand for rental housing."

The successful conversion to a stock holding company significantly enhanced the company's capital structure. Stockholders' equity increased by $14.4 million, or 46.1%, to $45.7 million, largely due to the $15.2 million in net proceeds from the conversion offering. As of June 30, 2025, Marathon Bank was classified as "well capitalized" for regulatory purposes, exceeding all minimum capital requirements. This strong capital position provides a solid foundation for future growth and resilience against potential economic headwinds.

Outlook and Growth Initiatives

Marathon Bancorp's forward-looking strategy remains centered on expanding its higher-yielding loan portfolios. The company "expects to continue its focus on originating commercial real estate and multifamily real estate loans in an effort to further increase the overall yield earned on our loans and assist in managing interest rate risk." This strategic emphasis is supported by ongoing expansion into the Southeastern Wisconsin market, including the Milwaukee metropolitan area, where the company anticipates "further growth." The opening of a new branch in Brookfield, Wisconsin, in 2024, is a concrete step in this expansion.

On the funding side, the company anticipates maintaining a strong liquidity position and expects to have sufficient funds to meet its current funding commitments. Management projects that a "substantial portion of maturing time deposits will be retained," and the company is prepared to utilize Federal Home Loan Bank advances or other borrowings if necessary to supplement funding. As of June 30, 2025, the company had an $82.8 million line of credit with the Federal Home Loan Bank of Chicago, with $15 million outstanding, and an additional $17.5 million available from the Federal Reserve Bank. While the company does not currently intend to pay cash dividends, future payments will depend on various factors, including regulatory capital requirements, financial performance, and strategic uses of funds for long-term stockholder value.

Key Risks and Challenges

Despite its recent successes, Marathon Bancorp faces several inherent risks. The banking sector is highly sensitive to changes in the interest rate environment, which could "reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make." General economic conditions, both nationally and within its specific Wisconsin market areas, also pose a significant risk, as "worse than expected" conditions could impair business operations and real estate values.

The company's strategic focus on commercial and multifamily real estate loans, while offering higher yields, also carries a "greater degree of risk than one- to four-family residential real estate loans." Repayment on these loans often depends on the successful operation and management of the properties, making them vulnerable to adverse conditions in the real estate market. Specifically, "continued uncertainty or weakness in economic conditions may impair a borrower's business operations and lead to existing lease turnover. Vacancy rates for retail, office and industrial space may increase which could result in rents falling." This could lead to a "deterioration in the fundamentals underlying the commercial real estate market and the deterioration in value of some of our loans, especially in industries that have been particularly adversely impacted by long-term work-from-home arrangements, including retail stores, hotels and office buildings, for example." Construction loans also present additional risks due to the uncertain value of projects prior to completion.

Furthermore, a change in Wisconsin tax law, which provides a subtraction from the bank's state taxable income for certain commercial and agricultural loans, led management to determine it was "highly unlikely to incur a material Wisconsin tax liability in the foreseeable future." This resulted in a $665,000 valuation allowance for Wisconsin net operating loss carryforwards at June 30, 2025, impacting deferred tax assets. Operational risks, including cybersecurity threats, also remain a constant concern, although the company has an information security program in place.

Conclusion

Marathon Bancorp, Inc. stands at a pivotal point, having successfully completed its conversion to a stock holding company and returned to profitability in fiscal year 2025. This strategic capital raise has significantly strengthened its financial position, providing the necessary resources to execute its growth strategy. The company's disciplined focus on expanding its commercial and multifamily real estate loan portfolios, coupled with its deep-rooted community banking model and ongoing operational technology enhancements, forms the core of its investment thesis. These initiatives are designed to enhance yield and manage interest rate risk, driving future earnings growth.

While Marathon Bancorp's smaller scale presents competitive challenges against larger regional and national banks, its commitment to personalized service and local market expertise offers a distinct advantage in its Wisconsin operating areas. The company's outlook for continued loan growth in Southeastern Wisconsin is promising, supported by a robust liquidity position. However, investors must remain mindful of the inherent risks, particularly those related to interest rate fluctuations and the evolving commercial real estate market. Marathon Bancorp's ability to effectively manage these risks while capitalizing on its strengthened capital base and strategic lending focus will be crucial in realizing its long-term value proposition.