Marathon Bancorp Inc MD

Previous wording

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

Current wording

Provision for (Benefit from) Income Taxes. 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.

Previous wording

The allowance for credit losses (“ACL”) at December 31, 2023 represents the Company’s current estimate of the lifetime credit losses expected from its loan portfolio. Management estimates the ACL by projecting a lifetime loss

Current wording

The allowance for credit losses (“ACL”) at March 31, 2024 represents the Company’s current estimate of the lifetime credit losses expected from its loan portfolio. Management estimates the ACL by projecting a lifetime loss rate

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Total Assets. Total assets decreased $13.0 million, or 5.4%, to $225.8 million at March 31, 2024 from $238.8 million at June 30, 2023. The decrease was primarily due to a decrease of $3.7 million, or 31.4%, in cash and cash equivalents, a decrease in net loans of $5.8 million, or 2.9%, a decrease in interest bearing deposits held in other financial institutions of $3.3 million, or 88.9%, a decrease in debt securities available for sale of $2.0 million, or 22.4% 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.

Previous wording

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

Current wording

Cash and Cash Equivalents. Total cash and cash equivalents decreased $3.7 million, or 31.4%, to $8.1 million at March 31, 2024 from $11.8 million at June 30, 2023, primarily due to a decrease in total deposits of $27.6 million offset by an increase in FHLB borrowings of $15.0 million, a decrease in net loans of $5.8 million, and a decrease in interest bearing deposits held in other financial institutions of $3.3 million. The Bank also purchased a building for $1.6 million for a future new branch location.

Previous wording

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

Current wording

Debt Securities Available for Sale. Total debt securities available for sale decreased $2.0 million, or 22.4%, to $6.9 million at March 31, 2024 from $8.9 million at June 30, 2023. The decrease was primarily due to the call of $1.5 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).

Previous wording

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

Current wording

Loans. Gross loans decreased $6.2 million, or 3.1%, to $193.7 million at March 31, 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 $1.1 million, or 2.6%, to $45.3 million at March 31, 2024 from $44.2 million at June 30, 2023. Consumer loans decreased by $1.3 million, or 44.3%, 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.

Previous wording

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

Current wording

Deposits. Total deposits decreased $27.6 million, or 14.0%, to $169.7 million at March 31, 2024 from $197.3 million at June 30, 2023. All categories of deposits decreased when comparing March 31, 2024 to June 30, 2023 with certificates of deposit decreasing the most by $17.7 million, or 21.1%. 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 March 31, 2024 and June 30, 2023, respectively.

Previous wording

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

Current wording

Federal Home Loan Bank (FHLB) Advances. FHLB advances increased $15.0 million to $23.0 million at March 31, 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 future 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.

Previous wording

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

Current wording

General*.*Net loss was $631,000 for the three months ended March 31, 2024, a decrease of $997,000, or 272.6%, from net income of $366,000 for the three months ended March 31, 2023. The decrease in net income for the three months ended March 31, 2024 was primarily attributable to an increase in expenses associated with foreclosed assets, net of $970,000, a decrease of $245,000 in net-interest income and a decrease in non-interest income of $112,000 offset by a recovery of credit losses of $122,000. Also, offsetting the net loss was the provision for (benefit from) income taxes which decreased by $261,000, from a provision for income taxes of $58,000 for the three months ended March 31, 2023 to a benefit from income taxes of $203,000 for the three months ended March 31, 2024.

Previous wording

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

Current wording

Interest Income**.**Interest income increased by $35,000, or 1.5%, to $2.3 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 primarily due to an increase in loan interest income of $70,000 offset by a decrease in other interest income of $26,000.

Previous wording

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

Current wording

Loan interest income increased by $70,000, or 3.4%, to $2.1 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, due to an increase in the average yield on loans offset by a decrease in the average balance of the loan portfolio. The average yield on the loan portfolio increased by 21 basis points from 4.32% for the three months ended March 31, 2023 to 4.53% for the three months ended March 31, 2024 as a result of rising interest rates. The average balance of the loan portfolio decreased by $4.5 million, or 2.3%, from $197.1 million for the three months ended March 31, 2023 to $192.6 million for the three months ended March 31, 2024.

Previous wording

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

Current wording

Interest Expense. Interest expense increased $279,000, or 43.9%, to $916,000 for the three months ended March 31, 2024 from $637,000 for the three months ended March 31, 2023, due to an increase of $73,000 in interest paid on deposits and an increase of $206,000 in interest paid on borrowings.

Previous wording

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

Current wording

Interest expense on deposits increased $73,000, or 11.6%, to $704,000 for the three months ended March 31, 2024 from $631,000 for the three months ended March 31, 2023 due to an increase in the average rate paid on all deposit categories except savings deposits. 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 those competitors are offering. The increase in interest expense related to the increase in the average rate paid on deposits was offset by a decrease in the average balances of all deposit categories. All categories of deposit average balances decreased when comparing the three months ended March 31, 2024 with the three months ended March 31, 2023. Average balances of certificates of deposit decreased the most by $14.6 million, or 17.2%. Average balances of demand, NOW and money market accounts also decreased by $9.4 million, or 18.1%. The decrease in the average balances of all deposits 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.

Previous wording

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

Current wording

Interest paid on FHLB borrowings increased $206,000, from $6,000 for the three months ended March 31, 2023 to $212,000 for the three months ended March 31, 2024. The increase in interest paid on borrowings was due to the average balance of FHLB advances increasing by $20.9 million and an increase in the average rate paid on borrowings of 94 basis points from 3.05% for the three months ended March 31, 2023 to 3.99% for the three months ended March 31, 2024. We were able to obtain more favorable borrowing rates from the FHLB than the rates that customers were requesting for certificates of deposit while also improving liquidity.

Previous wording

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

Current wording

Net Interest Income. Net interest income decreased by $245,000, or 14.9%, to $1.4 million for the three months ended March 31, 2024 from $1.6 million for the three months ended March 31, 2023. Net interest-earning assets decreased by $4.5 million, or 11.0%, to $35.9 million for the three months ended March 31, 2024 from $40.3 million for the three months ended March 31, 2023. Net interest rate spread decreased by 43 basis points to 2.39% for the three months ended March 31, 2024 from 2.82% for the three months ended March 31, 2023, reflecting a 71 basis points increase in the average rate paid on interest-bearing liabilities which was offset by a 28 basis points increase in the average yield on interest-earning assets. The net interest margin decreased by 33 basis points to 2.73% for the three months ended March 31, 2024 from 3.06% for the three months ended March 31, 2023. The increase in the average yield on interest earning assets for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to an increase in the average yield of all interest-earning asset categories related to the increase in market interest rates over the past year. The increase in the average interest rate paid on interest-bearing liabilities was due to the Bank raising the interest rates on all deposit categories to maintain customers and keep the rates in line with what the competitors were offering and to attract new funds to the Bank.

Previous wording

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

Current wording

Based on our evaluation of the above factors, we recorded a recovery of credit losses of $122,000 for the three months ended March 31, 2024 compared to no provision for credit losses for the three months ended March 31, 2023. The recovery was related to an improvement in 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.

Previous wording

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

Current wording

The allowance for credit losses was $1.8 million, or 0.91%, of loans outstanding at March 31, 2024 and $2.1 million, or 1.01%, of loans outstanding at March 31, 2023.

Previous wording

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

Current wording

Provision for (Benefit from) Income Taxes. Income tax benefit was $203,000 for the three months ended March 31, 2024, a decrease of $261,000, as compared to income tax expense of $58,000 for the three months ended March 31, 2023. The decrease in income tax expense was primarily due to a change in the Company’s income before income taxes and a change in the Company’s effective tax rate. The effective tax rate for the three months ended March 31, 2024 and 2023 was 24.3% and 13.7%, respectively. The effective tax rate increased during the three months ended March 31, 2024 as compared to the prior year period because the gain on life insurance proceeds was not subject to income taxes for the three months ended March 31, 2023.

Previous wording

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

Current wording

Comparison of Operating Results for the Nine Months Ended March 31, 2024 and 2023

Previous wording

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

Current wording

General*.*Net loss was $273,000 for the nine months ended March 31, 2024, a decrease of $1.5 million, or 123.2%, from net income of $1.2 million for the nine months ended March 31, 2023. The decrease in net income (loss) for the nine months ended March 31, 2024 was primarily attributable to an increase in expenses associated with foreclosed assets, net of $1.0 million, a decrease of $599,000 in net-interest income, and a decrease of $261,000 in non-interest income. These changes were partially offset by a recovery of loan losses of $216,000 and a decrease in the provision for income taxes of $297,000.

Previous wording

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

Current wording

Interest Income**.**Interest income increased by $569,000, or 8.7%, to $7.1 million for the nine months ended March 31, 2024 compared to $6.6 million for the nine months ended March 31, 2023 primarily due to increases in loan interest income and other interest income (cash and cash equivalents and other). The increase in other interest income of $88,000 was primarily due to an increase in the average yield of 184 basis points on our cash and cash equivalents due to the increases in the federal funds rate which was offset by a decrease in the average balance of cash and cash equivalents of $3.4 million when comparing the nine months ended March 31, 2024 with the nine months ended March 31, 2023.

Previous wording

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

Current wording

Loan interest income increased by $507,000, or 8.5%, to $6.5 million for the nine months ended March 31, 2024 from $6.0 million for the nine months ended March 31, 2023, due to a slight increase in the average balance of the loan portfolio and an increase in the average yield on loans. The average balance of the loan portfolio increased by $1.4 million, or 0.70%, from $193.7 million for the nine months ended March 31, 2023 to $195.1 million for the nine months ended March 31, 2024. The average yield on the loan portfolio increased by 31 basis points from 4.15% for the nine months ended March 31, 2023 to 4.46% for the nine months ended March 31, 2024 as a result of rising interest rates.

Previous wording

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

Current wording

Interest Expense. Interest expense increased $1.2 million, or 77.5%, to $2.7 million for the nine months ended March 31, 2024 from $1.5 million for the nine months ended March 31, 2023, due to an increase of $764,000 in interest paid on deposits and an increase of $404,000 in interest paid on borrowings.

Previous wording

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

Current wording

Interest expense on deposits increased $764,000, or 52.3%, to $2.2 million for the nine months ended March 31, 2024 from $1.5 million for the nine months ended March 31, 2023 due to an increase in interest expense on all deposit categories except savings deposits as a result of the increase in average rates. 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 50 basis points and the average rate paid on certificates of deposit increasing 109 basis points. The increase in the average rate paid on all deposit categories was due to the Bank raising the interest rates on these deposit categories to maintain customers and keep the rates in line with what the competitors were offering and to attract new funds to the Bank. The average balance of certificates of deposit increased slightly by $2.5 million, or 3.3%, from $75.3 million for the nine months ended March 31, 2023 to $77.8 million for the nine months ended March 31, 2024. The average balance of interest-bearing demand, NOW and money market and savings accounts decreased by $10.8 million and $4.6 million, respectively. The increase in the average balance of certificates of deposit accounts was due to offering higher rate deposit products during the nine months ended March 31, 2024 offset by the maturity of two brokered certificates of deposit totaling $8.7 million during the nine months ended March 31, 2024. The decrease in the average balance of interest-bearing demand, NOW, money market and savings deposits was related to customers who changed banks to obtain higher rates and the Bank being less aggressive in matching competitor interest rates.

Previous wording

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

Current wording

Interest paid on FHLB borrowings increased $404,000, from $45,000 for the nine months ended March 31, 2023 to $449,000 for the nine months ended March 31, 2024. The increase in interest paid on borrowings was due to the average balance of FHLB advances increasing by $14.1 million and an increase in the average rate paid on borrowings

Previous wording

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

Current wording

Net Interest Income. Net interest income decreased by $599,000, or 11.9%, to $4.5 million for the nine months ended March 31, 2024 from $5.1 million for the nine months ended March 31, 2023. Net interest-earning assets decreased by $4.8 million, or 11.8%, to $36.1 million for the nine months ended March 31, 2024 from $41.0 million for the nine months ended March 31, 2023. Net interest rate spread decreased by 45 basis points to 2.44% for the nine months ended March 31, 2024 from 2.89% for the nine months ended March 31, 2023, reflecting a 87 basis points increase in the average rate paid on interest-bearing liabilities offset by a 42 basis points increase in the average yield on interest-earning assets. The net interest margin decreased 32 basis points to 2.77% for the nine months ended March 31, 2024 from 3.09% for the nine months ended March 31, 2023. The increase in the average yield on interest earning assets for the nine months ended March 31, 2024 compared to the nine months ended March 31, 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 the competitors were offering and to attract new funds to the Bank.

Previous wording

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

Current wording

Based on our evaluation of the above factors, we recorded a recovery of credit losses of $216,000 for the nine months ended March 31, 2024 compared to no provision for credit losses for the nine months ended March 31, 2023, respectively. 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 0.91%, of loans outstanding at March 31, 2024 and $2.1 million, or 1.01%, of loans outstanding at March 31, 2023.

Previous wording

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

Current wording

Non-interest income decreased by $261,000 to $552,000 for the nine months ended March 31, 2024 from $813,000 for the nine months ended March 31, 2023 due primarily to a gain on proceeds from a life insurance death benefit and net gain on securities transactions of $261,000 and $24,000, respectively, being recognized during the nine months ended March 31, 2023 compared to no such amounts being recognized during the nine months ended March 31, 2024. These decreases were partially offset by an increase in mortgage banking income of $46,000. The increase in mortgage banking income (consisting primarily of sales of fixed-rate one- to four-family residential real estate loans) increased as we sold $4.4 million of mortgage loans into the secondary market during the nine months ended March 31, 2024 compared to $2.1 million of such sales during the nine months ended March 31, 2023 as well as an increase in the mortgage servicing fees we receive.

Previous wording

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

Current wording

Non-interest expenses were $5.5 million for the nine months ended March 31, 2024 compared to $4.4 million for the nine months ended March 31, 2023. The increase was related to an increase in expenses associated with foreclosed assets, net, of $1.0 million and minor increases in the majority of other expense accounts which were offset by a decrease of $158,000 in salaries and employee benefits when comparing the two periods. The increase in expenses associated with foreclosed assets, net was primarily related to the recording of a valuation allowance of $937,000 during the nine months ended March 31, 2024 associated with a new appraisal obtained on the Company’s only foreclosed asset. For further information, please see Comparison of Financial Condition at March 31, 2024 and June 30, 2023- Foreclosed Assets above. The increase in other expenses was primarily related to an increase in FDIC premiums and to a lesser extent, check fraud losses. The decrease in salaries and employee benefits was primarily related to the prior year period including a bonus accrual compared to no bonus accrual for the current nine month period.

Previous wording

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

Current wording

Provision for (Recovery from) Income Taxes. Income tax benefit was $31,000 for the nine months ended March 31, 2024, a decrease of $297,000, as compared to income tax expense of $266,000 for the nine months ended March 31, 2023. The decrease in income tax expense was primarily the result of a decrease in income before income taxes of $1.7 million which was offset by a change in Wisconsin tax law that provides for a subtraction from the Bank’s

Previous wording

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

Current wording

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 nine months ended March 31, 2024.

Previous wording

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

Current wording

Non-performing assets includes other real estate owned of $1.4 million and $2.3 million, at March 31, 2024 and June 30, 2023, respectively. During the three months 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 (OREO), net. 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 resulting in a new valuation of $2.1 million 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 during the three and nine months ended March 31, 2024. Non-performing assets also includes a multi-family real estate loan for $56,000 which was returned to accrual status in April 2024 upon renewal of the matured loan.

Previous wording

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

Current wording

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 March 31, 2024, we had a $82.0 million line of credit with the Federal Home Loan Bank of Chicago, which had $23.0 million in borrowings outstanding as of that date. The Bank also has $25.0 million available to borrow from the Federal Reserve Bank when pledging acceptable assets and an unsecured Federal Funds purchasing limit of $5.0 million with the Bank’s correspondent bank. At March 31, 2024, the Bank did not borrow any additional funds from the Federal Reserve or from the correspondent bank.

Previous wording

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

Current wording

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 $188,000 and $1.3 million of cash provided by operating activities for the nine months ended March 31, 2024 and 2023, respectively. Net cash provided by (used in) investing activities, which consists primarily of disbursements for loan origination, the purchase of securities, and the purchase of premises and equipment offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $8.7 million provided by investing activities compared to $16.9 million used in investing activities for the nine months ended March 31, 2024 and 2023, respectively. Net cash (used in) provided by financing activities, consisting of activity in deposit accounts and borrowings, was $12.6 million used in financing activities compared to $16.6 million being provided by financing activities for the nine months ended March 31, 2024 and 2023, respectively.

Previous wording

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

Current wording

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 March 31, 2024, we had outstanding commitments to originate loans of $4.8 million, and $1.2 million in outstanding commitments to sell loans. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in one year or less from March 31, 2024 totaled $44.3 million, which include $4.4 million in brokered certificates of deposit. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize additional Federal Home Loan Bank advances or other borrowings, which may result in higher levels of interest expense.