UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended December 31, ~~2020~~2023

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

EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. ~~333-249492~~001-40255

WILLIAM PENN BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Maryland	85-3898797
(Statement or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
10 Canal Street, Suite 104, Bristol, Pennsylvania	19007
(Address of Principal Executive Offices)	(Zip Code)

(267) 540-8500

(Registrant’s telephone number, including area code)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
~~None~~	Common Stock, par value $0.01 per share	WMPN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

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


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the issuer’s common stock, as of ~~March~~February 1, ~~2021: 0~~2024: 9,551,316 shares.

Table of Contents

~~EXPLANATORY NOTE~~

William Penn Bancorporation (the “Company”) filed a Registration Statement on Form S-1 (the “Form S-1”), as amended, with the U.S. Securities and Exchange Commission (the “SEC”), which the SEC declared effective on January 15, 2021. The Form S-1 includes financial statements for the Company’s fiscal year ended June 30, 2020 and the three month period ended September 30, 2020. The Company is filing this Form 10-Q pursuant to Rule 13a-13 of the Securities Exchange Act of 1934, as amended, to file financial statements for the first quarter subsequent to the quarter reported upon the Form S-1.

The Company was incorporated in July 2020 by William Penn Bancorp, Inc. (“William Penn Bancorp”), a Pennsylvania corporation currently existing as the mid-tier holding company for William Penn Bank, Bristol, Pennsylvania (the “Bank”), to be the Bank’s holding company upon completion of the Bank’s “second-step” conversion from the mutual holding company to the stock holding company form of organization. Upon completion of the conversion, the Company will own all of the Bank’s outstanding capital stock and will direct, plan and coordinate the Bank’s business activities. The Company is not currently an operating company, has not issued any shares, has engaged only in organizational activities to date and has no significant assets, contingent or other liabilities, revenues or expenses. Therefore, the information presented in this report is on a consolidated basis for William Penn Bancorp.

~~Table of Contents~~

WILLIAM PENN BANCORPORATION

TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition as of December 31, ~~2020~~2023 and June 30, ~~2020~~2023	43

	Consolidated Statements of Income for the Three and Six ~~months~~Months Ended December 31, ~~2020~~2023 and ~~2019~~2022	54

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six ~~months~~Months Ended December 31, ~~2020~~2023 and ~~2019~~2022	65

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six ~~months~~Months Ended December 31, ~~2020~~2023 and ~~2019~~2022	76

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022	87

	Notes to Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4245

Item 4.	Controls and Procedures	4447

Part II	Other Information

Item 1.	Legal Proceedings	4447

Item 1A.	Risk Factors	4447

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4447

Item 3.	Defaults Upon Senior Securities	4548

Item 4.	Mine Safety Disclosures	4548

Item 5.	Other Information	4548

Item 6.	Exhibits	4648



Signatures

Table of Contents

PART I —FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIAM PENN ~~BANCORP, INC.~~BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share and per share amounts)

As of December 31, ~~2020~~2023 and June 30, ~~2020~~2023 (unaudited)

December 31,

June 30,


2020

2020

ASSETS




Cash and due from banks

$
23,583

$
21,385
Interest bearing deposits with other banks

62,675

56,755
Federal funds sold

—

4,775
Total cash and cash equivalents

86,258

82,915
Interest-bearing time deposits

2,300

2,300
Securities available for sale

112,909

89,998
Loans receivable, net of allowance for loan losses of $3,587 and $3,519, respectively

494,805

508,605
Premises and equipment, net

13,543

16,733
Regulatory stock, at cost

3,133

4,200
Deferred income taxes

3,721

4,817
Bank-owned life insurance

14,968

14,758
Goodwill

4,858

4,858
Intangible assets

1,064

1,192
Accrued interest receivable and other assets

8,968

6,076
TOTAL ASSETS

$
746,527

$
736,452

LIABILITIES AND STOCKHOLDERS' EQUITY





LIABILITIES




Deposits

$
597,079

$
559,848
Advances from Federal Home Loan Bank

41,000

64,892
Advances from borrowers for taxes and insurance

3,056

4,536
Accrued interest payable and other liabilities

8,203

10,811
TOTAL LIABILITIES

649,338

640,087

STOCKHOLDERS' EQUITY




Preferred stock, 0 par value, 1,000,000 shares authorized; 0 shares issued

—

—
Common Stock, $.10 par value, 49,000,000 shares authorized; 4,667,304 shares issued and 4,489,345 shares outstanding at December 31, 2020 and June 30, 2020, respectively.

467

467
Additional paid-in capital

42,932

42,932
Treasury Stock, 177,959 shares at cost at December 31, 2020 and June 30, 2020, respectively.

(3,710)

(3,710)
Retained earnings

56,760

56,600
Accumulated other comprehensive income

740

76
TOTAL WILLIAM PENN BANCORP, INC. STOCKHOLDERS' EQUITY

97,189

96,365
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
746,527

$
736,452


	December 31,		June 30,
	2023		2023

ASSETS
Cash and due from banks	$	6,122	$	7,652
Interest bearing deposits with other banks		11,402		11,561
Federal funds sold		—		1,580
Total cash and cash equivalents		17,524		20,793
Interest-bearing time deposits		100		600
Securities available for sale, at fair value		160,938		165,127
Securities held to maturity, net of allowance for credit losses of $0 as of December 31, 2023 (fair value of $81,239 and $82,313, as of December 31, 2023 and June 30, 2023, respectively)		96,404		99,690
Equity securities		1,850		1,629
Loans receivable, net of allowance for credit losses of $3,601 and $3,313 as of December 31, 2023 and June 30, 2023, respectively		467,214		477,543
Premises and equipment, net		7,521		9,054
Regulatory stock, at cost		3,313		2,577
Deferred income taxes		9,002		9,485
Bank-owned life insurance		41,179		40,575
Goodwill		4,858		4,858
Intangible assets		437		519
Operating lease right-of-use assets		8,617		8,931
Accrued interest receivable and other assets		7,074		6,198
TOTAL ASSETS	$	826,031	$	847,579

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	626,663	$	635,260
Advances from Federal Home Loan Bank		54,000		34,000
Advances from borrowers for taxes and insurance		2,481		3,227
Operating lease liabilities		8,834		9,107
Accrued interest payable and other liabilities		5,107		5,240
TOTAL LIABILITIES		697,085		686,834
Commitments and contingencies (note 12)		—		—
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized; 9,637,072 shares issued and outstanding at December 31, 2023 and 12,452,921 shares issued and outstanding at June 30, 2023		96		125
Additional paid-in capital		100,651		134,387
Unearned common stock held by employee stock ownership plan		(8,991)		(9,194)
Retained earnings		58,132		58,805
Accumulated other comprehensive loss		(20,942)		(23,378)
TOTAL STOCKHOLDERS' EQUITY		128,946		160,745
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	826,031	$	847,579

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN ~~BANCORP, INC.~~BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share and per share amounts)

For the Three and Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022 (unaudited)


									Three Months Ended December 31,				Six Months Ended December 31,
	Three Months Ended December 31,				Six Months Ended December 31,				2023		2022		2023		2022
	2020		2019		2020		2019
INTEREST INCOME
Loans receivable, including fees	$	6,233	$	4,072	$	12,126	$	8,223	$	6,194	$	5,666	$	12,333	$	10,963
Securities		472		402		1,125		675		1,700		1,707		3,411		3,364
Other		79		132		190		284		169		187		330		316
Total Interest Income		6,784		4,606		13,441		9,182
Total interest income										8,063		7,560		16,074		14,643
INTEREST EXPENSE
Deposits		918		894		1,999		1,767		3,220		974		5,950		1,483
Borrowings		267		370		626		700		632		550		1,169		883
Total Interest Expense		1,185		1,264		2,625		2,467
Total interest expense										3,852		1,524		7,119		2,366

Net Interest Income		5,599		3,342		10,816		6,715
Net interest income										4,211		6,036		8,955		12,277

Provision for Loan Losses		32		—		98		—
Provision for credit losses										25		—		30		—

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,567		3,342		10,718		6,715
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES										4,186		6,036		8,925		12,277
OTHER INCOME
Service fees		186		156		369		295		225		209		440		420
Net (loss) gain on sale of securities		(30)		—		(30)		93
Net gain on sale of securities										85		—		85		—
Earnings on bank-owned life insurance		98		82		210		165		309		274		603		547
Net gain on sale of premises and equipment		454		—		469		—
Net gain on disposition of premises and equipment										—		300		—		299
Unrealized gain (loss) on equity securities										148		54		221		(219)
Other		132		49		222		81		61		65		129		137
Total Other Income		840		287		1,240		634
Total other income										828		902		1,478		1,184
OTHER EXPENSES
Salaries and employee benefits		2,526		1,614		5,080		3,185		2,861		3,222		5,796		6,463
Occupancy and equipment		655		514		1,414		809		728		907		1,488		1,695
Data processing		509		218		931		522		504		472		998		903
Professional fees		217		272		405		374		192		258		402		521
Amortization on intangible assets		64		59		128		118
Prepayment penalties		—		—		161		—
Amortization of intangible assets										41		49		82		97
Other		690		361		1,277		676		745		752		1,530		1,544
Total Other Expense		4,661		3,038		9,396		5,684
Total other expense										5,071		5,660		10,296		11,223

Income Before Income Taxes		1,746		591		2,562		1,665
(Loss) income before income taxes										(57)		1,278		107		2,238

Income Tax Expense (Benefit)		370		(338)		516		(118)
Income tax (benefit) expense										(68)		217		(83)		150
NET INCOME	$	1,376	$	929	$	2,046	$	1,783	$	11	$	1,061	$	190	$	2,088

Basic and diluted earnings per share	$	0.31	$	0.23	$	0.46	$	0.45	$	—	$	0.08	$	0.02	$	0.16

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN ~~BANCORP, INC.~~BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

For the Three and Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022 (unaudited)

Three Months Ended December,

Six Months Ended December,


2020

2019

2020

2019

Net income

$
1,376

$
929

$
2,046

$
1,783

Other comprehensive income (loss):








Changes in net unrealized gain (loss) on securities available for sale

367

(302)

827

(454)
Tax effect

(83)

68

(186)

102
Reclassification adjustment for loss (gain) recognized in net income

30

—

30

(93)
Tax effect

(7)

—

(7)

21
Other comprehensive income (loss), net of tax

307

(234)

664

(424)
Comprehensive income

$
1,683

$
695

$
2,710

$
1,359


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

Net income	$	11	$	1,061	$	190	$	2,088

Other comprehensive income (loss):
Changes in net unrealized loss on securities available for sale		9,206		1,038		3,249		(9,028)
Tax effect		(2,118)		(240)		(748)		2,076
Reclassification adjustment for gain recognized in net income		(85)		—		(85)		—
Tax effect		20		—		20		—
Other comprehensive income (loss), net of tax		7,023		798		2,436		(6,952)
Comprehensive income (loss)	$	7,034	$	1,859	$	2,626	$	(4,864)

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN ~~BANCORP, INC.~~BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands, except share amounts)

For the Three and Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022 (unaudited)

Accumulated



Other

Total

Number

Common Stock

Additional

Treasury

Retained

Comprehensive

Stockholders'


of Shares

Stock

Paid-in capital

Stock

Earnings

Income/(Loss)

Equity
Balance, June 30, 2019

3,980,154

$
416

$
22,441

$
(3,710)

$
57,255

$
228

$
76,630
Net income

—

—

—

—

854

—

854
Other comprehensive loss

—

—

—

—

—

(190)

(190)
Dividend paid ($0.50 per share)

—

—

—

—

(1,983)



(1,983)
Balance, September 30, 2019

3,980,154

$
416

$
22,441

$
(3,710)

$
56,126

$
38

$
75,311
Net income

—

—

—

—

929

—

929
Other comprehensive loss

—

—

—

—

—

(234)

(234)
Balance, December 31, 2019

3,980,154

$
416

$
22,441

$
(3,710)

$
57,055

$
(196)

$
76,006


						Unearned				Accumulated
						Common				Other		Total
	Number	Common Stock		Additional		Stock		Retained		Comprehensive		Stockholders'
	of Shares, net	Stock		Paid-in capital		held by ESOP		Earnings		Loss		Equity
Balance, June 30, 2023	12,452,921	$	125	$	134,387	$	(9,194)	$	58,805	$	(23,378)	$	160,745
Net income	—		—		—		—		179		—		179
Other comprehensive loss	—		—		—		—		—		(4,587)		(4,587)
Cumulative effect of adoption of ASU 2016-13	—		—		—		—		(226)		—		(226)
Restricted stock expense	—		—		282		—		—		—		282
Stock option expense	—		—		195		—		—		—		195
Stock purchased and retired	(1,624,018)		(17)		(19,931)		—		—		—		(19,948)
ESOP shares committed to be released	—		—		1		101		—		—		102
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(348)		—		(348)
Balance, September 30, 2023	10,828,903	$	108	$	114,934	$	(9,093)	$	58,410	$	(27,965)	$	136,394
Net income	—		—		—		—		11		—		11
Other comprehensive income	—		—		—		—		—		7,023		7,023
Restricted stock expense	—		—		281		—		—		—		281
Stock option expense	—		—		195		—		—		—		195
Stock purchased and retired	(1,191,831)		(12)		(14,766)		—		—		—		(14,778)
ESOP shares committed to be released	—		—		7		102		—		—		109
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(289)		—		(289)
Balance, December 31, 2023	9,637,072	$	96	$	100,651	$	(8,991)	$	58,132	$	(20,942)	$	128,946

Accumulated



Other

Total

Number

Common Stock

Additional

Treasury

Retained

Comprehensive

Stockholders'


of Shares

Stock

Paid-in capital

Stock

Earnings

Income

Equity
Balance, June 30, 2020

4,489,345

$
467

$
42,932

$
(3,710)

$
56,600

$
76

$
96,365
Net income

—

—

—

—

670

—

670
Other comprehensive income

—

—

—

—

—

357

357
Dividend paid ($0.42 per share)

—

—

—

—

(1,886)



(1,886)
Balance, September 30, 2020

4,489,345

$
467

$
42,932

$
(3,710)

$
55,384

$
433

$
95,506
Net income

—

—

—

—

1,376

—

1,376
Other comprehensive income

—

—

—

—

—

307

307
Balance, December 31, 2020

4,489,345

$
467

$
42,932

$
(3,710)

$
56,760

$
740

$
97,189


						Unearned				Accumulated
						Common				Other		Total
	Number	Common Stock		Additional		Stock		Retained		Comprehensive		Stockholders'
	of Shares, net	Stock		Paid-in capital		held by ESOP		Earnings		Loss		Equity
Balance, June 30, 2022	14,896,590	$	149	$	159,546	$	(9,599)	$	57,587	$	(15,357)	$	192,326
Net income	—		—		—		—		1,027		—		1,027
Other comprehensive loss	—		—		—		—		—		(7,750)		(7,750)
Restricted stock expense	—		—		289		—		—		—		289
Stock option expense	—		—		201		—		—		—		201
Stock purchased and retired	(397,352)		(4)		(4,578)		—		—		—		(4,582)
ESOP shares committed to be released	—		—		—		102		—		—		102
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(419)		—		(419)
Balance, September 30, 2022	14,499,238	$	145	$	155,458	$	(9,497)	$	58,195	$	(23,107)	$	181,194
Net income	—		—		—		—		1,061		—		1,061
Other comprehensive income	—		—		—		—		—		798		798
Restricted stock expense	—		—		269		—		—		—		269
Stock option expense	—		—		186		—		—		—		186
Shares forfeited under the William Penn Bancorporation 2022 Equity Incentive Plan	(13,904)		—		—		—		—		—		—
Stock purchased and retired	(342,007)		(4)		(3,973)		—		—		—		(3,977)
ESOP shares committed to be released	—		—		2		102		—		—		104
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(405)		—		(405)
Balance, December 31, 2022	14,143,327	$	141	$	151,942	$	(9,395)	$	58,851	$	(22,309)	$	179,230

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN ~~BANCORP, INC.~~BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

For the Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022 (unaudited)

Six Months Ended

December 31,


2020

2019
Cash Flows from Operating Activities




Net income

$
2,046

$
1,783
Adjustments to reconcile net income to net cash (used) provided by operating activities:




Provision for loan losses

98

-
Depreciation expense

528

210
Other accretion, net

(1,534)

(336)
Deferred income taxes

903

255
Impact of tax law change

-

(408)
Net gain on sale of premises and equipment

(469)

-
Amortization of core deposit intangibles

128

118
Net loss (gain) on sale of securities

30

(93)
Earnings on bank-owned life insurance

(210)

(165)
Decrease in pension liabilities

(2,735)

-
Other, net

(1,742)

(148)
Net Cash (Used) Provided by Operating Activities

(2,957)

1,216
Cash Flows from Investing Activities




Securities available for sale:




Purchases

(49,220)

(35,157)
Maturities, calls and principal paydowns

18,564

6,652
Proceeds from sale of securities

7,893

4,309
Net decrease in loans receivable

14,792

4,624
Interest bearing time deposits:




Purchases

(500)

(500)
Maturities & principal paydowns

500

3,988
Regulatory stock purchases

—

(217)
Regulatory stock redemptions

1,067

—
Purchases of premises and equipment, net

(537)

(1,117)
Proceeds from the sale of premises and equipment

2,661

—
Net Cash Used by Investing Activities

(4,780)

(17,418)
Cash Flows from Financing Activities




Net increase in deposits

37,643

23,294
Proceeds from Federal Home Loan Bank advances

—

6,000
Repayment of Federal Home Loan Bank advances

(23,197)

—
Decrease in advances from borrowers for taxes and insurance

(1,480)

(1,172)
Cash dividends

(1,886)

(1,983)
Net Cash Provided for Financing Activities

11,080

26,139
Net Increase in Cash and Cash Equivalents

3,343

9,937
Cash and Cash Equivalents-Beginning

82,915

26,168
Cash and Cash Equivalents-Ending

$
86,258

$
36,105
Supplementary Cash Flows Information




Interest paid

$
2,706

$
2,430
Income taxes paid

400

12
Operating lease right-of-use asset recorded

399

1,231
Operating lease liabilities recorded

399

1,213
Premises transferred to held for sale

3,199

—


	Six Months Ended
	December 31,
	2023		2022

Cash flows from operating activities
Net income	$	190	$	2,088
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		30		—
Depreciation expense		400		584
Other accretion, net		(281)		(190)
Deferred income taxes		(295)		319
Net loss on disposition of premises and equipment		—		(299)
Amortization of core deposit intangibles		82		97
Amortization of ESOP		211		206
Net gain on sale of securities		(85)		—
Unrealized (gain) loss on equity securities		(221)		219
Earnings on bank-owned life insurance		(603)		(547)
Stock based compensation expense		953		945
Other, net		335		(515)
Net cash provided by operating activities		716		2,907
Cash flows from investing activities
Securities available for sale:
Purchases		(1,152)		(4,778)
Maturities, calls and principal paydowns		6,015		6,325
Proceeds from sale of securities		2,438		—
Securities held to maturity:
Purchases		(998)		(5,023)
Maturities, calls and principal paydowns		4,301		4,130
Net decrease (increase) in loans receivable		10,384		(16,374)
Interest bearing time deposits:
Maturities and principal paydowns		500		—
Regulatory stock purchases		(3,341)		(2,327)
Regulatory stock redemptions		2,605		2,567
Proceeds from the sale of premises and equipment held for sale		—		1,934
Purchases of premises and equipment, net		(104)		(243)
Net cash provided by (used in) investing activities		20,648		(13,789)
Cash flows from financing activities
Net (decrease) increase in deposits		(8,525)		8,950
Net increase (repayment) of short-term borrowed funds		20,000		(5,000)
Repurchase of common stock		(34,726)		(8,559)
Decrease in advances from borrowers for taxes and insurance		(745)		(713)
Cash dividends		(637)		(824)
Net cash used in financing activities		(24,633)		(6,146)
Net decrease in cash and cash equivalents		(3,269)		(17,028)
Cash and cash equivalents - beginning		20,793		36,170
Cash and cash equivalents - ending	$	17,524	$	19,142
Supplementary cash flows information
Interest paid	$	7,084	$	2,415
Income tax payments (refunds)		221		(107)
Operating lease right-of-use asset recorded		—		1,731
Operating lease liabilities recorded		—		1,731
Premises transferred to held for sale		1,237		—

See accompanying notes to consolidated financial statements

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Notes to the Consolidated Financial Statements

Note 1 - Nature of Operations

William Penn Bancorporation (“the Company”) is a Maryland corporation that was incorporated in July 2020 to be the successor to William Penn Bancorp, Inc. (“William Penn Bancorp”) ~~is a Pennsylvania chartered mid-tier~~upon completion of the second-step conversion of William Penn Bank (the “Bank”) from the two-tier mutual holding company structure to the stock holding company structure. William Penn, MHC was the former mutual holding company for William Penn Bancorp prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of William Penn, MHC and William Penn Bancorp ceased to exist. The second-step conversion was completed on March 24, 2021, at which time the Company sold, for gross proceeds of $126.4 million, a total of 12,640,035 shares of common stock at $10.00 per share. As part of the second-step conversion, each of the existing 776,647 outstanding shares of William Penn Bancorp common stock owned by persons other than William Penn, MHC was converted into 3.2585 shares of Company common stock. In addition, $5.4 million of cash held by William Penn, MHC was transferred to the Company and recorded as an increase to additional paid-in capital following the completion of the second-step conversion.

In connection with the second-step conversion offering, the William Penn Bank Employee Stock Ownership Plan (“ESOP”) trustees subscribed for, and intended to purchase, on behalf of the ESOP, 8% of the shares of the Company common stock sold in the offering and to fund its stock purchase through a loan from the Company equal to 100% of the aggregate purchase price of the common stock. As a result of the second-step conversion offering being oversubscribed in the first tier of subscription priorities, the ESOP trustees were unable to purchase shares of the Company’s common stock in the second-step conversion offering. Subsequent to the completion of the second-step conversion on March 24, 2021, the ESOP trustees purchased 881,130 shares, or $10.1 million, of the Company’s common stock in the open market. Such shares represent 6.97% of the shares of the Company common stock sold in the offering. The ESOP did not purchase any additional shares of Company common stock in connection with the second-step conversion and offering.

The Company owns 100% of the outstanding common stock of ~~William Penn~~the Bank, ~~(the “Bank”),~~ a Pennsylvania chartered stock savings bank. The Bank offers consumer and commercial banking services to individuals, businesses, and nonprofit organizations throughout the Delaware Valley area through 12twelve full-service branch offices in Bucks County and Philadelphia, Pennsylvania, and Burlington, Camden, and ~~Camden~~Mercer Counties in New Jersey. ~~William Penn Bancorp~~The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System. The Bank is supervised and regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities.

On September 16, 2020, the Boards of Directors of William Penn Bancorp, the Bank, and William Penn, MHC (the “MHC”), the parent mutual holding company of the Bank, unanimously adopted a Plan of Conversion and Reorganization, which was subsequently amended and restated on October 6 2020 (the “Plan of Conversion”). Pursuant to the Plan of Conversion, the MHC will sell its majority ownership in William Penn Bank to the public and William Penn Bancorp, which is currently in the mutual holding company structure, will reorganize to the fully public stock holding company form of organization in a transaction commonly referred to as a “second-step” conversion. William Penn Bancorporation (the "Company") was incorporated in July 2020 by William Penn Bancorp to be the Bank's holding company upon completion of the second-step conversion. The Company filed a Registration Statement on Form S-1 (the "Form S-1"), as amended, with the U.S. Securities and Exchange Commission (the "SEC"), which the SEC declared effective on January 15, 2021 and the Company currently anticipates, subject to approval of the members of the MHC and the stockholders of William Penn Bancorp, as well as satisfaction of customary closing conditions, the second-step conversion will be completed in March 2021.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the ~~William Penn Bancorp,~~Company, and its wholly owned subsidiary, the Bank, ~~and~~as well as the Bank’s wholly owned ~~subsidiaries,~~subsidiary, WPSLA Investment Corporation (“WPSLA”~~), Fidelity Asset Recovery Specialists, LLC, and Washington Service Corporation (“WSC”~~). WPSLA is a Delaware corporation organized in April 2000 to hold certain investment securities ~~and loans~~ for the Bank. At December 31, ~~2020,~~2023, WPSLA held ~~$90.9~~$248.9 million of the Bank’s ~~$112.9~~$259.2 million investment securities ~~portfolio and $53.4 million of the Bank’s $498.4 million loan~~ portfolio. Fidelity Asset Recovery Specialists, LLC is Pennsylvania limited liability company organized in March 2015 that the Bank acquired in connection with its acquisition of Fidelity Savings Association of Bucks County (“Fidelity”) in May 2020. Fidelity Asset Recovery Specialists, LLC, which is currently inactive and in the process of dissolution, was formerly utilized by Fidelity to manage and hold other real estate owned properties in Pennsylvania until disposition. WSC is a Pennsylvania corporation organized in October 2000 that the Bank acquired in connection with its acquisition of Washington Savings Bank (“Washington”) in May 2020. WSC held commercial real estate, including a branch office, located in Philadelphia, Pennsylvania that was owned by Washington and was sold by William Penn Bank in October 2020. WSC is currently inactive and is in the process of dissolution. All significant intercompany accounts and transactions have been eliminated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis. Accordingly, the various financial services and products offered are aggregated into 1 reportable operating segment: community banking as under guidance in the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC” or “codification”) Topic 280 for Segment Reporting.

Use of Estimates in the Preparation of Financial Statements

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). and in accordance with the rules of the U.S. Securities and Exchange Commission for Quarterly Reports on Form 10-Q. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The significant estimates include the allowance for ~~loan~~credit losses, goodwill, ~~intangible assets,~~ income taxes, postretirement benefits, and the fair value of investment securities. Actual results could differ from those estimates and assumptions.

The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year or any other period. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

Table of Contents

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and interest-bearing demand ~~deposits, and federal funds sold.~~deposits.

~~Table of Contents~~

Revenue Recognition

Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments, along with noninterest revenue resulting from investment security and loan gains (losses) and earnings on bank owned life ~~insurance,~~insurances, are not within the scope of ~~ASC~~Accounting Standards Codification (“ASC”) 606. The main types of noninterest income within the scope of ASC 606 include service charges on deposit accounts. The ~~Bank~~Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the ~~Bank~~Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the ~~Bank~~Company has an unconditional right to the fee consideration. The ~~Bank~~Company also ~~receives~~has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction ~~fees, as well as bargain purchase gain.~~fees. These fees are attributable to specific performance obligations of the ~~Bank~~Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

Segment Reporting

~~William Penn Bancorp~~The Company acts as an independent community financial services provider and offers traditional banking and related financial services to individual, business, and government customers. Through its branch network, the Bank offers a full array of commercial and retail financial services, including the ~~acceptance~~taking of time, savings, and demand deposits; the making of commercial and mortgage loans; and the providing of other financial services. Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Bank. As such, discrete financial information is not available and segment reporting would not be meaningful.

Recent Accounting Pronouncements

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. This ASU revises lessee accounting. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for substantially all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. Adoption using the comparative modified retrospective transition approach was required; however, in July 2018, the FASB issued ASU 2018-11, Leases-Targeted Improvements, which provides an optional transition method whereby comparative periods presented in the financial statements in the period of adoption do not need to be restated under Topic 842. William Penn Bancorp adopted this guidance and its related amendments on July 1, 2019 using the transition option in ASU 2018-11 and the results of this adoption are recorded in the Consolidated Statements of Financial Condition.

~~Subsequent to adopting ASU 2016-02, the FASB issued ASU No. 2019-01,~~ ~~Leases (Topic 842)~~: Codification Improvements, which makes targeted changes to lessor accounting and clarifies interim transition disclosure requirements upon adopting Topic 842. The guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. William Penn Bancorp adopted this guidance on July 1, 2019. Adopted

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the impairment model for most financial assets. This ~~Update~~update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ~~Update~~update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This ~~Update~~update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ~~We expect~~The Company adopted this guidance using the modified retrospective approach for all financial assets measured at amortized cost, including loans, held to ~~recognize a one-time cumulative-effect adjustment to the allowance~~maturity debt securities and unfunded commitments, as well as available for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

~~Effective~~sale securities. On July 1, ~~2018,~~2023, the Company ~~adopted Accounting Standards Update ASU 2014-09,~~ ~~Revenue from contracts with Customers – Topic 606~~,recorded a cumulative effect decrease to retained earnings of $187 thousand, net of tax, related to loans and ~~all subsequent ASUs that modified ASC 606.~~$39 thousand, net of tax, related to unfunded commitments. The Company ~~has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had~~determined that there was no ~~material~~ impact to ~~the measurement~~retained earnings related to available for sale or ~~recognition~~held to maturity debt securities as a result of ~~revenue of~~adopting this guidance. The results reported for periods beginning on or after July 1, 2023 are presented under ASC 326, while prior ~~periods. Management determined that the primary sources of revenue emanating from interest and~~period amounts continue to be reported in accordance with previously applicable accounting standards.

109

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dividend income on loans and investments along with noninterest revenue resulting from investment security gains, and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue. The main types of noninterest income within the scope of the standard are as follows: service charges on deposit accounts—the Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. These fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

The impact of the change from the incurred loss model to the current expected credit loss model is included in the table below.


	July 1, 2023
			Adoption
(Dollars in thousands)	Pre-adoption		Impact		As Reported
Assets
ACL on debt securities available for sale	$	—	$	—	$	—
ACL on debt securities held to maturity		—		—		—
ACL on loans
Residential real estate:
1 - 4 family		486		(67)		419
Home equity and HELOCs		113		19		132
Construction -residential		214		(174)		40
Commercial real estate:
1 - 4 family investor		569		(241)		328
Multi-family (five or more)		89		(30)		59
Commercial non-residential		1,420		379		1,799
Construction and land		281		(93)		188
Commercial		82		254		336
Consumer loans		59		196		255

Liabilities
ACL on unfunded commitments		101		50		151
	$	3,414	$	293	$	3,707

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU were issued to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. These updates are not expected to have a significant impact on the Company’s financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments in this ASU were issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. Some of the amendments introduced by the ASU are technical corrections or clarifications of the FASB’s current disclosure or presentation requirements. These updates are not expected to have a significant impact on the Company’s financial statements.

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The sunset provision included in Topic 848 was based on the expectations of when LIBOR would cease being published. In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of LIBOR would be June 30, 2023, which is beyond the established sunset date of Topic 848. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU provide temporary relief by deferring the sunset date provision included in Topic 848. The amendments in ASU 2022-06 defer the effective date for all entities upon issuance through December 31, 2024. These updates are not expected to have a significant impact on the Company’s financial statements.

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Allowance for Credit Losses on Loans

The Company maintains its allowance for credit losses (“ACL”) at a level that management believes to be appropriate to absorb estimated credit losses as of the date of the Consolidated Statement of Financial Condition. The Company established its allowance in accordance with the guidance included in Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses (“ASC 326”). The ACL is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged-off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate amounts previously charged-off and expected to be charged-off. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, the historical loss experience of a peer group of banks identified by management, current conditions and forecasts of future economic conditions. The determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans. The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles.

Historical credit loss experience is the basis for the estimate of expected credit losses. We apply our historical loss rates and the historical loss rates of a group of peer banks identified by management to pools of loans with similar risk characteristics using the Weighted-Average Remaining Maturity (“WARM”) method. The remaining contractual life of the pools of loans with similar risk characteristics is adjusted by expected scheduled payments and prepayments. After consideration of the historical loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information. Our reasonable and supportable forecast adjustment is based on a regional economic indicator obtained from the St. Louis Federal Reserve economic database. The Company selected eight qualitative metrics which were correlated with the Bank and its peer group’s historical loss patterns. The eight qualitative metrics include: changes in lending policies and procedures, changes in national and local economic conditions as well as business conditions, changes in the nature, complexity, and volume of the portfolio, changes in the experience, ability, and depth of lenders and lending management, changes in the volume and severity of past due and classified loans, changes in the quality of the Bank’s loan review system, changes in the value of collateral securing the loans, and changes in or the existence of credit concentrations. The adjustments are weighted for relevance before applying to each pool of loans. Each quarter, management reviews the recommended adjustment factors and applies any additional adjustments based on local and current conditions.

The Company has elected to exclude $1.9 million of accrued interest receivable as of December 31, 2023 from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Accrued interest on loans is reported in the accrued interest receivable and other assets line on the consolidated statements of financial condition.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and, therefore, should be individually assessed. We evaluate all commercial loans that meet the following criteria: (1) when it is determined that foreclosure is probable, (2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, (3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Credit loss estimates are calculated based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A charge-off is recorded if the fair value of the loan is less than the loan balance.

Allowance for Credit Losses on Unfunded Loan Commitments

The Company estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on unfunded loan commitments is included in accrued interest payable and other liabilities in the Company’s Statement of Financial Condition and is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

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Allowance for Credit Losses on Held to Maturity Securities

The Company accounts for its held to maturity securities in accordance with Accounting Standards Codification (ASC) 326-20, Financial Instruments – Credit Loss – Measured at Amortized Cost, which requires that the Company measure expected credit losses on held to maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current economic conditions and reasonable and supportable forecasts.

The Company classifies its held to maturity debt securities into the following major security types: mortgage-backed securities, U.S. government agency securities and municipal bonds. Generally, the mortgage-backed securities and U.S. government agency securities are government guaranteed with a history of no credit losses and the municipal bonds are highly rated with a history of no credit losses. Credit ratings of the municipal bonds are reviewed on a quarterly basis. Based on the government guarantee, our historical experience including no credit losses, and the high credit rating of our municipal bonds, the Company determined that an allowance for credit losses on its’ held to maturity portfolio is not required.

Accrued interest receivable on held to maturity debt securities totaled $173 thousand as of December 31, 2023 and is included within accrued interest receivable and other assets on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, held to maturity debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

Allowance for Credit Losses on Available for Sale Securities

The Company measures expected credit losses on available for sale debt securities when the Bank intends to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the amortized cost basis of the security is written down to fair value through income. For available for sale debt securities that do not meet the previously mentioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The ACL on available for sale debt securities is included within securities available for sale on the Consolidated Statements of Financial Condition. Changes in the allowance for credit losses are recorded within provision for credit losses on the Consolidated Statements of Income. Losses are charged against the allowance when the Company believes the collectability of an available for sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities totaled $688 thousand as of December 31, 2023 and is included within accrued interest receivable and other assets on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, available for sale debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

Note 3 - Earnings Per Share

The following table presents a calculation of basic and diluted earnings per share for the three and six months ended December 31, ~~2020~~2023 and ~~2019.~~2022. Earnings per share is computed by dividing net income available to common ~~shareholders~~stockholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated ESOP shares and unvested restricted stock shares. There are 0no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of ~~$1.4~~$11 thousand and $190 thousand for the three and six months ended December 31, 2023, respectively, and $1.1 million and ~~$2.0~~$2.1 million for the three and six months ended December 31, ~~2020 and $929 thousand and $1.8 million for the three and six months ended December 31, 2019,~~2022, respectively, ~~was~~were used as the ~~numerator.~~numerators. See Note 11 to these consolidated financial statements for further discussion of stock grants.

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The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation.

Three Months Ended

Six Months Ended

December 31,

December 31,


2020

2019

2020

2019
Weighted-average common shares outstanding

4,667,304

4,158,113

4,667,304

4,158,113

Average treasury stock shares

(177,959)

(177,959)

(177,959)

(177,959)

Average unearned ESOP shares

—

—

—

—

Weighted-average common shares and common stock equivalents used to calculate basic and diluted earnings per share

4,489,345

3,980,154

4,489,345

3,980,154

Net Income

$
1,376

$
929

$
2,046

$
1,783

Basic and diluted earnings per share

$
0.31

$
0.23

$
0.46

$
0.45


	Three Months Ended				Six Months Ended
	December 31,				December 31,
(Dollars in thousands, except share and per share amounts)	2023		2022		2023		2022
Basic and diluted earnings per share:
Net income	$	11	$	1,061	$	190	$	2,088

Basic average common shares outstanding		8,845,633		12,985,244		9,723,078		13,210,259
Effect of dilutive securities		64,680		44,892		43,066		31,303
Dilutive average shares outstanding		8,910,313		13,030,136		9,766,144		13,241,562
Earnings per share:
Basic	$	—	$	0.08	$	0.02	$	0.16
Diluted	$	—	$	0.08	$	0.02	$	0.16

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented. There were 1,197,640 stock options that were anti-dilutive for both the three and six months ended December 31, 2023 and 2022.

Note 4 – Changes in and Reclassifications Out of Accumulated Other Comprehensive ~~Income~~Loss

The following tables present the changes in the balances of each component of accumulated other comprehensive ~~income~~loss (“~~AOCI”~~AOCL”) for the three and six months ended December 31, ~~2020~~2023 and ~~2019.~~2022.


(Dollars in thousands)
	Unrealized Losses on Securities
	Available for Sale
Accumulated Other Comprehensive Loss (1)	2023		2022
Balance at June 30,	$	(23,378)	$	(15,357)
Other comprehensive loss before reclassifications		(4,587)		(7,750)
Amounts reclassified from accumulated other comprehensive loss		—		—
Period change		(4,587)		(7,750)
Balance at September 30,	$	(27,965)	$	(23,107)
Other comprehensive income before reclassifications		7,088		798
Amounts reclassified from accumulated other comprehensive loss		(65)		—
Period change		7,023		798
Balance at December 31,	$	(20,942)	$	(22,309)

(1) All amounts are ~~presented~~ net of tax. Related income tax expense is calculated using an income tax rate approximating 23% for both 2023 and 2022.

(Dollars in thousands)

Gains (Losses)

on Securities
Accumulated Other Comprehensive (Loss) Income (1)

Available for Sale
Balance at June 30, 2019

$
228
Other comprehensive loss before reclassifications

(118)
Amounts reclassified from accumulated other comprehensive loss

(72)
Period change

(190)
Balance at September 30, 2019

$
38
Other comprehensive loss before reclassifications

(234)
Amounts reclassified from accumulated other comprehensive loss

—
Period change

(234)
Balance at December 31, 2019

$
(196)

The following tables present the reclassifications out of AOCL by component during the three and six months ended December 31, 2023 and 2022:


(Dollars in thousands)	Amounts Reclassified from Accumulated
	Other Comprehensive Loss (1)
Details about Accumulated Other Comprehensive	Three Months Ended December 31,				Affected Line Item in the
Loss Components	2023		2022		Consolidated Statements of Income
Securities available for sale:
Net securities gains reclassified into net income	$	(85)	$	—	Net gain on sale of securities
Related income tax expense		20		—	Income tax (benefit) expense
	$	(65)	$	—

(1) Amounts in parenthesis indicate debits.

1113

Table of Contents


(Dollars in thousands)	Amounts Reclassified from Accumulated
	Other Comprehensive Loss (2)
Details about Accumulated Other Comprehensive	Six Months Ended December 31,				Affected Line Item in the
Loss Components	2023		2022		Consolidated Statements of Income
Securities available for sale:
Net securities gains reclassified into net income	$	(85)	$	—	Net gain on sale of securities
Related income tax expense		20		—	Income tax (benefit) expense
	$	(65)	$	—

(2) Amounts in parenthesis indicate debits.

~~(1) All amounts~~Note 5 – Investment Securities

Debt Securities

The amortized cost, gross unrealized gains and losses, and fair value of investments in debt securities are ~~net of tax. Related income tax expense is calculated using an income tax rate approximating 22.5%.~~as follows:

(Dollars in thousands)

Gains

on Securities
Accumulated Other Comprehensive Income (1)

Available for Sale
Balance at June 30, 2020

$
76
Other comprehensive income before reclassifications

357
Amounts reclassified from accumulated other comprehensive income

—
Period change

357
Balance at September 30, 2020

$
433
Other comprehensive income before reclassifications

284
Amounts reclassified from accumulated other comprehensive income

23
Period change

307
Balance at December 31, 2020

$
740

~~(1) All amounts are net of tax. Related income tax expense is calculated using an income tax rate approximating 22.5%.~~


	December 31, 2023
			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
(Dollars in thousands)	Cost		Gains		Losses		Losses		Value
Available For Sale:
Mortgage-backed securities	$	120,420	$	99	$	(15,664)	$	—	$	104,855
U.S. agency collateralized mortgage obligations		9,586		—		(1,705)		—		7,881
U.S. government agency securities		890		—		(81)		—		809
Municipal bonds		20,040		—		(4,814)		—		15,226
Corporate bonds		37,200		—		(5,033)		—		32,167
Total Available For Sale	$	188,136	$	99	$	(27,297)	$	—	$	160,938

	December 31, 2023
			Gross		Gross				Allowance
	Amortized		Unrealized		Unrealized		Fair		for Credit
(Dollars in thousands)	Cost		Gains		Losses		Value		Losses
Held To Maturity:
Mortgage-backed securities	$	90,904	$	—	$	(15,121)	$	75,783	$	—
U.S. government agency securities		5,452		4		(48)		5,408		—
Municipal bonds		48		—		—		48		—
Total Held To Maturity	$	96,404	$	4	$	(15,169)	$	81,239	$	—

~~The following table presents reclassifications out of AOCI by component for the three and six months ended December 31, 2020 and 2019:~~


~~(Dollars in thousands)~~	~~Amounts Reclassified from~~
	~~Other Comprehensive Income (1)~~
~~Details about Accumulated Other Comprehensive~~	~~Three Months Ended~~		~~Three Months Ended~~		~~Affected Line Item in the~~
~~Income Components~~	~~December 31, 2020~~		~~December 31, 2019~~		~~Consolidated Statements of Income~~
~~Securities available for sale:~~
~~Net securities losses reclassified into net income~~	$	~~(30)~~	$	—	~~Net (loss)/gain on sale of securities~~
~~Related income tax benefit~~		7		—	~~Income tax expense (benefit)~~
	$	~~(23)~~	$	—

~~(1)~~ ~~Amounts in parenthesis indicate debits.~~

(Dollars in thousands)

Amounts Reclassified from

Other Comprehensive Income (1)

Details about Accumulated Other Comprehensive

Six Months Ended

Six Months Ended

Affected Line Item in the
Income Components

December 31, 2020

December 31, 2019

Consolidated Statements of Income
Securities available for sale:







Net securities (losses) gains reclassified into net income

$
(30)

$
93

Net (loss)/gain on sale of securities
Related income tax benefit (expense)

7

(21)

Income tax expense (benefit)

$
(23)

$
72

~~(1)~~

~~Amounts in parenthesis indicate debits.~~


	June 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available For Sale:
Mortgage-backed securities	$	124,252	$	21	$	(17,517)	$	106,756
U.S. agency collateralized mortgage obligations		10,074		—		(1,782)		8,292
U.S. government agency securities		3,881		140		(89)		3,932
Municipal bonds		20,081		—		(5,102)		14,979
Corporate bonds		37,200		—		(6,032)		31,168
Total Available For Sale	$	195,488	$	161	$	(30,522)	$	165,127

Held To Maturity:
Mortgage-backed securities	$	94,648	$	—	$	(17,275)	$	77,373
U.S. government agency securities		4,982		—		(102)		4,880
Municipal bonds		60		—		—		60
Total Held To Maturity	$	99,690	$	—	$	(17,377)	$	82,313

1214

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~~Note 5 – Investment Securities~~

The ~~amortized cost, gross unrealized gains and losses, and estimated fair value of investments in debt securities are as follows:~~

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair
(Dollars in thousands)

Cost

Gains

Losses

Value
Available For Sale:












Mortgage-backed securities

$
55,202

$
427

$
(124)

$
55,505
U.S. agency collateralized mortgage obligations

1,984

39

(40)

1,983
U.S. government agency securities

11,017

4

(104)

10,917
Municipal bonds

22,362

314

(98)

22,578
Corporate bonds

21,400

526

—

21,926
Total Available For Sale

$
111,965

$
1,310

$
(366)

$
112,909

June 30, 2020




Gross

Gross



Amortized

Unrealized

Unrealized

Fair
(Dollars in thousands)

Cost

Gains

Losses

Value
Available For Sale:








Mortgage-backed securities

$
51,570

$
272

$
(104)

$
51,738
U.S. agency collateralized mortgage obligations

3,215

33

(33)

3,215
U.S. government agency securities

6,226

2

(73)

6,155
U.S. treasury securitites

1,000

—

—

1,000
Municipal bonds

10,485

33

(10)

10,508
Corporate bonds

17,399

60

(77)

17,382
Total Available For Sale

$
89,895

$
400

$
(297)

$
89,998

~~William Penn Bancorp~~Company recognized ~~$23~~$85 thousand of gross gains ~~and $53 thousand of gross losses~~ on the sale of ~~$7.9~~$2.4 million of investment securities during the three and six months ended December 31, 2020, respectively. William Penn Bancorp recognized $93 thousand of gross gains on the sale of $4.3 million of investment securities during the six months ended December 31, 2019. William Penn Bancorp2023. The Company did not sell any investment securities during the three and six months ended December 31, ~~2019.~~2022.

The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Maturities for mortgage-backed securities are dependent upon the rate environment and prepayments of the underlying loans. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without penalties.


	December 31, 2020				June 30, 2020				December 31, 2023
	Available For Sale				Available For Sale				Available For Sale				Held To Maturity
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Due in one year or less	$	5	$	5	$	2,904	$	2,893	$	—	$	—	$	5,500	$	5,456
Due after one year through five years		11,999		12,285		9,632		9,611		8		8		—		—
Due after five years through ten years		15,371		15,582		7,606		7,602		41,872		35,944		—		—
Due after ten years		84,590		85,037		69,753		69,892		146,256		124,986		90,904		75,783
	$	111,965	$	112,909	$	89,895	$	89,998	$	188,136	$	160,938	$	96,404	$	81,239

~~Table of Contents~~

The following tables provide information on the gross unrealized losses and fair market value of ~~William Penn Bancorp's~~the Company's investments ~~with unrealized~~for which an allowance for credit losses ~~that are~~has not ~~deemed to be other than temporarily impaired,~~been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, ~~2020~~2023 and June 30, ~~2020:~~2023:


	December 31, 2020													December 31, 2023
	Less than 12 Months				12 Months or More					Total		Total		Less than 12 Months				12 Months or More				Total		Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
Available For Sale:
Mortgage-backed securities	$	16,027	$	82		$	6,207	$	42	$	22,234	$	124	$	—	$	—	$	100,300	$	(15,664)	$	100,300	$	(15,664)
U.S. agency collateralized mortgage obligations		352		5			1,061		35		1,413		40		—		—		7,881		(1,705)		7,881		(1,705)
U.S. government agency securities		9,006		86			1,656		18		10,662		104		—		—		809		(81)		809		(81)
Municipal bonds		9,401		98			—		—		9,401		98		—		—		15,226		(4,814)		15,226		(4,814)
Corporate bonds															2,889		(361)		29,278		(4,672)		32,167		(5,033)
															2,889		(361)		153,494		(26,936)		156,383		(27,297)
Held To Maturity:
Mortgage-backed securities															—		—		75,783		(15,121)		75,783		(15,121)
U.S. government agency securities															—		—		4,447		(48)		4,447		(48)
															—		—		80,230		(15,169)		80,230		(15,169)
Total Temporarily Impaired Securities	$	34,786	$	271		$	8,924	$	95	$	43,710	$	366	$	2,889	$	(361)	$	233,724	$	(42,105)	$	236,613	$	(42,466)


	June 30, 2020												June 30, 2023
	Less than 12 Months				12 Months or More				Total		Total		Less than 12 Months				12 Months or More				Total		Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
Available For Sale:
Mortgage-backed securities	$	22,082	$	104	$	—	$	—	$	22,082	$	104	$	16,794	$	(967)	$	86,371	$	(16,550)	$	103,165	$	(17,517)
U.S. agency collateralized mortgage obligations		1,513		14		1,129		19		2,642		33		—		—		8,292		(1,782)		8,292		(1,782)
U.S. government agency securities		4,922		49		914		24		5,836		73		—		—		943		(89)		943		(89)
Municipal bonds		3,694		10		—		—		3,694		10		—		—		14,979		(5,102)		14,979		(5,102)
Corporate bonds		5,222		77		—		—		5,222		77		10,715		(1,435)		20,453		(4,597)		31,168		(6,032)
														27,509		(2,402)		131,038		(28,120)		158,547		(30,522)
Held To Maturity:
Mortgage-backed securities														—		—		77,373		(17,275)		77,373		(17,275)
U.S. government agency securities														4,880		(102)		—		—		4,880		(102)
														4,880		(102)		77,373		(17,275)		82,253		(17,377)
Total Temporarily Impaired Securities	$	37,433	$	254	$	2,043	$	43	$	39,476	$	297	$	32,389	$	(2,504)	$	208,411	$	(45,395)	$	240,800	$	(47,899)

~~William Penn Bancorp evaluates its investment~~15

Table of Contents

At December 31, 2023, the Company had two securities ~~holdings for other-than-temporary impairment (“OTTI”) on at least a quarterly basis. As part of this process, management considers its intent to sell each debt security~~in the less than 12 months loss position and ~~whether it is more likely than not William Penn Bancorp will be required to sell~~123 securities in the security before its anticipated recovery. If either of these conditions is met, OTTI is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the most recent balance sheet date. For securities that meet neither of these conditions, management performs analysis to determine whether any of these securities are at risk for OTTI. To determine which individual securities are at risk for OTTI and should be quantitatively evaluated utilizing a detailed analysis, management uses indicators which consider various characteristics of each security including, but not limited to, the following: the credit rating; the duration and level of the unrealized loss; prepayment assumptions; and certain other collateral-related characteristics such as delinquency rates, the security’s performance, and the severity of expected collateral losses.

12 month or greater loss position. The unrealized loss on securities ~~greater than 12 months~~ is due to current interest rate levels relative to ~~William Penn Bancorp’s~~the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to ~~William Penn Bancorp’s~~the Company’s cost and not credit quality, and because ~~William Penn Bancorp~~the Company does not intend to sell the investments and it is not more likely than not that ~~William Penn Bancorp~~the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, ~~William Penn Bancorp~~the Company does not consider the unrealized losses to be credit losses at December 31, 2023 and the Company does not consider these investments to be other-than temporarily impaired at ~~December 31, 2020 and~~ June 30, ~~2020.~~2023. There were 29126 investment securities that were temporarily impaired at June 30, 2023. The Company did not recognize any credit losses on these securities for the three and six months ended December 31, ~~2020.~~

~~Based on its analysis, management has concluded that~~2023, or other-than temporary impairment charges for the ~~investment securities portfolio has experienced unrealized losses~~three and a decrease in fair value due to interest rate volatility. However, the decline is considered temporary, and William Penn Bancorp does not intend to sell these securities nor is it more likely than not William Penn Bancorp would be required to sell the security before its anticipated recovery, which may be maturity.six months ended December 31, 2022.

At December 31, ~~2020, $4.6 million of investment securities were pledged to secure municipal deposits. At~~2023 and June 30, ~~2020, $3.7~~2023, $2.9 million and $2.5 million, respectively, in the carrying value of investment securities were pledged to secure municipal deposits.

14Equity Securities

~~Table~~The Company had one equity security with a fair value of ~~Contents~~$1.9 million as of December 31, 2023 and $1.6 million as of June 30, 2023. During the three and six months ended December 31, 2023, the Company recorded $148 thousand and $221 thousand of unrealized gains, respectively, and during the three and six months ended December 31, 2022, the Company recorded $54 thousand of unrealized gains and $219 thousand of unrealized losses, respectively, which were recorded in Unrealized gain (loss) on equity securities in the Consolidated Statements of Income.

Note 6 – Loans

Major classifications of loans, net of deferred loan fees (costs) of $568 thousand and $653 thousand at December 31, ~~2020~~2023 and June 30, ~~2020~~2023, respectively, are summarized as follows:


	December 31,				June 30,				December 31,				June 30,
	2020				2020				2023				2023
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Residential real estate:
1-4 family	$	325,728	64.90	%	$	345,915	66.85	%
1 - 4 family									$	129,670	27.54	%	$	135,046	28.08	%
Home equity and HELOCs		45,093	8.99			47,054	9.10			31,182	6.62			32,684	6.79
Construction -residential		13,581	2.71			15,799	3.05			9,899	2.10			9,113	1.90
Commercial real estate:
1 - 4 family investor										94,336	20.04			98,160	20.41
Multi-family (five or more)		12,223	2.43			14,964	2.89			15,106	3.21			15,281	3.18
Commercial non-residential		89,952	17.93			76,707	14.83			153,886	32.69			157,555	32.77
Land		5,818	1.16			6,690	1.29
Construction and land										19,953	4.24			15,584	3.24
Commercial		6,027	1.20			6,438	1.24			14,786	3.14			15,433	3.21
Consumer Loans		3,487	0.68			3,900	0.75
Consumer loans										1,997	0.42			2,000	0.42
Total Loans		501,909	100.00	%		517,467	100.00	%		470,815	100.00	%		480,856	100.00	%

Loans in process		(2,876)				(4,895)
Unearned loan origination fees		(641)				(448)
Allowance for loan losses		(3,587)				(3,519)
Allowance for credit losses										(3,601)				(3,313)
Net Loans	$	494,805			$	508,605			$	467,214			$	477,543

At December 31, 2020, the balance of one- to four-family residential real estate loans and home equity and HELOCs included $129.7 million of loans on non-owner-occupied, one-to-four-family residences (“investor loans”), representing approximately 25.8% of total loans. The $129.7 million of one- to four-family investor loans at December 31, 2020 included $129.3 million of first mortgages and $444 thousand of home equity and HELOCs. At June 30, 2020, the balance of one- to four-family residential real estate loans and home equity and HELOCs included $114.1 million of loans of one- to four-family residences investor loans, representing approximately 22.0% of total loans. The $114.1 million of one- to four-family investor loans at June 30, 2020 included $113.6 million of first mortgages and $507 thousand of home equity and HELOCs.

During the three months ended June 30, 2020, the Bank provided $2.4 million in Paycheck Protection Program (PPP) loans for 56 new and existing customers, which are guaranteed by the Small Business Administration and mature in two years. As of December 31, 2020 and June 30, 2020, the $2.4 million of PPP loans are included in commercial loans in the above table. During the three months ended June 30, 2020, the Bank also modified approximately $49.8 million of existing loans in accordance with the provisions of the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide its customers with monetary relief. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on a portion of the loans on deferral and the Bank received payments of principal and interest on a portion of the loans on deferral and, as of December 31, 2020, $3.0 million of loans remain on deferral under the CARES Act.

Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Financial Condition. The total amount of loans serviced for the benefit of others was approximately ~~$23.5~~$11.8 million and ~~$26.6~~$12.5 million at December 31, ~~2020~~2023 and June 30, ~~2020,~~2023, respectively. The Bank retained the related servicing rights for the loans that were sold and receives a 25 basis point servicing fee from the purchasers of the loans. Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.

~~Allowance~~Commercial non-residential loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. As of June 30, 2023, the Company had one shared national credit loan commitment for ~~Loan Losses.~~ ~~The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category~~$12.5 million with no balance outstanding that was a purchased participation classified as pass rated and all payments were current and the ~~percent of loans~~loan was performing in ~~each category to~~accordance with its contractual terms. This shared national credit loan commitment was closed during the three months ended December 31, 2023. The Company’s accounting policies for shared national credits, including our charge off and reserve policy, are consistent with the significant accounting policies disclosed in our financial statements for the Company’s total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio. William Penn Bancorp generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.

The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair

1516

Table of Contents

~~value of underlying collateral, recent loss experience in particular segments~~loan portfolio. Shared national credits are subject to the same underwriting guidelines as loans originated by the Bank and are subject to annual reviews where the risk rating of the ~~portfolio, levels~~loan is evaluated. Additionally, the Bank obtains quarterly financial information and ~~trends~~performs a financial analysis on a regular basis to ensure that the borrower can comply with the financial terms of the loan. The information used in ~~delinquent~~the analysis is provided by the borrower through the agent bank.

Allowance for Credit Losses. As previously discussed in the “Recent Accounting Pronouncements” section of Note 2 “Summary of Significant Accounting Policies,” the Company adopted the provisions of ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires estimated credit losses on loans ~~and changes in general economic and business conditions. William Penn Bancorp considers~~to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to July 1, 2023). Accordingly, the allowance for losses disclosures subsequent to July 1, 2023 are not always comparable to prior dates. In addition, certain new disclosures required under ASU 2016-13 are not applicable to prior periods. As a result, the following tables present disclosures separately for each period, where appropriate. New disclosures required under ASU 2016-13 are only shown for the current period. Please refer to Note 2 “Summary of Significant Accounting Policies” for a summary of the impact of adopting the provisions of ASU 2016-13 on July 1, 2023.

The following tables set forth the allocation of the Bank’s allowance for credit losses by loan category at the dates indicated. The portion of the credit loss allowance allocated to each loan category does not represent the total available for future losses ~~of $3.6 million and $3.5 million adequate to cover loan losses inherent in~~which may occur within the loan ~~portfolio~~category since the total credit loss allowance is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at ~~December 31, 2020~~90 days past due and ~~June 30, 2020, respectively.~~all loans rated substandard or worse that are 90 days past due.

The following table presents, by loan portfolio segment, the changes in the allowance for credit losses for the three months ended December 31, 2023:


December 31, 2023	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	407	$	131	$	39	$	325	$	53	$	1,767	$	233	$	340	$	292	$	3,587
Charge-offs		—		—		—		—		—		—		—		—		(13)		(13)
Recoveries		—		—		—		—		—		—		—		—		2		2
Provision (recovery)		(4)		84		5		(8)		(1)		(13)		7		(18)		(27)		25
Ending Balance	$	403	$	215	$	44	$	317	$	52	$	1,754	$	240	$	322	$	254	$	3,601

The following table presents, by loan portfolio segment, the changes in the allowance for loan losses for the ~~periods ended:~~

~~Three Months Ended~~three months ended December 31, 2022:


December 31, 2019	Residential real estate:						Commercial real estate:
December 31, 2022																					Residential real estate:						Commercial real estate:
			Home Equity		Construction-		Multi-family		Commercial		Construction												Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		(five or more)		non-residential		and Land		Commercial		Consumer		Unallocated		Total		1-4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Allowance for loan losses:
Beginning balance	$	1,872	$	137	$	203	$	113	$	444	$	92	$	40	$	15	$	293	$	3,209	$	493	$	116	$	301	$	495	$	112	$	1,431	$	224	$	111	$	50	$	3,333
Charge-offs		(218)		—		—		—		—		—		(3)		—		—		(221)		—		—		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		1		1
Provision		174		(7)		(44)		(7)		(9)		17		5		—		(129)		—
Provision (recovery)																						21		(7)		(29)		13		(20)		(22)		25		12		7		—
Ending Balance	$	1,828	$	130	$	159	$	106	$	435	$	109	$	42	$	15	$	164	$	2,988	$	514	$	109	$	272	$	508	$	92	$	1,409	$	249	$	123	$	58	$	3,334

~~Six Months Ended~~The following table presents, by loan portfolio segment, the changes in the allowance for credit losses for the six months ended December 31, 2023:


December 31, 2019	Residential real estate:						Commercial real estate:
December 31, 2023																					Residential real estate:						Commercial real estate:
			Home Equity		Construction-		Multi-family		Commercial		Construction												Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		(five or more)		non-residential		and Land		Commercial		Consumer		Unallocated		Total		1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	1,501	$	122	$	321	$	71	$	708	$	121	$	95	$	3	$	267	$	3,209	$	486	$	113	$	214	$	569	$	89	$	1,420	$	281	$	82	$	59	$	3,313
Impact of adopting ASU 2016-13																						(67)		19		(174)		(241)		(30)		379		(93)		254		196		243
Charge-offs		(218)		—		—		—		—		—		(3)		—		—		(221)		—		—		—		—		—		—		—		—		(13)		(13)
Recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		28		28
Provision		545		8		(162)		35		(273)		(12)		(50)		12		(103)		—
Provision (recovery)																						(16)		83		4		(11)		(7)		(45)		52		(14)		(16)		30
Ending Balance	$	1,828	$	130	$	159	$	106	$	435	$	109	$	42	$	15	$	164	$	2,988	$	403	$	215	$	44	$	317	$	52	$	1,754	$	240	$	322	$	254	$	3,601

1617

Table of Contents

The following table presents, by loan portfolio segment, the changes in the allowance for loan losses for the six months ended December 31, 2022:


December 31, 2022	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Charge-offs		(79)		—		—		—		—		—		—		—		—		(79)
Recoveries		—		—		—		—		—		—		—		—		4		4
Provision (recovery)		87		(4)		(114)		(19)		(18)		(42)		83		23		4		—
Ending Balance	$	514	$	109	$	272	$	508	$	92	$	1,409	$	249	$	123	$	58	$	3,334

During the three and six months ended December 31, 2023, and exclusive of the impact of the adoption of ASU 2016-13, the changes in the provision for credit losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. During the three months ended December 31, 2023, we experienced an increase in delinquent home equity loans and home equity lines of credit and a corresponding increase in the provision for credit losses for this portfolio. The overall increase in the allowance during the six months ended December 31, 2023 can be primarily attributed to the previously mentioned increase in delinquent home equity loans and home equity lines of credit, partially offset by a decrease in the outstanding balance of our total loan portfolio.

During the three and six months ended December 31, 2022, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. Specifically, we experienced significant growth in our commercial construction and land portfolio and a corresponding increase in the provision for loan losses for this portfolio. The overall decrease in the allowance during the six months ended December 31, 2022 can be primarily attributed to an improving asset quality and continued low levels of net charge-offs and non-performing assets.

Under the provisions of ASU 2016-13, loan evaluated individually for impairment consist of non-accrual loans. Under the incurred loss model in effect prior to the adoption of ASU 2016-13, loans evaluated individually for impairment were referred to as impaired loans.

The following table presents the allowance for credit losses and recorded investment by loan portfolio classification at December 31, 2023:


December 31, 2023	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and land		Commercial		Consumer		Total
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		403		215		44		317		52		1,754		240		322		254		3,601
Total allowance	$	403	$	215	$	44	$	317	$	52	$	1,754	$	240	$	322	$	254	$	3,601

Loans receivable ending balance:
Individually evaluated for impairment	$	1,480	$	16	$	—	$	102	$	223	$	1,085	$	—	$	—	$	111	$	3,017
Collectively evaluated for impairment		128,190		31,166		9,899		94,234		14,883		152,801		19,953		14,786		1,886		467,798
Total portfolio	$	129,670	$	31,182	$	9,899	$	94,336	$	15,106	$	153,886	$	19,953	$	14,786	$	1,997	$	470,815

Table of Contents

The following ~~tables present~~table presents the allowance for loan losses and recorded investment by loan portfolio classification ~~as December 31, 2020 and~~at June 30, ~~2020:~~2023:

December 31, 2020

Residential real estate:

Commercial real estate:









Home Equity

Construction-

Multi-family

Commercial

Construction

(Dollar amounts in thousands)

1-4 family

and HELOCs

residential

(five or more)

non-residential

and Land

Commercial

Consumer

Total
Allowance ending balance:


















Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—
Collectively evaluated for impairment

1,571

160

463

161

851

334

32

15

3,587
Total allowance

$
1,571

$
160

$
463

$
161

$
851

$
334

$
32

$
15

$
3,587

Loans receivable ending balance:


















Individually evaluated for impairment

$
2,031

$
671

$
—

$
183

$
1,066

$
—

$
—

$
—

$
3,951
Collectively evaluated for impairment

191,674

17,481

9,621

11,797

57,442

5,818

4,321

577

298,731
Acquired non-credit impaired loans (1)

131,791

26,918

3,960

243

31,444

—

1,706

2,910

198,972
Acquired credit impaired loans (2)

232

23

—

—

—

—

—

—

255
Total portfolio

$
325,728

$
45,093

$
13,581

$
12,223

$
89,952

$
5,818

$
6,027

$
3,487

$
501,909

~~(1)~~

~~Acquired non-credit impaired loans are evaluated collectively, excluding loans that have subsequently moved to non-accrual status which are individually evaluated for impairment.~~

~~(2)~~

~~Acquired credit impaired loans are evaluated on an individual basis.~~


June 30, 2020	Residential real estate:						Commercial real estate:
June 30, 2023																					Residential real estate:						Commercial real estate:
			Home Equity		Construction-		Multi-family		Commercial		Construction												Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		(five or more)		non-residential		and Land		Commercial		Consumer		Unallocated		Total		1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and land		Commercial		Consumer		Total
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,483		166		526		123		727		396		83		15		—		3,519		486		113		214		569		89		1,420		281		82		59		3,313
Total allowance	$	1,483	$	166	$	526	$	123	$	727	$	396	$	83	$	15	$	—	$	3,519	$	486	$	113	$	214	$	569	$	89	$	1,420	$	281	$	82	$	59	$	3,313

Loans receivable ending balance:
Individually evaluated for impairment	$	973	$	628	$	—	$	185	$	585	$	—	$	—	$	—	$	—	$	2,371	$	1,209	$	182	$	—	$	832	$	251	$	778	$	—	$	—	$	—	$	3,252
Collectively evaluated for impairment		189,055		15,677		9,218		9,267		45,214		6,690		4,150		713		—		279,984		78,237		19,689		9,113		84,891		14,781		142,098		15,584		14,976		643		380,012
Acquired non-credit impaired loans (1)		155,588		30,727		6,581		5,512		30,908		—		2,288		3,187		—		234,791		55,528		12,813		—		12,437		249		14,679		—		457		1,357		97,520
Acquired credit impaired loans (2)		299		22		—		—		—		—		—		—		—		321		72		—		—		—		—		—		—		—		—		72
Total portfolio	$	345,915	$	47,054	$	15,799	$	14,964	$	76,707	$	6,690	$	6,438	$	3,900	$	—	$	517,467	$	135,046	$	32,684	$	9,113	$	98,160	$	15,281	$	157,555	$	15,584	$	15,433	$	2,000	$	480,856

(1)	Acquired non-credit impaired loans are evaluated collectively, excluding loans that have subsequently moved to non-accrual status which are individually evaluated for impairment.

(2)	Acquired credit impaired loans are evaluated on an individual basis.

During the six months ended December 31, 2020, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. The overall increase in the allowance during the six months ended December 31, 2020 can be primarily attributed to an increase in non-accrual and delinquent loans and the corresponding qualitative adjustment.

During the year ended June 30, 2020, the changes in the provision for loan losses related to one- to four-family residential real estate, residential real estate construction loans and commercial real estate land loans were primarily due to uncertainties with the risk profile of these portfolios in the current economic environment as impacted by the COVID-19 pandemic. The increase in reserves due to the COVID-19 pandemic was limited by William Penn Bancorp making enhancements to its credit management function by adding new experienced team members and implementing more robust internal credit measurement and monitoring processes.

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of December 31, ~~2020~~2023 and June 30, ~~2020.~~2023 that management uses to monitor the credit quality of the overall loan portfolio. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. ~~William Penn Bancorp’s~~All loans greater than 90 days past due are considered Substandard. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

~~Table of Contents~~

~~William Penn Bancorp’s~~The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In

addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

The ~~following tables set forth~~Bank has a structured loan rating process with several layers of internal and external oversight to help ensure that risk ratings are accurate and reflect the ~~amounts~~present and future capacity of borrowers to repay a loan as agreed. Generally, consumer and residential mortgage loans are included in the Pass category unless a specific action, such as nonperformance, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Credit Department is responsible for the timely and accurate risk rating of the ~~portfolio~~loans on an ongoing basis. Every credit which must be approved by Loan Committee or the Board of ~~classified asset categories for the~~Directors is assigned a risk rating at time of consideration. The Credit Department also annually reviews commercial ~~loan portfolios at December 31, 2020 and June 30, 2020:~~

December 31, 2020

Commercial Real Estate

Construction

Multi-family

Non-residential

and land

Commercial
Pass

$
12,040

$
88,749

$
5,818

$
6,027
Special Mention

—

461

—

—
Substandard

183

742

—

—
Doubtful

—

—

—

—
Loss

—

—

—

—
Ending Balance

$
12,223

$
89,952

$
5,818

$
6,027

June 30, 2020

Commercial Real Estate

Construction

Multi-family

Non-residential

and land

Commercial
Pass

$
13,976

$
75,973

$
6,690

$
6,438
Special Mention

803

507

—

—
Substandard

185

227

—

—
Doubtful

—

—

—

—
Loss

—

—

—

—
Ending Balance

$
14,964

$
76,707

$
6,690

$
6,438

~~The following tables set forth the amounts~~relationships of ~~the portfolio of classified asset categories for the residential and consumer loan portfolios at December 31, 2020 and June 30, 2020:~~$500,000 or greater to assign or re-affirm risk ratings.

December 31, 2020

Residential Real Estate

Home equity &

1-4 family

HELOCs

Construction

Consumer
Performing

$
321,960

$
44,644

$
13,581

$
3,357
Non-performing

3,768

449

—

130

$
325,728

$
45,093

$
13,581

$
3,487

June 30, 2020

Residential Real Estate

Home equity &

1-4 family

HELOCs

Construction

Consumer
Performing

$
343,562

$
46,580

$
15,799

$
3,785
Non-performing

2,353

474

—

115

$
345,915

$
47,054

$
15,799

$
3,900

1819

Table of Contents

~~Loans Acquired with Deteriorated Credit Quality~~

The ~~outstanding principal and related carrying amount~~following tables set forth the amounts of ~~loans acquired with deteriorated credit quality,~~the portfolio of classified asset categories for ~~which William Penn Bancorp applies~~ the ~~provisions of ASC 310-30, as of~~commercial loan portfolios at December 31, ~~2020~~2023 and June 30, ~~2020, are as follows:~~2023:

(Dollars in thousands)

December 31, 2020

June 30, 2020
Outstanding principal balance

$
523

$
773
Carrying amount

255

321


	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Fiscal Year												Revolving Loans		Revolving Loans
													Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
1 - 4 family investor
Pass	$	2,386	$	12,103	$	6,752	$	17,021	$	12,116	$	40,132	$	1,940	$	714	$	93,164
Special Mention		—		—		—		—		—		1,070		—		—		1,070
Substandard		—		—		—		—		—		102		—		—		102
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—
Total 1 - 4 family investor	$	2,386	$	12,103	$	6,752	$	17,021	$	12,116	$	41,304	$	1,940	$	714	$	94,336
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family (five or more)
Pass	$	101	$	1,174	$	1,334	$	4,143	$	5,015	$	3,116	$	—	$	—	$	14,883
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		223		—		—		223
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—
Total Multi-family	$	101	$	1,174	$	1,334	$	4,143	$	5,015	$	3,339	$	—	$	—	$	15,106
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial non-residential
Pass	$	1,015	$	21,957	$	62,131	$	30,390	$	16,273	$	20,942	$	—	$	93	$	152,801
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		319		473		293		—		—		1,085
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—
Total Commercial non-residential	$	1,015	$	21,957	$	62,131	$	30,709	$	16,746	$	21,235	$	—	$	93	$	153,886
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction and land
Pass	$	813	$	5,377	$	10,501	$	—	$	1,164	$	2,098	$	—	$	—	$	19,953
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—
Total Construction and land	$	813	$	5,377	$	10,501	$	—	$	1,164	$	2,098	$	—	$	—	$	19,953
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	—	$	7,732	$	6,441	$	—	$	42	$	571	$	—	$	—	$	14,786
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—
Total Commercial	$	—	$	7,732	$	6,441	$	—	$	42	$	571	$	—	$	—	$	14,786
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality, for which William Penn Bancorp applies the provisions of ASC 310-30, for the period presented:

(Dollars in thousands)

Accretable Discount
Balance, May 1, 2020

$
57
Accretion

(4)
Balance, June 30, 2020

$
53
Accretion

(7)
Balance, September 30, 2020

$
46
Accretion

(16)
Balance, December 31, 2020

$
30

~~Loan Delinquencies and Non-accrual Loans~~

~~Following are tables which include an aging analysis of the recorded investment of past due loans as of December 31, 2020 and June 30, 2020.~~

Aged Analysis of Past Due and Non-accrual Loans

As of December 31, 2020

Recorded

Recorded



Acquired





Investment >

Investment

30-59 Days

60-89 Days

90 Days

Total Past

Credit

Total Loans

90 Days and

Loans on
(Dollar amounts in thousands)

Past Due

Past Due

Or Greater

Due

Impaired

Current

Receivable

Accruing

Non-Accrual
Residential real estate:


















1-4 family

$
1,622

$
1,594

$
1,507

$
4,723

$
232

$
320,773

$
325,728

$
—

$
3,768
Home equity and HELOCs

—

101

347

448

23

44,622

45,093

—

449
Construction - residential

—

—

—

—

—

13,581

13,581

—

—
Commercial real estate:


















Multi-family

—

—

183

183

—

12,040

12,223

—

183
Commercial non-residential

51

503

—

554

—

89,398

89,952

—

555
Construction and land

—

—

—

—

—

5,818

5,818

—

—
Commercial

—

—

—

—

—

6,027

6,027

—

—
Consumer

—

—

62

62

—

3,425

3,487

—

130
Total

$
1,673

$
2,198

$
2,099

$
5,970

$
255

$
495,684

$
501,909

$
—

$
5,085

Aged Analysis of Past Due and Non-accrual Loans

As of June 30, 2020

Recorded

Recorded

30-59

60-89

90 and Over

Acquired



Investment >

Investment

30-59 Days

60-89 Days

90 Days

Total Past

Credit

Total Loans

90 Days and

Loans on
(Dollar amounts in thousands)

Past Due

Past Due

Or Greater

Due

Impaired

Current

Receivable

Accruing

Non-Accrual
Residential real estate:


















1-4 family

$
235

$
1,020

$
1,477

$
2,732

$
299

$
342,884

$
345,915

$
—

$
2,353
Home equity and HELOCs

126

101

181

408

22

46,624

47,054

90

384
Construction - residential

—

—

—

—

—

15,799

15,799

—

—
Commercial real estate:


















Multi-family

—

465

185

650

—

14,314

14,964

—

185
Commercial non-residential

100

507

—

607

—

76,100

76,707

—

135
Land

—

—

—

—

—

6,690

6,690

—

—
Commercial

—

—

—

—

—

6,438

6,438

—

—
Consumer

3

21

—

24

—

3,876

3,900

—

115
Total

$
464

$
2,114

$
1,843

$
4,421

$
321

$
512,725

$
517,467

$
90

$
3,172

Interest income on non-accrual loans that would have been recorded was approximately $120 thousand, $10 thousand, $60 thousand, and $21 thousand, respectively, during the three and six months ended December 31, 2020 and 2019, respectively, if these loans had performed in accordance with their terms.

1920

Table of Contents

Information presented in the table above is not required for periods prior to the adoption of ASU 2016-13. The following table presents more comparable information from the prior period, including internal credit risk ratings by loan class segments.


June 30, 2023
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	96,097	$	15,030	$	156,777	$	15,584	$	15,433	$	298,921
Special Mention		1,231		—		—		—		—		1,231
Substandard		832		251		778		—		—		1,861
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	98,160	$	15,281	$	157,555	$	15,584	$	15,433	$	302,013

The Company monitors the credit risk profile by payment activity for residential and consumer loans. Generally, residential and consumer loans on nonaccrual status and 90 or more days past due and accruing are considered non-performing and are reviewed monthly. The following tables set forth the amounts of the portfolio that are not rated by class of loans for the residential and consumer loan portfolios at December 31, 2023 and June 30, 2023:


	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Fiscal Year												Revolving Loans		Revolving Loans
													Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
1 - 4 family residential
Performing	$	6,302	$	7,939	$	13,680	$	15,611	$	8,629	$	76,029	$	—	$	—	$	128,190
Non-performing		—		—		—		—		—		1,480		—		—		1,480
Total 1 - 4 family residential	$	6,302	$	7,939	$	13,680	$	15,611	$	8,629	$	77,509	$	—	$	—	$	129,670
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity & HELOCs
Performing	$	822	$	2,289	$	503	$	947	$	723	$	5,262	$	19,000	$	1,620	$	31,166
Non-performing		—		—		—		—		—		—		16		—		16
Total Home equity & HELOCs	$	822	$	2,289	$	503	$	947	$	723	$	5,262	$	19,016	$	1,620	$	31,182
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction residential
Performing	$	2,465	$	5,204	$	689	$	1,541	$	—	$	—	$	—	$	—	$	9,899
Non-performing		—		—		—		—		—		—		—		—		—
Total construction residential	$	2,465	$	5,204	$	689	$	1,541	$	—	$	—	$	—	$	—	$	9,899
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Performing	$	138	$	116	$	40	$	—	$	5	$	1,587	$	—	$	—	$	1,886
Non-performing		—		—		—		—		—		111		—		—		111
Total Consumer	$	138	$	116	$	40	$	—	$	5	$	1,698	$	—	$	—	$	1,997
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	13	$	—	$	—	$	13

Information presented in the table above is not required for periods prior to the adoption of ASU 2016-13.

Table of Contents

The following table presents more comparable information from the prior period, including a disclosure of performing and non-performing loans by loan class segments.


June 30, 2023
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	132,956	$	32,684	$	9,113	$	1,918	$	176,671
Non-performing		2,090		—		—		82		2,172
	$	135,046	$	32,684	$	9,113	$	2,000	$	178,843

Loan Delinquencies and Non-accrual Loans

Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a recorded payment is past due. The following are tables which include an aging analysis of the recorded investment of past due loans as of December 31, 2023 and June 30, 2023. All non-accrual loans included in the tables below do not have an associated allowance for credit losses because any impairment is charged-off at the time the loan moves to non-accrual status. As of December 31, 2023, $2.9 million of the non-accrual loans included in the table below are secured by real estate and $111 thousand are unsecured.


	Aged Analysis of Past Due and Non-accrual Loans
	As of December 31, 2023
													Recorded		Recorded
													Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	285	$	591	$	193	$	1,069	$	128,601	$	129,670	$	—	$	1,480
Home equity and HELOCs		646		—		16		662		30,520		31,182		—		16
Construction - residential		—		—		—		—		9,899		9,899		—		—
Commercial real estate:
1 - 4 family investor		31		949		38		1,018		93,318		94,336		—		102
Multi-family		—		—		—		—		15,106		15,106		—		223
Commercial non-residential		—		18		1,067		1,085		152,801		153,886		—		1,085
Construction and land		—		—		—		—		19,953		19,953		—		—
Commercial		—		—		—		—		14,786		14,786		—		—
Consumer		—		13		—		13		1,984		1,997		—		111
Total	$	962	$	1,571	$	1,314	$	3,847	$	466,968	$	470,815	$	—	$	3,017


	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2023
															Recorded		Recorded
									Acquired						Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past		Credit				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Impaired		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	290	$	457	$	567	$	1,314	$	72	$	133,660	$	135,046	$	—	$	2,090
Home equity and HELOCs		—		—		—		—		—		32,684		32,684		—		—
Construction - residential		—		—		—		—		—		9,113		9,113		—		—
Commercial real estate:
1 - 4 family investor		—		752		—		752		—		97,408		98,160		—		832
Multi-family		251		—		—		251		—		15,030		15,281		—		251
Commercial non-residential		—		322		778		1,100		—		156,455		157,555		—		778
Construction and land		—		—		—		—		—		15,584		15,584		—		—
Commercial		—		—		—		—		—		15,433		15,433		—		—
Consumer		—		13		—		13		—		1,987		2,000		—		82
Total	$	541	$	1,544	$	1,345	$	3,430	$	72	$	477,354	$	480,856	$	—	$	4,033

Interest income on non-accrual loans that would have been recorded if these loans had performed in accordance with their terms was approximately $54 thousand, $106 thousand, $56 thousand, and $111 thousand during the three and six months ended December 31, 2023 and 2022, respectively.

Impaired Loans – Prior to the Adoption of ASU 2016-13

Management considers commercial loans and commercial real estate loans which are 90 days or more past due to be impaired. Larger commercial loans and commercial real estate loans which are 60 days or more past due are selected for impairment testing in accordance with GAAP. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses.

~~The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at December 31, 2020 and June 30, 2020.~~

December 31, 2020

Unpaid

Recorded

Principal

Related

(Dollars in thousands)

Investment

Balance

Allowance

With no related allowance recorded:







1-4 Family residential real Estate

$
2,031

$
2,031

$
—

Home equity and HELOCs

671

677

—

Construction Residential

—

—

—

Multi-family

183

183

—

Commercial non-residential

1,066

1,101

—

Construction and land

—

—

—

Commecial

—

—

—

Consumer

—

—

—

With an allowance recorded:







1-4 Family

$
—

$
—

$
—

Home equity and HELOCs

—

—

—

Construction Residential

—

—

—

Multi-family

—

—

—

Commercial non-residential

—

—

—

Construction and land

—

—

—

Commecial

—

—

—

Consumer

—

—

—

Total:







1-4 Family

$
2,031

$
2,031

$
—

Home equity and HELOCs

671

677

—

Construction Residential

—

—

—

Multi-family

183

183

—

Commercial non-residential

1,066

1,101

—

Construction and land

—

—

—

Commecial

—

—

—

Consumer

—

—

—

2022

Table of Contents

the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses.

The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at June 30, 2023.


June 30, 2023
			Unpaid
	Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1-4 family residential real estate	$	1,209	$	1,302	$	—
Home equity and HELOCs		182		182		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		832		850		—
Multi-family		251		283		—
Commercial non-residential		778		783		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

With an allowance recorded:
1-4 family residential real estate	$	—	$	—	$	—
Home equity and HELOCs		—		—		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		—		—		—
Multi-family		—		—		—
Commercial non-residential		—		—		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

Total:
1-4 family residential real estate	$	1,209	$	1,302	$	—
Home equity and HELOCs		182		182		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		832		850		—
Multi-family		251		283		—
Commercial non-residential		778		783		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

The impaired loans table above includes accruing ~~troubled debt restructuings (“TDRs”)~~loans with terms that have been modified to borrowers experiencing financial difficulty in the amount of ~~$1.3 million~~$182 thousand that are performing in accordance with their modified terms. ~~William Penn Bancorp~~The Company recognized ~~$18~~$9 thousand and ~~$35~~$19 thousand of interest income on accruing ~~TDRs~~loans with terms that have been modified to borrowers experiencing financial difficulty during the three and six months ended December 31, ~~2020,~~2022, respectively. The table above does not include ~~$255~~$72 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

June 30, 2020

Unpaid

Recorded

Principal

Related
(Dollars in thousands)

Investment

Balance

Allowance
With no related allowance recorded:






1-4 Family residential real Estate

$
973

$
973

$
—
Home equity and HELOCs

628

634

—
Construction Residential

—

—

—
Multi-family

185

185

—
Commercial non-residential

585

620

—
Construction and land

—

—

—
Commecial

—

—

—
Consumer

—

—

—

With an allowance recorded:






1-4 Family

$
—

$
—

$
—
Home equity and HELOCs

—

—

—
Construction Residential

—

—

—
Multi-family

—

—

—
Commercial non-residential

—

—

—
Construction and land

—

—

—
Commecial

—

—

—
Consumer

—

—

—

Total:






1-4 Family

$
973

$
973

$
—
Home equity and HELOCs

628

634

—
Construction Residential

—

—

—
Multi-family

185

185

—
Commercial non-residential

585

620

—
Construction and land

—

—

—
Commecial

—

—

—
Consumer

—

—

—

The impaired loans table above includes accruing TDRs in the amount of $1.4 million that are performing in accordance with their modified terms. William Penn Bancorp recognized $18 thousand and $35 thousand of interest income on accruing TDRs during the three and six months ended December 31, 2019.

~~The following tables include the average recorded investment balances for impaired loans and the interest income recognized for the three and six months ended December 31, 2020 and December 31, 2019.~~

2123

Table of Contents

December 31, 2020

Three Months Ended

Six Months Ended

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income
(Dollars in thousands)

Investment

Recognized

Investment

Recognized
With no related allowance recorded:








1-4 Family residential real Estate

$
1,491

$
6

$
1,318

$
12
Home equity and HELOCs

676

5

660

10
Construction Residential

—

—

—

—
Multi-family

184

—

184

—
Commercial non-residential

820

9

742

18
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

With an allowance recorded:








1-4 Family

$
—

$
—

$
—

$
—
Home equity and HELOCs

—

—

—

—
Construction Residential

—

—

—

—
Multi-family

—

—

—

—
Commercial non-residential

—

—

—

—
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

Total:








1-4 Family

$
1,491

$
6

$
1,318

$
12
Home equity and HELOCs

676

5

660

10
Construction Residential

—

—

—

—
Multi-family

184

—

184

—
Commercial non-residential

820

9

742

18
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

The following tables include the average recorded investment balances for impaired loans and the interest income recognized for the three and six months ended December 31, 2022.


December 31, 2022	Three Months Ended				Six Months Ended
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
1-4 family residential real estate	$	1,599	$	—	$	2,099	$	—
Home equity and HELOCs		320		4		353		8
Construction residential		—		—		—		—
1-4 family investor commercial real estate		99		—		111		1
Multi-family		283		—		286		—
Commercial non-residential		1,035		7		1,149		12
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—

With an allowance recorded:
1-4 family residential real estate	$	—	$	—	$	—	$	—
Home equity and HELOCs		—		—		—		—
Construction residential		—		—		—		—
1-4 family investor commercial real estate
Multi-family		—		—		—		—
Commercial non-residential		—		—		—		—
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—

Total:
1-4 family residential real estate	$	1,599	$	—	$	2,099	$	—
Home equity and HELOCs		320		4		353		8
Construction residential		—		—		—		—
1-4 family investor commercial real estate		99		—		111		1
Multi-family		283		—		286		—
Commercial non-residential		1,035		7		1,149		12
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—

Generally, the Bank charges-off the collateral or discounted cash flow deficiency on all impaired loans. Interest income that would have been recorded for the three and six months ended December 31, 2022, had impaired loans been current according to their original terms, amounted to $29 thousand and $76 thousand, respectively.

Concentration of Credit Risk

The Company’s primary business activity as of December 31, 2023 was with customers throughout the Delaware Valley through twelve full-service branch offices located in Bucks and Philadelphia Counties in Pennsylvania, as well as Burlington, Camden, and Mercer Counties in New Jersey. Accordingly, the Company has extended credit primarily to residential borrowers and commercial entities in this area whose ability to repay their loans is influenced by the region’s economy.

As of December 31, 2023, the Company considered its concentration of credit risk to be acceptable. As of December 31, 2023, commercial real estate loans secured by retail space totaled approximately $52.7 million, or 11.2% of total loans, and were comprised of $41.4 million of non-owner-occupied properties and $11.3 million of owner-occupied properties. The Company’s non-owner occupied commercial real estate loans that are secured by retail space have high occupancy rates with longstanding tenants.

Table of Contents

Loans with Modified Terms to Borrowers Experiencing Financial Difficulty

During the three and six months ended December 31, 2023, there were no loans modified to borrowers experiencing financial difficulty. During the three and six months ended December 31, 2022, there were no loans modified that were identified as a troubled debt restructuring (“TDR”) and there were no TDRs that subsequently defaulted within twelve months of modification.

Note 7 – Premises and Equipment

The components of premises and equipment are as follows as of December 31, 2023 and June 30, 2023:


	December 31,		June 30,
(Dollars in thousands)	2023		2023
Land	$	1,441	$	1,778
Office buildings and improvements		7,894		9,080
Furniture, fixtures and equipment		2,298		2,273
Automobiles		58		58
		11,691		13,189

Accumulated depreciation		(4,170)		(4,135)
	$	7,521	$	9,054

Depreciation expense amounted to $203 thousand and $400 thousand for the three and six months ended December 31, 2023, respectively, and $319 thousand and $584 thousand for the three and six months ended December 31, 2022, respectively. During the six months ended December 31, 2023, the Company transferred one property with a carrying value of $1.2 million to the held for sale classification. The Company intends to sell this property by December 31, 2024.

Note 8 – Goodwill and Intangibles

The goodwill and intangible assets arising from acquisitions is accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles — Goodwill and Other. The Company recorded goodwill of $4.9 million and core deposit intangibles of $1.4 million in connection with the 2018 acquisition of Audubon Savings Bank. The Company also recorded core deposit intangibles totaling $65 thousand and $197 thousand in connection with the 2020 acquisitions of Fidelity Savings and Loan Association of Bucks County (“Fidelity”) and Washington Savings Bank (“Washington”), respectively. As of December 31, 2023 and June 30, 2023, the other intangibles consisted of $437 thousand and $519 thousand, respectively, of core deposit intangibles, which are amortized over an estimated useful life of ten years.

The Company performs its annual impairment evaluation on June 30 or more frequently if events and circumstances indicate that the fair value of the banking unit is less than its carrying value. During the year ended June 30, 2023, management included considerations of the current economic environment in its evaluation, and determined that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed at June 30, 2023. During the six months ended December 31, 2023, management considered the current economic environment in its evaluation, and determined based on the totality of its qualitative assessment that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the six months ended December 31, 2023.

Goodwill and other intangibles are summarized as follows for the periods presented:


			Core Deposit
(Dollars in thousands)	Goodwill		Intangibles
Balance, June 30, 2023	$	4,858	$	519
Adjustments:
Additions		—		—
Amortization		—		(41)
Balance, September 30, 2023	$	4,858	$	478
Adjustments:
Additions		—		—
Amortization		—		(41)
Balance, December 31, 2023	$	4,858	$	437

Table of Contents


			Core Deposit
(Dollars in thousands)	Goodwill		Intangibles
Balance, June 30, 2022	$	4,858	$	712
Adjustments:
Additions		—		—
Amortization		—		(48)
Balance, September 30, 2022	$	4,858	$	664
Adjustments:
Additions		—		—
Amortization		—		(49)
Balance, December 31, 2022	$	4,858	$	615

Aggregate amortization expense was $41 thousand and $82 thousand for the three and six months ended December 31, 2023, respectively, and $49 thousand and $97 thousand for the three and six months ended December 31, 2022, respectively.

Note 9 – Deposits

Deposits consist of the following major classifications as of December 31, 2023 and June 30, 2023:




(Dollars in thousands)	December 31, 2023		June 30, 2023
Non-interest bearing checking	$	58,225	$	60,872
Interest bearing checking		133,680		116,700
Money market accounts		192,326		208,020
Savings and club accounts		84,798		90,291
Certificates of deposit		157,634		159,377
	$	626,663	$	635,260

Note 10 – Borrowings

The Bank is a member of the Federal Home Loan Bank (“FHLB”) system, which consists of 11 regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. The Bank had a maximum borrowing capacity with the FHLB of Pittsburgh of approximately $284.1 million and $295.0 million at December 31, 2023 and June 30, 2023, respectively. FHLB advances are secured by qualifying assets of the Bank, which include Federal Home Loan Bank stock and loans. The Bank had $411.4 million and $427.2 million of loans pledged as collateral as of December 31, 2023 and June 30, 2023, respectively. The Bank, as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh. The Bank was in compliance with the requirements for the FHLB of Pittsburgh with an investment of $3.0 million and $2.3 million at December 31, 2023 and June 30, 2023, respectively.

Advances from the FHLB of Pittsburgh consisted of $54.0 million and $34.0 million of fixed rate short-term borrowings as of December 31, 2023 and June 30, 2023, respectively.

As of December 31, 2023 and June 30, 2023, the Bank had $10.0 million and $10.2 million of loans pledged as collateral to secure a $3.5 million and $3.7 million overnight line of credit with the Federal Reserve Bank, respectively. There was no outstanding balance for the overnight line of credit with the Federal Reserve Bank as of December 31, 2023 and June 30, 2023. In addition, as of December 31, 2023 and June 30, 2023, the Bank had $10.0 million of available credit from Atlantic Community Bankers Bank to purchase federal funds.

Note 11 – Stock Based Compensation

Stock-based compensation is accounted for in accordance with FASB ASC Topic 718 for Compensation — Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period, using the straight-line method. However, consistent with the guidance, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date. As a result, it may be necessary to recognize the expense using a ratable method.

Table of Contents

On May 10, 2022, the shareholders of the Company approved the William Penn Bancorporation 2022 Equity Incentive Plan (the “Plan”). The Plan provides for the issuance of up to 1,769,604 shares (505,601 restricted stock awards and 1,264,003 stock options) of Company common stock.

During the year ended June 30, 2022, the Company granted 492,960 shares of restricted stock, with a weighted average grant date fair value of $11.67 per share. To fund the grant of restricted common stock, the Company issued shares from authorized but unissued shares. Restricted shares granted under the Plan vest in equal installments over a five year period. Compensation expense related to the restricted shares is recognized ratably over the vesting period in an amount which totals the market price of the Company’s stock at the grant date. The expense recognized for the restricted shares for the three and six months ended December 31, 2023 was $281 thousand and $563 thousand, respectively, and $269 thousand and $558 thousand for the three and six months ended December 31, 2022, respectively. The expected future compensation expense related to the 383,258 non-vested restricted shares outstanding at December 31, 2023 was $3.8 million over a weighted average period of 3.37 years. The expected future compensation expense related to the 479,056 non-vested restricted shares outstanding at December 31, 2022 was $4.9 million over a weighted average period of 4.37 years.

The following is a summary of the Company's restricted stock activity during the six months ended December 31, 2023:


			Weighted
	Number of		Average
Summary of Non-vested Restricted Stock Award Activity	Shares		Grant Price
Non-vested Restricted Stock Awards outstanding July 1, 2023		383,258	$	11.66
Issued		—		—
Vested		—		—
Forfeited		—		—
Non-vested Restricted Stock Awards outstanding December 31, 2023		383,258	$	11.66

The following is a summary of the Company's restricted stock activity during the six months ended December 31, 2022:


			Weighted
	Number of		Average
Summary of Non-vested Restricted Stock Award Activity	Shares		Grant Price
Non-vested Restricted Stock Awards outstanding July 1, 2022		492,960	$	11.67
Issued		—		—
Vested		—		—
Forfeited		(13,904)		11.82
Non-vested Restricted Stock Awards outstanding December 31, 2022		479,056	$	11.66

During the year ended June 30, 2022, the Company granted 1,232,400 stock options, with a weighted average grant date fair value of $3.24 per share. Stock options granted under the Plan vest in equal installments over a five year period. Stock options were granted at a weighted average exercise price of $11.67, which represents thefairvalueoftheCompany'scommonstockpriceonthegrantdatebasedontheclosingmarketprice,andhaveanexpiration period of 10 years. The fair value of stock options granted was valued using the Black-Scholes option pricing model using the following weighted average assumptions: expectedlifeof6.5years,risk-freerateofreturnof2.92%,volatilityof24.85%,andadividendyieldof1.03%. Compensation expense recognized for the stock options for the three and six months ended December 31, 2023 was $195 thousand and $390 thousand, respectively. Compensation expense recognized for the stock options for the three and six months ended December 31, 2022 was $186 thousand and $387 thousand, respectively. The expected future compensation expense related to the 1,197,640 stock options outstanding at December 31, 2023 was $2.6 million over a weighted average period of 3.37 years. The expected future compensation expense related to the 1,197,640 stock options outstanding at December 31, 2022 was $3.4 million over a weighted average period of 4.37 years.

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December 31, 2019

Three Months Ended

Six Months Ended

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income
(Dollars in thousands)

Investment

Recognized

Investment

Recognized
With no related allowance recorded:








1-4 Family residential real Estate

$
1,483

$
15

$
1,788

$
31
Home equity and HELOCs

711

8

869

16
Construction Residential

—

—

—

—
Multi-family

187

—

124

—
Commercial non-residential

647

10

652

20
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

With an allowance recorded:








1-4 Family

$
—

$
—

$
—

$
—
Home equity and HELOCs

—

—

—

—
Construction Residential

—

—

—

—
Multi-family

—

—

—

—
Commercial non-residential

—

—

—

—
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

Total:








1-4 Family

$
1,483

$
15

$
1,788

$
31
Home equity and HELOCs

711

8

869

16
Construction Residential

—

—

—

—
Multi-family

187

—

124

—
Commercial non-residential

647

10

652

20
Construction and land

—

—

—

—
Commecial

—

—

—

—
Consumer

—

—

—

—

Generally, William Penn Bancorp will charge-off the collateral or discounted cash flow deficiency on all impaired loans. Interest income that would have been recorded for the three and six months ended December 31, 2020, had impaired loans been current according to their original terms, amounted to $47 thousand and $95 thousand, respectively. Interest income that would have been recorded for the three and six months ended December 31, 2019, had impaired loans been current according to their original terms, amounted to $43 thousand and $86 thousand, respectively.

~~Troubled Debt Restructurings~~

The ~~Bank determines whether~~following is a ~~restructuring of debt constitutes a TDR in accordance with guidance under~~ ~~FASB ASC Topic 310 Receivables~~. The Bank considers a loan a TDR when the borrower is experiencing financial difficulty and the Bank grants a concession that they would not otherwise consider but for the borrower’s financial difficulties. A TDR includes a modification of debt terms or assets received in satisfactionsummary of the debt (including a foreclosure or a deed in lieu of foreclosure) or a combination of types. The Bank evaluates selective criteria to determine if a borrower is experiencing financial difficulty, including the ability of the borrower to obtain funds from sources other than the Bank at market rates. The Bank considers all TDR loans as impaired loans and, generally, they are put on non-accrual status. The Bank will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification reflects prevailing market conditions. The Bank’s policy for returning a loan to accruing status requires the preparation of a well-documented credit evaluation which includes the following:

●

A review of the borrower’s current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;

●

~~An updated appraisal or home valuation which must demonstrate sufficient collateral value to support the debt; and~~

~~Table of Contents~~

●

~~Sustained performance based on the restructured terms for at least six consecutive months.~~

During the three months ended June 30, 2020, the Bank began providing customer relief programs, such as payment deferrals or interest only payments on loans. William Penn Bancorp does not consider a modification to be a TDR if it occurred as a result of the loan forbearance program under the CARES Act. The CARES Act provides that a loan term modification does not automatically result in TDR status if the modification is made on a good-faith basis in response to COVID-19 to borrowers who were classified as current and not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of (a) 60 days after the date of termination of the COVID-19 pandemic national emergency, or (b) December 31, 2020. During the three months ended June 30, 2020, the Bank modified approximately $49.8 million of loans to provide its customers this monetary relief. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on a portion of the loans on deferral and the Bank received payments of principal and interest on a portion of the loans on deferral and, as of December 31, 2020, $3.0 million of loans remain on deferral under the CARES Act.

During the six months ended December 31, 2020 and the year ended June 30, 2020, there were 0 loans modified that were identified as a TDR. William Penn Bancorp did not experience any re-defaulted TDRs subsequent to the loan being modifiedCompany's stock option activity during the six months ended December 31, ~~2020 and the year ended June 30, 2020.~~2023:


	Number of		Exercise Price
Summary of Stock Option Activity	Options		per Shares
Beginning balance July 1, 2023		1,197,640	$	11.66
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Ending balance December 31, 2023		1,197,640	$	11.66

The following is a summary of the Company's stock option activity during the six months ended December 31, 2022:


			Weighted
	Number of		Exercise Price
Summary of Stock Option Activity	Options		per Shares
Beginning balance July 1, 2022		1,232,400	$	11.67
Granted		—		—
Exercised		—		—
Forfeited		(34,760)		11.82
Expired		—		—
Ending balance December 31, 2022		1,197,640	$	11.66

The weighted average remaining contractual term was approximately 8.38 years and the aggregate intrinsic value was $653 thousand for options outstanding as of December 31, 2023. As of December 31, 2023, exercisable options totaled 239,528 with a weighted average exercise of price of $11.66 per share, a weighted average remaining contractual term of approximately 8.38 years, and the aggregate intrinsic value was $131 thousand. The weighted average remaining contractual term was approximately 9.38 years and the aggregate intrinsic value was $545 thousand for options outstanding as of December 31, 2022. There were no exercisable options as of December 31, 2022.

Note ~~7 – Premises and Equipment~~

~~The components of premises and equipment are as follows as of December 31, 2020 and June 30, 2020:~~

December 31,

June 30,
(Dollars in thousands)

2020

2020
Land

$
2,581

$
4,144
Office buildings and improvements

12,701

14,493
Furniture, fixtures and equipment

2,325

1,918
Automobiles

50

50

17,657

20,605

Accumulated depreciation

(4,114)

(3,872)

$
13,543

$
16,733

Depreciation expense amounted to $219 thousand and $528 thousand for the three and six months ended December 31, 2020, respectively. Depreciation expense amounted to $111 thousand and $210 thousand for the three and six months ended December 31, 2019, respectively.

During the six months ended December 31, 2020, William Penn Bancorp transferred 6 properties from premises and equipment with a total carrying value of approximately $3.2 million to the held for sale classification included in other assets on its consolidated statement of financial condition. William Penn Bancorp sold 5 of the 6 properties prior to December 31, 2020 and is actively marketing the 1 property that remains in the held for sale classification in other assets on its consolidated statement of financial condition. During the three and six months ended December 31, 2020, William Penn Bancorp recorded $454 thousand and $469 thousand, respectively, of net gains on the sale of premises and equipment. William Penn Bancorp did 0t sell any premises and equipment during the three and six months ended December 31, 2019.

~~Note 8 – Goodwill and Intangibles~~

~~The goodwill and intangible assets arising from acquisitions is accounted for in accordance with the accounting guidance in FASB~~ ~~ASC Topic 350 for Intangibles — Goodwill and Other~~. William Penn Bancorp recorded goodwill of $4.9 million and core deposit intangibles of $1.4 million in connection with the acquisition of Audubon Savings Bank in July 2018. William Penn Bancorp also recorded core deposit intangibles totaling $65 thousand and $197 thousand in connection with the acquisitions of Fidelity and Washington, respectively, in May 2020. As of December 31, 2020 and June 30, 2020, the other intangibles consisted of $1.1 million and $1.2 million, respectively, of core deposit intangibles, which are amortized over an estimated useful life of ten years.

William Penn Bancorp performs its annual impairment evaluation on June 30 or more frequently if events and circumstances indicate that the fair value of the banking unit is less than its carrying value. During the year ended June 30, 2020, management included considerations of the current economic environment caused by COVID-19 in its qualitative assessment of goodwill impairment and

~~Table of Contents~~

determined that a quantitative assessment of goodwill was warranted. Management engaged a third-party valuation specialist to perform a quantitative assessment of goodwill impairment and it was determined that it is not more likely than not that the carrying value of goodwill is impaired. NaN goodwill impairment existed at June 30, 2020. During the six months ended December 31, 2020, management considered the current economic environment caused by the COVID-19 pandemic in its evaluation, and determined based on the totality of its qualitative assessment that it is not more likely than not that the carrying value of goodwill is impaired. NaN goodwill impairment exists during the six months ended December 31, 2020.

~~Goodwill and other intangibles are summarized as follows for the periods presented:~~

Core Deposit
(Dollars in thousands)

Goodwill

Intangibles
Balance, July 1, 2019

$
4,858

$
1,172
Adjustments:




Additions

—

—
Amortization

—

(59)
Balance, September 30, 2019

$
4,858

$
1,113
Adjustments:




Additions

—

—
Amortization

—

(59)
Balance, December 31, 2019

$
4,858

$
1,054




Core Deposit
(Dollars in thousands)

Goodwill

Intangibles
Balance, June 30, 2020

$
4,858

$
1,192
Adjustments:




Additions

—

—
Amortization

—

(64)
Balance, September 30, 2020

$
4,858

$
1,128
Adjustments:




Additions

—

—
Amortization

—

(64)
Balance, December 31, 2020

$
4,858

$
1,064

Aggregate amortization expense was $64 thousand and $128 thousand for the three and six months ended December 31, 2020, respectively. Aggregate amortization expense was $59 thousand and $118 thousand for the three and six months ended December 31, 2019, respectively.

~~Note 9 – Deposits~~

~~Deposits consist of the following major classifications as of December 31, 2020 and June 30, 2020:~~

(Dollars in thousands)

December 31, 2020

June 30, 2020
Non-interest bearing checking

$
42,067

$
43,395
Interest bearing checking

94,976

98,828
Money market accounts

167,540

129,048
Savings and club accounts

98,348

94,097
Certificates of deposit

194,148

194,480

$
597,079

$
559,848

~~Note 10 – Advances from Federal Home Loan Bank~~

The Bank is a member of the FHLB system, which consists of 11 regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. The Bank had a maximum borrowing capacity with the FHLB of Pittsburgh of approximately $299.4 million and $223.0 million at December 31, 2020 and June 30, 2020, respectively. FHLB advances are secured by qualifying assets of the Bank, which include Federal Home Loan Bank stock and loans. The Bank had $433.7 million and $322.0 million of loans pledged as collateral as of December 31, 2020 and June 30, 2020, respectively. The Bank, as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh. The Bank was in compliance with the

~~Table of Contents~~

requirements for the FHLB of Pittsburgh with an investment of $2.9 million and $3.9 million at December 31, 2020 and June 30, 2020, respectively. On August 24, 2020, the Bank paid off $23.2 million of advances from the FHLB of Pittsburgh due to the low interest rate environment and excess cash held on William Penn Bancorp’s Statement of Financial Condition.

~~Advances from the FHLB of Pittsburgh consisted of the following as of December 31, 2020 and June 30, 2020:~~

(Dollars in thousands)

December 31, 2020

June 30, 2020
FHLB advances:




Convertible

$
20,000

$
20,000
Fixed

14,000

21,767
Mid-term

7,000

23,125
Total FHLB advances

$
41,000

$
64,892

~~Note 11~~12 – Commitments and Contingencies

~~William Penn Bancorp~~The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in ~~William Penn Bancorp’s consolidated statements~~the Company’s Consolidated Statements of ~~financial condition.~~Financial Condition.

A summary of ~~William Penn Bancorp's~~the Company's loan commitments is as follows as of December 31, ~~2020~~2023 and June 30, ~~2020:~~2023:


	December 31,		June 30,		December 31,		June 30,
(Dollars in thousands)	2020		2020		2023		2023
Commitments to extend credit	$	12,616	$	18,602	$	5,091	$	6,877
Unfunded commitments under lines of credit		43,850		52,432		66,142		75,372
Standby letters of credit		1,000		—		117		86

Commitments to extend credit are agreements to lend to a customer if there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have 90-day fixed expiration dates or other termination clauses and may require payment of a fee. ~~William Penn Bancorp~~The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by ~~William Penn Bancorp~~the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies, but primarily includes residential and commercial real estate.

Periodically, there have been other various claims and lawsuits against the Bank, such as claims to enforce liens, condemnation proceedings on properties in which it holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, results of operations or cash flows.

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Note 1213 - Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s ﬁnancial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet speciﬁc capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classiﬁcation are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (described below) of tangible and core capital to total adjusted assets and of total capital to risk-weighted assets.

~~Management believes, as of December 31, 2020 and June 30, 2020, that the Bank meets all capital adequacy requirements to which it is subject.~~

As of December 31, ~~2020~~2023 and June 30, ~~2020,~~2023, the most recent notiﬁcation from the regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. ~~To be categorized as well capitalized, the Bank must maintain minimum~~

~~Table~~Federal banking agencies have established an optional “community bank leverage ratio” of ~~Contents~~

~~amounts and ratios of Tier I leverage capital~~between 8% to 10% tangible equity to average total consolidated assets ~~and of common equity Tier I capital, Tier I capital, and total capital to risk-weighted assets, all as deﬁned in the regulation.~~

~~The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in May 2018 required the federal banking agencies, including the Federal Deposit Insurance Corporation, to establish~~ for ~~banks~~qualifying institutions with assets of less than $10 billion of ~~assets a community bank leverage ratio (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 8 to 10%. A qualifying community bank~~assets. Institutions with capital meeting the specified ~~requirements (including off balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets)~~requirement and electing to follow the alternative framework ~~is considered~~would be deemed to ~~meet all~~comply with the applicable regulatory capital requirements, including the risk-based ~~requirements. The community bank~~requirements and would be considered well-capitalized under the prompt corrective action framework. In April 2020, the Federal banking regulatory agencies modified the original Community Bank Leverage Ratio (CBLR) framework and provided that, as of the second quarter 2020, a banking organization with a leverage ratio ~~was established at 9% Tier 1 capital~~of 8 percent or greater and that meets the other existing qualifying criteria may elect to ~~total average assets, effective January 1, 2020. A qualifying bank may opt in and out of~~use the community bank leverage ratio framework on its quarterly call report. A bank that ceases to meet any qualifying criteria is provided with a two-quarter grace period to comply with the community bank leverage ratio requirements or the general capital regulations by the federal regulators. In addition, Section 4012 of the CARES Act requiredframework. The modified rule also states that the community bank leverage ratio requirement will be ~~temporarily lowered to 8%.~~greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The ~~federal regulators issued a~~transition rule ~~making the lower ratio effective April 23, 2020. The rules~~ also ~~established~~maintains a two-quarter grace period for a qualifying community ~~bank~~banking organization whose leverage ratio falls no more than 100 basis points below the 8%applicable community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7% or greater. Another rule was issued providing for the transition back to the 9% community bank leverage ratio, increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter. During the fiscal year ended June 30, 2020, the Bank elected the community bank leverage ratio alternative reporting framework.

A “small holding company,” as defined under Federal Reserve Board regulations as a bank holding company or savings and loan holding company with less than $3 billion of consolidated assets, such as William Penn Bancorp, is generally not subject to the regulatory capital requirements applicable to the Bank and outlined above, unless otherwise directed by the Federal Reserve Board.

~~The leverage ratios of the Bank at December 31, 2020 and June 30, 2020 are as follows:~~requirement.

To be Well Capitalized Under

For Capital Adequacy

Prompt Corrective Action

CBLR Framework

As of December 31, 2020

Actual

Purposes

Provisions

As of December 31, 2023

Actual

Requirement

(Dollars in thousands except for ratios)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

William Penn Bank:

Tier 1 leverage

88,407

11.97

% >

29,536

4.00

% >

36,921

5.00

134,850

16.01%

75,794

9.00%

To be Well Capitalized Under

For Capital Adequacy

Prompt Corrective Action

CBLR Framework

As of June 30, 2020

Actual

Purposes

Provisions

As of June 30, 2023

Actual

Requirement

(Dollars in thousands except for ratios)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

William Penn Bank:

Tier 1 leverage

86,822

13.67

% >

25,397

4.00

% >

31,746

5.00

161,774

18.67%

77,989

9.00%

Note 1314 – Fair Value of Financial Instruments

~~William Penn Bancorp~~The Company follows authoritative guidance under FASB ASC Topic 820 for Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The definition of fair value under ASC 820 is the exchange price. The guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

Fair value is based on quoted market prices, when available. If listed prices or quotes are not available, fair value is based on fair value models that use market participant or independently sourced market data which include: discount rate, interest rate yield curves, credit risk, default rates and expected cash flow assumptions. In addition, valuation adjustments may be made in the determination of fair value. These fair value adjustments may include amounts to reflect counter party credit quality, creditworthiness, liquidity, and other unobservable inputs that are applied consistently over time. These adjustments are estimated and, therefore, subject to significant management judgment, and at times, may be necessary to mitigate the possibility of error or revision in the model-based estimate of the fair value provided by the model. The methods described above may produce fair value calculations that may not be indicative of the net realizable value. While ~~William Penn Bancorp~~the Company believes its valuation methods are consistent with other financial institutions, the use of

2729

Table of Contents

of different methods or assumptions to determine fair values could result in different estimates of fair value. FASB ASC Topic 820 for Fair Value Measurements and Disclosures describes three levels of inputs that may be used to measure fair value:

Level 1:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2:

Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3:

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the assets required to be measured and reported on a recurring basis on ~~William Penn Bancorp’s~~the Company’s Consolidated Statements of Financial Condition at their fair value as of December 31, ~~2020~~2023 and June 30, ~~2020,~~2023, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	December 31, 2020								December 31, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Assets:
Investments available-for-sale:
Investments available for sale:
Mortgage-backed securities	$	—	$	55,505	$	—	$	55,505	$	—	$	104,855	$	—	$	104,855
U.S. agency collateralized mortgage obligations		—		1,983		—		1,983		—		7,881		—		7,881
U.S. government agency securities		—		10,917		—		10,917		—		809		—		809
Municipal bonds		—		22,578		—		22,578		—		15,226		—		15,226
Corporate bonds		—		21,926		—		21,926		—		32,167		—		32,167
Equity securities										1,850		—		—		1,850
Total Assets	$	—	$	112,909	$	—	$	112,909	$	1,850	$	160,938	$	—	$	162,788

June 30, 2020
(Dollars in thousands)

Level I

Level II

Level III

Total
Assets:








Investments available-for-sale:












Mortgage-backed securities

$
—

$
51,738

$
—

$
51,738
U.S. agency collateralized mortgage obligations

—

3,215

—

3,215
U.S. government agency securities

—

6,155

—

6,155
U.S. treasury securities

—

1,000

—

1,000
Municipal bonds

—

10,508

—

10,508
Corporate bonds

—

17,382

—

17,382
Total Assets

$
—

$
89,998

$
—

$
89,998


	June 30, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
Investments available for sale:
Mortgage-backed securities	$	—	$	106,756	$	—	$	106,756
U.S. agency collateralized mortgage obligations		—		8,292		—		8,292
U.S. government agency securities		—		3,932		—		3,932
Municipal bonds		—		14,979		—		14,979
Corporate bonds		—		31,168		—		31,168
Equity securities		1,629		—		—		1,629
Total Assets	$	1,629	$	165,127	$	—	$	166,756

Assets and Liabilities Measured on a Non-Recurring Basis

Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets and liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

~~Impaired loans~~Loan individually evaluated for impairment are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating ~~impaired loan~~the collateral for these loans is based on Level 3 inputs utilizing outside appraisals adjusted by management for sales costs and other assumptions regarding market conditions to arrive at fair value. As of December 31, ~~2020~~2023 and June 30, ~~2020, William Penn Bancorp~~2023, the Company charged-off the collateral deficiency on ~~impaired loans.~~loans evaluated individually for impairment. As a result, there were no specific reserves on ~~impaired~~ loans evaluated individually for impairment as of December 31, ~~2020~~2023 and June 30, ~~2020.~~2023.

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Other real estate owned (OREO) is measured at fair value, based on appraisals less cost to sell at the date of 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. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

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As of December 31, ~~2020,~~2023 and June 30, 2023, there were 0no assets required to be measured and reported at fair value on a non-recurring basis. ~~As of June 30, 2020, assets required to be measured and reported at fair value on a non-recurring basis are summarized as follows:~~

June 30, 2020
(Dollars in thousands)

Level I

Level II

Level III

Total
Assets:








Impaired loans

$
—

$
—

$
190

$
190
Other real estate owned

—

—

100

100

$
—

$
—

$
290

$
290

~~Quantitative information regarding assets measured at fair value on a non-recurring basis as of June 30, 2020 is as follows:~~

Quantative Information about Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

(Dollars in thousands)

Estimate

Techniques

Input

Range

June 30, 2020









Impaired loans

$
190

Appraisal of collateral (1)

Appraisal adjustments (2)

0-28
%
Foreclosed real estate owned

$
100

Appraisal of collateral (1)(3)

Liquidation expenses (2)

0
%

~~(1)~~

F~~air value is generally determined through independent appraisals of the underlying collateral, which generally~~

~~include various Level 3 inputs which are not identifiable, less any associated allowance.~~

~~(2)~~

~~Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated~~

~~liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments~~

~~are presented as a percent of the appraisal.~~

~~(3)~~

~~Includes qualitative adjustments by management and estimated liquidation expenses.~~

Management uses its best judgment in estimating the fair value of ~~William Penn Bancorp's~~the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts ~~William Penn Bancorp~~the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The following information should not be interpreted as an estimate of the fair value of the entire ~~Company~~company since a fair value calculation is only provided for a limited portion of ~~William Penn Bancorp's~~the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between ~~William Penn Bancorp's~~the Company's disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments.

~~In accordance~~Cash and Due from Banks and Interest-Bearing Time Deposits

The carrying amounts of cash and amounts due from banks and interest-bearing time deposits approximate their fair value due to the relatively short time between origination of the instrument and its expected realization.

Securities Available for Sale and Held to Maturity

The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.

Equity Securities

The fair value of equity securities is equal to the available quoted market price.

Loans Receivable

The fair value is estimated by discounting future cash flows using current market inputs at which loans with ~~FASB ASC Topic 825~~similar terms are adjusted for ~~Financial Instruments, Disclosures about Fair Value~~liquidity and credit risk.

Regulatory Stock

The carrying amount of Federal Home Loan Bank stock approximates fair value because Federal Home Loan Bank stock can only be redeemed or sold at par value and only to the respective issuing government supported institution or to another member institution.

Bank-Owned Life Insurance

The Company reports bank-owned life insurance on its Consolidated Statements of Financial ~~Instruments~~~~, William Penn Bancorp is required to disclose~~Condition at the cash surrender value. The carrying amount of bank-owned life insurance approximates fair value because the fair value of ~~financial instruments. The fair~~bank-owned life insurance is equal to the cash surrender value of ~~a financial instrument is~~ the ~~current~~life insurance policies.

Accrued Interest Receivable and Payable

The carrying amount ~~that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined using observable market prices; however, for many~~ of William Penn Bancorp’s financial instruments no quoted market prices are readily available. In instances where quoted market prices are not readily available, fair value is determined using present value or other techniques appropriate for the particular instrument. These techniques involve some degree of judgment,accrued interest receivable and as a result, are not necessarily indicative of the amounts William Penn Bancorp would realize in a current market exchange. Different assumptions or estimation techniques may have a material effect on the estimatedpayable approximates fair value.

Deposits

Fair values for demand deposits, NOW accounts, savings and club accounts, and money market deposits are, by definition, equal to the amount payable on demand at the reporting date as these products have no stated maturity. Fair values of fixed-maturity certificates of

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deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on similar instruments with similar maturities.

Advances from Federal Home Loan Bank

Fair value of advances from Federal Home Loan Bank is estimated using discounted cash flow analyses, based on rates currently available to the Company for advances from Federal Home Loan Bank with similar terms and remaining maturities.

Off-Balance Sheet Financial Instruments

Fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, considering market interest rates, the remaining terms and present credit worthiness of the counterparties.

In accordance with FASB ASC Topic 825 for Financial Instruments, Disclosures about Fair Value of Financial Instruments, the Company is required to disclose the fair value of financial instruments. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined using observable market prices; however, for many of the Company’s financial instruments no quoted market prices are readily available. In instances where quoted market prices are not readily available, fair value is determined using present value or other techniques appropriate for the particular instrument. These techniques involve some degree of judgment, and as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. Different assumptions or estimation techniques may have a material effect on the estimated fair value.

The following tables set forth the carrying value of financial assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition for the periods indicated.

Fair Value Measurements at December 31, 2020

Quoted Prices

Significant

Significant

in Active Markets

Other Observable

Unobservable

Carrying

Fair

for Identical Assets

Inputs

Inputs
(Dollars in thousands)

Amount

Value

(Level 1)

(Level 2)

(Level 3)
Financial assets:










Loans receivable, net

$
494,805

$
517,970

$
—

$
—

$
517,970

Financial liabilities:

Certificates of deposit

194,148

196,632

—

—

196,632
Advances from Federal Home Loan Bank

41,000

42,269

—

—

42,269

Fair Value Measurements at June 30, 2020

Quoted Prices

Significant

Significant

in Active Markets

Other Observable

Unobservable

Carrying

Fair

for Identical Assets

Inputs

Inputs
(Dollars in thousands)

Amount

Value

(Level 1)

(Level 2)

(Level 3)
Financial assets:










Loans receivable, net

$
508,605

$
541,779

$
—

$
—

$
541,779

Financial liabilities:

Certificates of deposit

194,480

198,268

—

—

198,268
Advances from Federal Home Loan Bank

64,892

67,520

—

—

67,520

~~For cash and due from banks, interest bearing time deposits, regulatory stock, bank-owned life insurance, accrued interest receivable, core deposits, advances from borrowers~~ The tables below exclude financial instruments for ~~taxes and insurance, and accrued interest payable,~~which the carrying amount approximates ~~the~~ fair ~~value and is considered a Level 1 measurement.~~value.


	Fair Value Measurements at December 31, 2023
					Quoted Prices		Significant		Significant
					in Active Markets		Other Observable		Unobservable
	Carrying		Fair		for Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets:
Loans receivable, net	$	467,214	$	427,668	$	—	$	—	$	427,668
Securities held to maturity		96,404		81,239		—		81,239		—

Financial instruments - liabilities:
Certificates of deposit		157,634		154,955		—		—		154,955
Advances from Federal Home Loan Bank		54,000		54,033		—		—		54,033

Off-balance sheet financial instruments		—		—		—		—		—


	Fair Value Measurements at June 30, 2023
					Quoted Prices		Significant		Significant
					in Active Markets		Other Observable		Unobservable
	Carrying		Fair		for Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets:
Loans receivable, net	$	477,543	$	436,636	$	—	$	—	$	436,636
Securities held to maturity		99,690		82,313		—		82,313		—

Financial instruments - liabilities:
Certificates of deposit		159,377		155,426		—		—		155,426
Advances from Federal Home Loan Bank		34,000		34,000		—		—		34,000

Off-balance sheet financial instruments		—		—		—		—		—

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Note 15 – Subsequent Events

On January 17, 2024, the Company declared a cash dividend of $0.03 per share, payable on February 8, 2024, to common shareholders of record at the close of business on January 29, 2024.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.

The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, either nationally or in our market area, that are worse than expected; (ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products; (iii) increased competitive pressures among financial services companies; (iv) changes in consumer spending, borrowing and savings habits; (v) changes in the quality and composition of our loan or investment portfolios; (vi) changes in real estate market values in our market area; (vii) decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area; (viii) military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences), terrorism or other geopolitical events, and major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, ~~including the current coronavirus (COVID-19) pandemic,~~ the related disruption of any of these events to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; (ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; (x) technological changes that may be more difficult or expensive than expected; (xi) success or consummation of new business initiatives may be more difficult or expensive than expected; (xii) ~~the inability~~our ability to successfully execute our business plan and strategies and integrate the business operations of acquired businesses ~~and financial institutions~~ into our business ~~operations;~~operations (xiii) our ability to manage market risk, credit risk and operational risk in the current economic environment; (xiv) adverse changes in the securities markets; ~~(xiv)~~(xv) the inability of third party service providers to perform; (xvi) the impact of failures or disruptions in or breaches of the Company’s operational or security systems, data or infrastructure, or those of third parties, including as a result of cyberattacks or campaigns; and ~~(xv)~~(xvii) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for ~~Loan~~Credit Losses

We consider the allowance for ~~loan and~~credit losses to be a critical accounting policy. The allowance for loan losses is determined by management based upon portfolio segments, past historical experience, evaluation of estimated losses and impairment in the loan portfolio, current economic conditions, and other pertinent factors. Management also considers risk characteristics by portfolio segments including, but not limited to, renewals and real estate valuations. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. Loan impairment is evaluated based on the fair value of collateral or present value of expected cash flows. While management uses the best information available to make such evaluations, future adjustmentsNote 2 to the ~~allowance may be necessary if economic conditions differ substantially from~~Company’s Consolidated Financial Statements for the ~~assumptions used in making the evaluations.~~

The allowance for loan and lease losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio,period ended December 31, 2023 discusses significant accounting policies, including ~~the evaluation of impaired loans. Determining the amount of~~ the allowance for ~~loan~~credit losses ~~necessarily involves a high degree~~and the adoption of ~~judgment. Among~~ASC 326, which changes the ~~material estimates required~~methodology under which management calculates its reserve for loans and investment securities, now referred to ~~establish~~as the allowance ~~are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors~~for credit losses. Please refer to ~~be applied~~Note 2 to the ~~various segments~~

~~Table~~Company’s Consolidated Financial Statements for detail regarding the Company’s adoption of ~~Contents~~

ASU 2016-13: Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio.allowance for credit losses. Although we believe that we use the best information available to establish the allowance for ~~loan~~credit losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the

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Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for ~~loan~~credit losses.

Our financial results are affected by the changes in and the level of the allowance for ~~loan~~credit losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for ~~loan~~credit losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for ~~loan~~credit losses. Such an adjustment could materially affect net income as a result of the change in provision for ~~loan~~credit losses. We also have approximately ~~$5.2~~$3.0 million as of December 31, ~~2020~~2023 in non-performing assets consisting of non-performing loans and one property held in other real estate owned. Most of these assets are collateral dependent loans where we have incurred credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the collectability of these loans and update our appraisals on these loans each year. To the extent the property values continue to decline, there could be additional losses incurred on these non-performing loans which may be material. In recent periods, we experienced strong asset quality metrics including low levels of delinquencies, net charge-offs and non-performing assets. Management considered market conditions in deriving the estimated allowance for ~~loan~~credit losses; however, given the continued economic difficulties, ~~and uncertainties and the COVID-19 pandemic,~~ the ultimate amount of loss could vary from that estimate.

~~In June 2016, the FASB issued ASU 2016-13:~~ ~~Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are expected to be effective for us on July 1, 2023. We are in the process of evaluating the impact of this guidance but expect that the impact will likely be material to our consolidated financial statements.

Goodwill

The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed, and consideration paid at their estimated fair values as of the acquisition date. The excess of consideration paid (or the fair value of the equity of the acquiree) over the fair value of net assets acquired represents goodwill. Goodwill totaled $4.9 million at December 31, ~~2020.~~2023. Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The provisions of Accounting Standards Codification (“ASC”) Topic 350 allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

During the three and six months ended December 31, ~~2020,~~2023, management considered the then current economic environment ~~caused by the COVID-19 pandemic~~ in its evaluation, and determined, based on the totality of its qualitative assessment, that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the three orand six months ended December 31, ~~2020.~~2023.

Income Taxes

We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the ~~consolidated statements~~Consolidated Statements of ~~income.~~Income. The evaluation pertaining to the tax expense and related tax asset and liability balances involves a high degree of judgment and subjectivity around the ultimate measurement and resolution of these matters.

Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets on our ~~consolidated statements~~Consolidated Statements of ~~financial condition.~~Financial Condition. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations

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of tax laws, the status of examinations by the authorities and newly issued or enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. We regularly evaluate our uncertain tax positions and estimate the appropriate level of reserves related to each of these positions.

As of December 31, ~~2020,~~2023, we had net deferred tax assets totaling ~~$3.7~~$9.0 million. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial ~~statement~~ carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a

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valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Our net deferred tax assets were determined based on the current enacted federal tax rate of 21%. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.

Comparison of Financial Condition at December 31, ~~2020~~2023 and June 30, ~~2020~~2023

Summary. Total assets ~~increased $10.0~~decreased $21.6 million, or ~~1.4%~~2.5%, to ~~$746.5~~$826.0 million at December 31, ~~2020,~~2023, from ~~$736.5~~$847.6 million at June 30, ~~2020. The increase in total assets can~~2023, primarily ~~be attributed~~due to a ~~$3.3 million increase in total cash and cash equivalents and a $22.9 million increase in investment securities, partially offset by a $13.8~~$10.3 million decrease in net ~~loans.~~loans, a $7.2 million decrease in investments, and a $3.3 million decrease in cash and cash equivalents. The Company used $34.3 million of cash during the six months ended December 31, 2023 to repurchase shares of stock under its previously announced stock repurchase programs.

Cash and cash equivalents ~~increased~~decreased $3.3 million, or ~~4.0%~~15.7%, to ~~$86.2~~$17.5 million at December 31, ~~2020,~~2023, from ~~$82.9~~$20.8 million at June 30, ~~2020.~~2023. The ~~increase~~decrease in cash and cash equivalents was primarily ~~driven~~due to the repurchase of 2,815,849 shares at a total cost of $34.3 million and an $8.6 million decrease in deposits, partially offset by a ~~$37.2~~$20.0 million increase in ~~total deposits combined with~~advances from the Federal Home Loan Bank (“FHLB”) of Pittsburgh, approximately $10.8 million of investment paydowns, and a ~~$13.8~~$10.3 million decrease in net ~~loans,~~loans.

Investments. Total investments decreased $7.2 million, or 2.7%, to $259.2 million at December 31, 2023, from $266.4 million at June 30, 2023. The decrease in investments was primarily due to approximately $10.8 million of principal paydowns of the securities included in the available for sale and held to maturity portfolios, partially offset by a ~~$22.9~~$3.2 million decrease in the gross unrealized loss on available for sale securities. The Company remains focused on maintaining a high-quality investment portfolio that provides a steady stream of cash flows.

Loans.Net loans decreased $10.3 million, or 2.2%, to $467.2 million at December 31, 2023, from $477.5 million at June 30, 2023. The interest rate environment has caused a slowdown in borrower demand and the Company maintains conservative lending practices and pricing discipline.

Deposits.Deposits decreased $8.6 million, or 1.4%, to $626.7 million at December 31, 2023, from $635.3 million at June 30, 2023. The decrease in deposits was primarily due to a $15.7 million decrease in money market accounts, a $5.5 million decrease in savings accounts, and a $2.5 million decrease in non-interest bearing checking accounts, partially offset by a $17.0 million increase in ~~investment securities and a $23.9~~interest bearing checking accounts. The interest rate environment has created significant pricing competition for deposits within our market.

Borrowings.Borrowings increased $20.0 million, ~~decrease in advances~~or 58.8%, to $54.0 million at December 31, 2023, from ~~the FHLB of Pittsburgh.~~

$34.0 million at June 30, 2023. During the six months ended December 31, ~~2020, we transferred six properties~~2023, the Company borrowed from ~~premises and equipment with~~the FHLB of Pittsburgh to fund a ~~total carrying value of approximately $3.2 million to the held for sale classification included in other assets on our consolidated statement of financial condition. We sold five~~portion of the ~~six properties prior to December 31, 2020 and we are actively marketing the one property that remains in the held for sale classification in other assets on our consolidated statement~~$34.3 million of ~~financial condition.~~share repurchases.

~~Investments~~Stockholders’ Equity. ~~Investments increased $22.9~~Stockholders’ equity decreased $31.8 million, or ~~25.5%~~19.8%, to ~~$112.9~~$128.9 million at December 31, ~~2020,~~2023, from ~~$90.0~~$160.7 million at June 30, ~~2020. During~~2023. The decrease in stockholders’ equity was primarily due to the ~~six months ended December 31, 2020, we purchased $49.7~~repurchase of 2,815,849 shares at a total cost of $34.3 million, of investment securities with the remaining excess cash available resulting from our acquisitions of Fidelity and Washington in May 2020, and cash resulting from organic growth in deposits experienced during the six month period. Alsoor $12.18 per share, during the six months ended December 31, ~~2020, we sold $7.9~~2023 under the Company’s previously announced stock repurchase programs, the payment of two $0.03 per share quarterly cash dividends totaling $637 thousand, and a $226 thousand one-time cumulative effect decrease to retained earnings from the adoption of the Current Expected Credit Losses (“CECL”) accounting standard. These decreases to stockholders’ equity were partially offset by a $2.4 million decrease in the accumulated other comprehensive loss component of ~~investments securities in order to decrease our exposure to premium amortization due~~equity related to the ~~current interest rate environment.~~

~~Loans.Net loans decreased $13.8 million, or 2.7%, to $494.8 million at~~unrealized loss on available for sale securities and $190 thousand of net income during the six months ended December 31, 2020, from $508.6 million at June 30, 2020. The COVID-19 pandemic and low interest rate environment have intensified an already highly competitive market for residential lending. We maintain conservative lending practices and are focused on lending to borrowers with high credit quality primarily located within our market footprint.2023.

During the quarter ended June 30, 2020, the Bank provided $2.4 million in Paycheck Protection Program (PPP) loans for 56 new and existing customers and, in January 2021, the Bank announced its continued participation in the restarted program for first and second draw PPP loans. The Bank also granted eligible loan modifications in the form of payment deferral of principal and interest for $49.8 million of existing loans under the provisions of the CARES Act. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on a substantial portion of the loans on deferral and,

Book value per share measured $13.38 as of December 31, ~~2020, only $3.0 million~~2023 compared to $12.91 as of ~~loans remained on deferral under the CARES Act. For more information, see note 6~~June 30, 2023, and tangible book value per share measured $12.83 as of December 31, 2023 compared to $12.48 as of June 30, 2023. Tangible book value per share is a non-GAAP financial measure that excludes goodwill and other intangible assets. Please refer to the ~~Consolidated~~“Non-GAAP Financial ~~Statements~~Information” section below for a reconciliation of tangible book value per share to book value per share.

As previously announced, the Company’s Board of Directors had authorized seven stock repurchase programs to acquire up to 6,433,769 shares of the Company’s outstanding shares. As of December 31, 2023, the Company ~~included in Item 1~~had repurchased a total of ~~this Quarterly Report on Form 10-Q.~~5,996,320 shares under these repurchase programs at a total cost of $70.0 million, or $11.67 per share.

3336

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~~Deposits.Deposits increased $37.2 million, or 6.7%, to $597.1 million at December 31, 2020, from $559.9 million at June 30, 2020. The increase~~ in deposits was primarily the result of strong organic growth, particularly in our money market products, and the opening of a new branch location located in Collingswood, New Jersey during the quarter ended June 30, 2020.

~~Borrowings.~~Borrowings decreased $23.9 million, or 36.8%, to $41.0 million at December 31, 2020, from $64.9 million at June 30, 2020. The decrease in borrowings was primarily due to the prepayment of $23.2 million of higher-cost advances from the FHLB of Pittsburgh. We made a strategic decision to use $23.2 million of cash to prepay higher-cost advances from the FHLB of Pittsburgh that will effectively lower our future borrowing costs and become accretive to our overall earnings following the quarter ended December 31, 2020.

~~Stockholders’ Equity~~. Stockholders’ equity increased $824 thousand, or 0.9%, to $97.2 million at December 31, 2020, from $96.4 million at June 30, 2020. The increase in stockholders’ equity was due to $2.0 million of net income and a $664 thousand increase in the accumulated other comprehensive income component of the unrealized gain on available-for-sale investment securities recorded during the six months ended December 31, 2020, partially offset by $1.9 million of dividends paid to common shareholders in August 2020. Book value per share totaled $21.65 as of December 31, 2020, compared to $21.47 as of June 30, 2020.

Results of Operations for the Three Months Ended December 31, ~~2020~~2023 and ~~2019~~2022

Summary

The following table sets forth the income summary for the periods indicated:

Three Months Ended December 31,



Change 2020/2019

(Dollars in thousands)

2020

2019

$

%

Net interest income

$
5,599

$
3,342

$
2,257

67.53
%
Provision for loan losses

32

—

32

100.00
%
Non-interest income

840

287

553

192.68
%
Non-interest expense

4,661

3,038

1,623

53.42
%
Income tax expense (benefit)

370

(338)

708

209.47
%
Net income

$
1,376

$
929

$
447

48.12
%

Return on average assets (annualized)

0.74
%

0.85
%

Return on average equity (annualized)

5.72
%

4.91
%


	Three Months Ended December 31,
							Change Fiscal 2023/2022
(Dollars in thousands)	2023			2022			$		%
Net interest income	$	4,211		$	6,036		$	(1,825)		(30.24)	%
Provision for credit losses		25			—			25		100.00
Non-interest income		828			902			(74)		(8.20)
Non-interest expenses		5,071			5,660			(589)		(10.41)
Income tax (benefit) expense		(68)			217			(285)		(131.34)
Net income	$	11		$	1,061		$	(1,050)		(98.96)

Return on average assets (annualized)		0.01	%		0.49	%
Core return on average assets⁽¹⁾ (non-GAAP) (annualized)		(0.08)			0.37
Return on average equity (annualized)		0.04			2.38
Core return on average equity⁽¹⁾ (non-GAAP) (annualized)		(0.54)			1.77

(1)

Core return on average assets and core return on average equity are non-GAAP financial measures. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core return on average assets to return on average assets and core return on average equity to return on average equity.

General

WeThe Company recorded net income of ~~$1.4 million,~~$11 thousand, or ~~$0.31~~$0.00 per basic and diluted share, for the three months ended December 31, ~~2020,~~2023, compared to net income of ~~$929 thousand,~~$1.0 million, or ~~$0.23~~$0.08 per basic and diluted share, for the three months ended December 31, ~~2019.~~ 2022. The Company recorded a core net loss of $168 thousand, or $(0.02) per basic and diluted share, for the three months ended December 31, 2023, compared to core net income of $788 thousand, or $0.06 per basic and diluted share, for the three months ended December 31, 2022. Core net (loss) income is a non-GAAP financial measure that excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core net (loss) income to net income.

Net Interest Income

For the three months ended December 31, ~~2020, we reported~~2023, net interest income was $4.2 million, a decrease of ~~$5.6 million, an increase of $2.3~~$1.8 million, or ~~67.5%~~30.2%, from the three months ended December 31, ~~2019.~~2022. The ~~increase~~decrease in net interest income was primarily due to an increase in ~~interest-earning assets as a result of the acquisitions of Fidelity~~interest expense on deposits and ~~Washington~~borrowings, partially offset by an increase in ~~May 2020.~~interest income on loans. The net interest margin ~~was 3.29%~~measured 2.28% for the three months ended December 31, ~~2020~~2023, compared to ~~3.39%~~3.10% for the ~~same period in 2019.~~three months ended December 31, 2022. The decrease in the net interest margin ~~is consistent with the recent decrease in market interest rates and current margin compression primarily due to the COVID-19 pandemic and its impact on the economy and interest rate environment.~~

~~Provision for Loan Losses~~

~~As a result of the continued economic uncertainty due to the COVID-19 pandemic, we recorded a $32 thousand provision for loan losses~~ during the three months ended December 31, ~~2020~~2023, compared to ~~no provision~~the same period in 2022, was primarily due to an increase in the average balance of deposits and the rise in interest rates that caused an increase in the cost of borrowings and deposits that exceeded the increase in interest income on loans.

Provision for ~~loan losses during for~~Credit Losses

During the three months ended December 31, ~~2019.~~2023, we recorded a $25 thousand provision for credit losses primarily due to an increase in delinquent home equity loans and home equity lines of credit. During the three months ended December 31, 2022, we did not record a provision for loan losses due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets. Our allowance for ~~loan~~credit losses totaled $3.6 million, or ~~1.19%~~0.76% of total ~~loans, excluding acquired~~ loans, as of December 31, ~~2020,~~2023, compared to ~~$3.5~~$3.3 million, or ~~1.25%~~0.69% of total ~~loans, excluding acquired~~ loans, as of June 30, ~~2020. The COVID-19 pandemic has resulted in highly uncertain economic conditions, including higher levels of unemployment. The increase in reserves due to the COVID-~~

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19 pandemic was limited by enhancements we made to our credit management function by hiring new experienced team members and implementing more robust internal credit measurement and monitoring processes.2023. Based on a review of the loans that were in the loan portfolio at December 31, ~~2020,~~2023, management believes that the allowance is maintained at a level that represents its best estimate of ~~inherent losses in the loan portfolio that were both probable and reasonably estimable at such date.~~lifetime credit losses.

Management uses available information to establish the appropriate level of the allowance for ~~loan~~credit losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for ~~loan~~credit losses may not be sufficient to cover actual loan losses, and future

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provisions for ~~loan~~credit losses could materially adversely affect our operating results. In addition, various bank regulatory agencies, as an integral part of their examination process, periodically review our allowance for ~~loan~~credit losses.

Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:


	Three Months
	Ended December 31,				Three Months Ended December 31,
(Dollars in thousands)	2020		2019		2023		2022
Service fees	$	186	$	156	$	225	$	209
Net loss on sale of securities		(30)		—
Net gain on sale of securities						85		—
Earnings on bank-owned life insurance		98		82		309		274
Net gain on sale of premises and equipment		454		—
Net gain on disposition of premises and equipment						—		300
Unrealized gain on equity securities						148		54
Other		132		49		61		65
Total	$	840	$	287	$	828	$	902

For the three months ended December 31, ~~2020,~~2023, non-interest income totaled ~~$840~~$828 thousand, ~~an increase~~a decrease of ~~$553~~$74 thousand, or ~~192.7%~~8.2%, from the three months ended December 31, ~~2019.~~2022. The ~~increase~~decrease was primarily due to ~~the $454~~a $300 thousand net gain on the sale of premises and equipment associated with the sale of two properties recorded during the three months ended December 31, 2020 in connection with the sale of five properties with an aggregate carrying value of approximately $3.2 million. In addition, the increase was also attributable to a $30 thousand increase in service fees as a result of increased deposit transaction volume due primarily to the acquisitions of Fidelity and Washington in May 2020, as well as a $50 thousand increase in rental income,2022, partially offset by a ~~$30~~$94 thousand ~~net loss~~increase in the unrealized gain on ~~the~~equity securities and an $85 thousand gain on sale of ~~investment~~ securities recorded during the three months ended December 31, ~~2020 to reduce our interest rate risk exposure.~~2023.

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:


	Three Months
	Ended December 31,				Three Months Ended December 31,
(Dollars in thousands)	2020		2019		2023		2022
Salaries and employee benefits	$	2,526	$	1,614	$	2,861	$	3,222
Occupancy and equipment		655		514		728		907
Data processing		509		218		504		472
Professional fees		217		272		192		258
Amortization of intangible assets		64		59		41		49
Other		690		361		745		752
Total	$	4,661	$	3,038	$	5,071	$	5,660

For the three months ended December 31, ~~2020,~~2023, non-interest expense totaled ~~$4.7~~$5.1 million, ~~an increase~~a decrease of ~~$1.6 million,~~$589 thousand, or ~~53.4%~~10.4%, from the three months ended December 31, ~~2019.~~2022. The ~~increase~~decrease in non-interest expense was primarily due to a ~~$912~~$361 thousand ~~increase~~decrease in salaries and employee benefits primarily due to a reduction in the number of full-time employees consistent with the Company’s expense management initiatives and a ~~$141~~$179 thousand ~~increase~~decrease in occupancy and equipment expense ~~as a result~~consistent with the closure of ~~additional operating costs from~~ the ~~additional employees and new~~ branch ~~offices resulting from our acquisitions of Fidelity and Washington~~office located in May 2020. In addition, the $291 thousand increase in data processing expense and the $329 thousand increase in other non-interest expense is attributable to operating a larger branch network, as well as additional enhancements to products and services offered by our larger combined company following the Fidelity and Washington acquisitions.Collingswood, New Jersey effective December 31, 2022.

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Income Taxes

For the three months ended December 31, ~~2020, we recognized an~~2023, the Company recorded a $68 thousand income tax benefit, reflecting an effective tax rate of (119.3)%, compared to a provision for income taxes of ~~$370~~$217 thousand, reflecting an effective tax rate of ~~21.2%~~17.0%, ~~compared to an~~for the same period in 2022. The income tax benefit of $338 thousand, reflecting an effective tax benefit of 57.2%, for the three months ended December 31, 2019. The increase in the effective tax rate and the provision for income taxes for the three months ended December 31, 2020 compared to the same period a year ago was primarily due to the $408 thousand effect of a change in tax law recorded during the three months ended December 31, ~~2019 related~~2023 was primarily due to the ~~treatment~~$57 thousand loss before income taxes coupled with the $309 thousand of federal tax-exempt income recorded on bank-owned life ~~insurance acquired as part of our acquisition of Audubon Savings Bank in July 2018.~~insurance.

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Results of Operations for the Six Months Ended December 31, ~~2020~~2023 and ~~2019~~2022

Summary

The following table sets forth the income summary for the periods indicated:

Six Months Ended December 31,

Change 2020/2019

(Dollars in thousands)

2020

2019

$

%


Net interest income

$
10,816

$
6,715

$
4,101

61.07
%
Provision for loan losses

98

-

98

100.00
%
Non-interest income

1,240

634

606

95.58
%
Non-interest expense

9,396

5,684

3,712

65.31
%
Income tax expense (benefit)

516

(118)

634

537.29
%
Net income

$
2,046

$
1,783

$
263

14.75
%

Return on average assets (annualized)

0.55
%

0.83
%





Return on average assets (excluding prepayment penalties) ⁽¹⁾ (annualized)

0.60
%

0.83
%

Return on average equity (annualized)

4.24
%

4.71
%

Return on average equity (excluding prepayment penalties) ⁽¹⁾ (annualized)

4.58
%

4.71
%


	Six Months Ended December 31,
							Change 2023/2022
(Dollars in thousands)	2023			2022			$		%
Net interest income	$	8,955		$	12,277		$	(3,322)		(27.06)	%
Provision for credit losses		30			—			30		100.00
Non-interest income		1,478			1,184			294		24.83
Non-interest expenses		10,296			11,223			(927)		(8.26)
Income tax (benefit) expense		(83)			150			(233)		(155.33)
Net income	$	190		$	2,088		$	(1,898)		(90.90)

Return on average assets (annualized)		0.05	%		0.48	%
Core return on average assets⁽¹⁾ (non-GAAP) (annualized)		(0.01)			0.42
Return on average equity (annualized)		0.27			2.24
Core return on average equity⁽¹⁾ (non-GAAP) (annualized)		(0.07)			1.95

(1)

~~Return~~Core return on average assets ~~(excluding prepayment penalties) is a~~and core return on average equity are non-GAAP financial ~~measure that represents our adjusted net income divided by average assets. For~~measures. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of ~~these non-GAAP measures, see~~ ~~“—Non-GAAP Financial Information.”~~

~~(2)~~

~~Return~~core return on average assets to return on average assets and core return on average equity ~~(excluding prepayment penalties) is a non-GAAP financial measure that represents our adjusted net income divided by~~to return on average equity. ~~For a reconciliation of these non-GAAP measures, see~~ ~~“—Non-GAAP Financial Information.”~~

General

WeThe Company recorded net income of ~~$2.0 million,~~$190 thousand, or ~~$0.46~~$0.02 per basic and diluted share, for the six months ended December 31, ~~2020,~~2023, compared to net income of ~~$1.8~~$2.1 million, or ~~$0.45~~$0.16 per basic and diluted share, for the six months ended December 31, ~~2019.~~ 2022. The Company recorded a core net loss of $46 thousand, or $(0.00) per basic and diluted share, for the six months ended December 31, 2023, compared to core net income of $1.8 million, or $0.14 per basic and diluted share, for the six months ended December 31, 2022. Core net (loss) income is a non-GAAP financial measure that excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core net (loss) income to net income.

Net Interest Income

For the six months ended December 31, ~~2020, we reported~~2023, net interest income was $9.0 million, a decrease of ~~$10.8 million, an increase of $4.1~~$3.3 million, or ~~61.1%~~27.1%, from the six months ended December 31, ~~2019.~~2022. The ~~increase~~decrease in net interest income was primarily due to an increase in ~~interest-earning assets as a result of the acquisitions of Fidelity~~interest expense on deposits and ~~Washington~~borrowings, partially offset by an increase in ~~May 2020.~~interest income on loans and investments. The net interest margin ~~was 3.18%~~measured 2.40% for the six months ended December 31, ~~2020~~2023, compared to ~~3.44%~~3.14% for the ~~same period in 2019.~~six months ended December 31, 2022. The decrease in the net interest margin ~~is consistent with the recent decrease in market interest rates and current margin compression primarily due to the COVID-19 pandemic and its impact on the economy and interest rate environment.~~

~~Provision for Loan Losses~~

~~As a result of the continued economic uncertainty due to the COVID-19 pandemic, we recorded a $98 thousand provision for loan losses~~ during the six months ended December 31, ~~2020~~2023, compared to ~~no provision~~the same period in 2022, was primarily due to an increase in the average balance of deposits and the rise in interest rates that caused an increase in the cost of borrowings and deposits that exceeded the increase in interest income on loans and investments.

Provision for ~~loan losses during for~~Credit Losses

During the six months ended December 31, ~~2019.~~2023, we recorded a $30 thousand provision for credit losses primarily due to an increase in delinquent home equity loans and home equity lines of credit, partially offset by a decrease in the outstanding balance of our total loan portfolio. During the six months ended December 31, 2022, we did not record a provision for loan losses due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets. Our allowance for ~~loan~~credit losses totaled $3.6 million, or ~~1.19%~~0.76% of total ~~loans, excluding acquired~~ loans, as of December 31, ~~2020,~~2023, compared to ~~$3.5~~$3.3 million, or ~~1.25%~~0.69% of total ~~loans, excluding acquired~~ loans, as of June 30, 2020. The COVID-19 pandemic has resulted in highly uncertain economic conditions, including higher levels of unemployment. The increase in reserves due to the COVID-19 pandemic was limited by enhancements we made to our credit management function by hiring new experienced team members and

~~Table of Contents~~

~~implementing more robust internal credit measurement and monitoring processes.~~2023. Based on a review of the loans that were in the loan portfolio at December 31, ~~2020,~~2023, management believes that the allowance is maintained at a level that represents its best estimate of ~~inherent losses in the loan portfolio that were both probable and reasonably estimable at such date.~~lifetime credit losses.

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Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:


	Six Months
	Ended December 31,				Six Months Ended December 31,
(Dollars in thousands)	2020		2019		2023		2022

Service fees	$	369	$	295	$	440	$	420
Net (loss) gain on sale of securities		(30)		93
Net gain on sale of securities						85		—
Earnings on bank-owned life insurance		210		165		603		547
Net gain on sale of premises and equipment		469		—
Net gain on disposition of premises and equipment						—		299
Unrealized gain (loss) on equity securities						221		(219)
Other		222		81		129		137
Total	$	1,240	$	634	$	1,478	$	1,184

For the six months ended December 31, ~~2020,~~2023, non-interest income totaled ~~$1.2~~$1.5 million, an increase of ~~$606~~$294 thousand, or ~~95.6%~~24.8%, from the six months ended December 31, ~~2019.~~2022. The increase was primarily due to a $221 thousand unrealized gain on equity securities recorded during the ~~$469~~six months ended December 31, 2023 compared to a $219 thousand unrealized loss on equity securities recorded during the six months ended December 31, 2022 and an $85 thousand gain on sale of securities recorded during the six months ended December 31, 2023. These increases to non-interest income were partially offset by a $300 thousand net gain on the sale of premises and equipment associated with the sale of two properties recorded during the six months ended December 31, 2020 in connection with the sale of five properties with an aggregate carrying value of approximately $3.2 million. In addition, the increase can be attributed to a $74 thousand increase in service fees as a result of increased deposit transaction volume due primarily to our acquisitions of Fidelity and Washington in May 2020, as well as an $85 thousand increase in rental income, partially offset by a $30 thousand net loss on the sale of investment securities recorded during the six months ended December 31, 2020 as compared to a $93 thousand net gain on the sale of investment securities recorded during the six months ended December 31, 2019.2022.

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

Six Months

Ended December 31,
(Dollars in thousands)

2020

2019

Salaries and employee benefits

$
5,080

$
3,185
Occupancy and equipment

1,414

809
Data processing

931

522
Professional fees

405

374
Amortization of intangible assets

128

118
Prepayment penalties

161

—
Other

1,277

676
Total

$
9,396

$
5,684


	Six Months Ended December 31,
(Dollars in thousands)	2023		2022
Salaries and employee benefits	$	5,796	$	6,463
Occupancy and equipment		1,488		1,695
Data processing		998		903
Professional fees		402		521
Amortization of intangible assets		82		97
Other		1,530		1,544
Total	$	10,296	$	11,223

For the six months ended December 31, ~~2020,~~2023, non-interest expense totaled ~~$9.4~~$10.3 million, ~~an increase~~a decrease of ~~$3.7 million,~~$927 thousand, or ~~65.3%~~8.3%, from the six months ended December 31, ~~2019.~~2022. The ~~increase~~decrease in non-interest expense was primarily due to a ~~$1.9 million increase~~$667 thousand decrease in salaries and employee benefits primarily due to a reduction in the number of full-time employees consistent with the Company’s expense management initiatives and a ~~$605~~$207 thousand ~~increase~~decrease in occupancy and equipment expense ~~as a result~~consistent with the closure of ~~additional operating costs from~~ the ~~additional employees and new~~ branch ~~offices resulting from our acquisitions of Fidelity and Washington~~office located in Collingswood, New Jersey effective May 1, 2020. In addition, the $409 thousand increase in data processing expense and the $601 thousand increase in other non-interest expense can primarily be attributed to operating a larger branch network, as well as additional enhancements to products and services offered by our larger combined company. During the six months ended December 31, ~~2020, we recorded $161 thousand of prepayment penalties~~

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following a strategic decision to use $23.2 million of cash to prepay higher-cost advances from the FHLB that will effectively lower our future borrowing costs and become accretive to our overall earnings following the quarter ended December 31, 2020.2022.

Income Taxes

For the six months ended December 31, ~~2020, we recognized~~2023, the Company recorded an $83 thousand income tax benefit, reflecting an effective tax rate of (77.6)%, compared to a provision for income taxes of ~~$516~~$150 thousand, reflecting an effective tax ~~benefit~~rate of ~~20.1%~~6.7%, ~~compared to an~~for the same period in 2022. The income tax benefit of $118 thousand, reflecting an effective tax benefit of 7.1%, for the six months ended December 31, 2019. The increase in the effective tax rate and the provision for income taxes for the six months ended December 31, 2020 compared to the same period a year ago was primarily due to the $408 thousand effect of a change in tax law recorded during the six months ended December 31, ~~2019 related~~2023 was primarily due to the ~~treatment~~$603 thousand of federal tax-exempt income recorded on bank-owned life insurance ~~acquired as part~~relative to the $107 thousand of ~~our acquisition~~income before income taxes. The Company recorded a $211 thousand income tax benefit related to a refund received associated with the carryback of ~~Audubon Savings Bank in July 2018.~~net operating losses under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act during the six months ended December 31, 2022.

Asset Quality

~~During the six months ended~~Asset quality metrics remain strong with non-performing assets to total assets decreasing to 0.38% as of December 31, ~~2020, nonperforming assets increased 54.2% to $5.2 million~~2023 from ~~$3.4 million~~0.49% as of June 30, 2020. The increase in nonperforming assets was driven by an increase in nonaccrual loans primarily due to a one- to four-family residential real estate loan and a commercial non-residential loan with the same borrower totaling $1.4 million becoming 90 days or more delinquent and placed on non-accrual status during the six months ended December 31, 2020.

2023. Total nonperforming loans consisted of 4130 loans to 4027 unrelated borrowers at December 31, ~~2020,~~2023, as compared to 3230 loans to 3227 unrelated borrowers at June 30, 2020. The increase in the number of nonperforming loans can primarily be attributed to the two previously discussed loans moving to non-accrual status, as well as a four other one- to four- family residential loans totaling $641 thousand moving to non-accrual status during the six months ended December 31, 2020.2023. Interest income related to non-performing loans would have ~~increased by~~been approximately ~~$120~~

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$106 thousand during the six months ended December 31, ~~2020~~2023 if these loans had performed in accordance with their terms during the period rather than having been on non-accrual.

There are circumstances when foreclosure and liquidations are the remedy pursued. However, from time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms (i.e., interest rate, structure, repayment term, etc.) based on the economic or legal reasons related to the borrower’s financial difficulties. We had no ~~new troubled debt restructurings (“TDRs”)~~loans modified to borrowers experiencing financial difficulty during the six months ended December 31, ~~2020.~~2023.

Impaired loans at December 31, 2020 included $1.3 million of performing loans whose terms have been modified in TDRs, compared to $1.4 million at June 30, 2020. The amount of TDR loans included in impaired loans decreased as a result principal payments and pay-offs. These restructured loans are being monitored by management and are performing in accordance with their restructured terms.

~~At December 31, 2020, none of our four substandard loans with an aggregate balance of $925 thousand were considered TDRs or included in nonperforming assets.~~

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Average Balances and Yields

The following ~~tables present~~table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees, including prepayment fees, are included in interest income on loans and are not material. ~~Yields~~Non-accrual loans are ~~not presented on a tax-equivalent basis.~~included in the average balances only. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.


	Three Months Ended December 31,																	Three Months Ended December 31,
	2020								2019									2023							2022
	Average			Interest and			Yield/		Average			Interest and			Yield/			Average		Interest and			Yield/		Average		Interest and			Yield/
(Dollars in thousands)	Balance			Dividends			Cost		Balance			Dividends			Cost			Balance		Dividends			Cost		Balance		Dividends			Cost
Interest-earning assets:
Loans⁽¹⁾	$	501,995		$	6,233		4.97	%	$	327,787		$	4,072		4.97	%		$	472,456	$	6,194		5.24	%	$	484,700	$	5,666		4.68	%
Investment securities⁽²⁾		119,782			472		1.58	%		43,785			402		3.67	%			254,542		1,700		2.67			276,741		1,707		2.47
Other interest-earning assets		59,955			79		0.53	%		23,332			132		2.26	%			11,544		169		5.86			17,508		187		4.27
Total interest-earning assets		681,732			6,784		3.98	%		394,904			4,606		4.67	%			738,542		8,063		4.37			778,949		7,560		3.88
Non-interest-earning assets		59,975								39,722									83,582							84,421
Total assets	$	741,707							$	434,626								$	822,124						$	863,370
Interest-bearing liabilities:
Interest-bearing accounts	$	100,026			22		0.09	%	$	56,400			15		0.11	%
Interest-bearing checking accounts																		$	139,246		588		1.69	%	$	133,690		97		0.29	%
Money market deposit accounts		154,343			248		0.64	%		78,581			316		1.61	%			194,016		1,458		3.01			179,357		544		1.21
Savings and club accounts		96,301			24		0.10	%		31,763			11		0.14	%			84,609		12		0.06			99,553		21		0.08
Certificates of deposit		200,956			624		1.24	%		113,094			552		1.95	%			161,761		1,162		2.87			136,352		312		0.92
Total interest-bearing deposits		551,626			918		0.67	%		279,838			894		1.28	%			579,632		3,220		2.22			548,952		974		0.71
FHLB advances		41,000			267		2.61	%		57,500			370		2.57	%
FHLB advances and other borrowings																			43,652		632		5.79			55,950		550		3.93
Total interest-bearing liabilities		592,626			1,185		0.80	%		337,338			1,264		1.50	%			623,284		3,852		2.47			604,902		1,524		1.01
Non-interest-bearing liabilities:
Non-interest-bearing deposits		38,927								14,091									55,266							63,282
Other non-interest-bearing liabilities		13,909								7,513									18,375							16,640
Total liabilities		645,468								358,942									696,925							684,824
Total stockholders' equity		96,245								75,684									125,199							178,546
Total liabilities and equity	$	741,707							$	434,626								$	822,124						$	863,370
Net interest income				$	5,599							$	3,342							$	4,211						$	6,036
Interest rate spread⁽³⁾					3.18	%							3.17	%							1.90	%						2.87	%
Net interest-earning assets⁽⁴⁾	$	89,105							$	57,566								$	115,258						$	174,047
Net interest margin⁽⁵⁾					3.29	%							3.39	%							2.28	%						3.10	%
Ratio of interest-earning assets to interest-bearing liabilities		115.04	%							117.06	%								118.49%							128.77%

⁽¹⁾ Includes nonaccrual loan balances and interest recognized on such loans.																	⁽¹⁾ Includes nonaccrual loan balances and interest recognized on such loans.
⁽²⁾ Includes securities available for sale, securities held to maturity, and equity securities.																	⁽²⁾ Includes securities available for sale, securities held to maturity, and equity securities.
⁽³⁾ Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.																	⁽³⁾ Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
⁽⁴⁾ Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.																	⁽⁴⁾ Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
⁽⁵⁾ Net interest margin represents net interest income divided by average total interest-earning assets.																	⁽⁵⁾ Net interest margin represents net interest income divided by average total interest-earning assets.

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	Six Months Ended December 31,
	2023							2022
	Average		Interest and			Yield/		Average		Interest and			Yield/
(Dollars in thousands)	Balance		Dividends			Cost		Balance		Dividends			Cost
Interest-earning assets:
Loans⁽¹⁾	$	475,711	$	12,333		5.19	%	$	481,048	$	10,963		4.56	%
Investment securities⁽²⁾		259,083		3,411		2.63			282,218		3,364		2.38
Other interest-earning assets		11,466		330		5.76			17,622		316		3.59
Total interest-earning assets		746,260		16,074		4.31			780,888		14,643		3.75
Non-interest-earning assets		82,849							83,172
Total assets	$	829,109						$	864,060
Interest-bearing liabilities:
Interest-bearing checking accounts	$	130,122		893		1.37	%	$	131,975		163		0.25	%
Money market deposit accounts		197,371		2,884		2.92			176,153		760		0.86
Savings and club accounts		86,225		30		0.07			102,001		41		0.08
Certificates of deposit		161,793		2,143		2.65			132,967		519		0.78
Total interest-bearing deposits		575,511		5,950		2.07			543,096		1,483		0.55
FHLB advances and other borrowings		40,739		1,169		5.74			55,337		883		3.19
Total interest-bearing liabilities		616,250		7,119		2.31			598,433		2,366		0.79
Non-interest-bearing liabilities:
Non-interest-bearing deposits		56,158							64,216
Other non-interest-bearing liabilities		17,994							14,926
Total liabilities		690,402							677,575
Total stockholders' equity		138,707							186,485
Total liabilities and equity	$	829,109						$	864,060
Net interest income			$	8,955						$	12,277
Interest rate spread⁽³⁾				2.00	%						2.96	%
Net interest-earning assets⁽⁴⁾	$	130,010						$	182,455
Net interest margin⁽⁵⁾				2.40	%						3.14	%
Ratio of interest-earning assets to interest-bearing liabilities		121.10%							130.49%

⁽¹⁾	Includes nonaccrual loan balances and interest recognized on such loans.

⁽²⁾	Includes securities available for sale, securities held to maturity, and ~~Federal Home Loan Bank stock.~~equity securities.

⁽³⁾	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

⁽⁴⁾	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

⁽⁵⁾	Net interest margin represents net interest income divided by average total interest-earning assets.

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Six Months Ended December 31,

2020

2019

Average

Interest and

Yield/

Average

Interest and

Yield/

(Dollars in thousands)

Balance

Dividends

Cost

Balance

Dividends

Cost

Interest-earning assets:

















Loans⁽¹⁾

$
503,529

$
12,126

4.82
%
$
328,751

$
8,223

5.00
%
Investment securities⁽²⁾

113,455

1,125

1.98
%

37,386

675

3.61
%
Other interest-earning assets

63,109

190

0.60
%

24,001

284

2.37
%
Total interest-earning assets

680,092

13,441

3.95
%

390,138

9,182

4.71
%
Non-interest-earning assets

59,513

37,246

Total assets

$
740,058

$
427,384

Interest-bearing liabilities:













Interest-bearing accounts

$
100,254

72

0.14
%
$
55,906

31

0.11
%
Money market deposit accounts

146,093

574

0.79
%

74,826

603

1.61
%
Savings and club accounts


96,223


67

0.14
%

32,033


23

0.14
%
Certificates of deposit

199,167

1,286

1.29
%

113,268

1,110

1.96
%
Total interest-bearing deposits

541,737

1,999

0.74
%

276,033

1,767

1.28
%
FHLB advances

47,821

626

2.62
%

54,286

700

2.58
%
Total interest-bearing liabilities

589,558

2,625

0.89
%

330,319

2,467

1.49
%
Non-interest-bearing liabilities:













Non-interest-bearing deposits

39,903

16,388

Other non-interest-bearing liabilities

14,187

4,975

Total liabilities

643,613

351,682

Total stockholders' equity

96,411

75,702

Total liabilities and equity

$
740,058

$
427,384

Net interest income

$
10,816

$
6,715

Interest rate spread⁽³⁾

3.06
%

3.21
%

Net interest-earning assets⁽⁴⁾

$
90,534

$
59,819

Net interest margin⁽⁵⁾

3.18
%

3.44
%

Ratio of interest-earning assets to interest-bearing liabilities

115.36
%

118.11
%

~~(1)~~

~~Includes nonaccrual loan balances and interest recognized on such loans.~~

~~(2)~~

~~Includes securities available for sale and Federal Home Loan Bank stock.~~

~~(3)~~

~~Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.~~

~~(4)~~

~~Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.~~

~~(5)~~

~~Net interest margin represents net interest income divided by average total interest-earning assets.~~

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Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. 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 current 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 volume.


	��	Three Months Ended 12/31/2020						Six Months Ended 12/31/2020						Three Months Ended 12/31/2023						Six Months Ended 12/31/2023
		Compared to						Compared to						Compared to						Compared to
		Three Months Ended 12/31/2019						Six Months Ended 12/31/2019						Three Months Ended 12/31/2022						Six Months Ended 12/31/2022
		Increase (Decrease)						Increase (Decrease)						Increase (Decrease)						Increase (Decrease)
		Due to						Due to						Due to						Due to
(Dollars in thousands)		Volume		Rate		Total		Volume		Rate		Total		Volume		Rate		Total		Volume		Rate		Total
Interest income:
Loans		$	2,175	$	(14)	$	2,161	$	4,792	$	(889)	$	3,903	$	(857)	$	1,385	$	528	$	(348)	$	1,718	$	1,370
Investment securities			1,434		(1,364)		70		1,364		(914)		450		(560)		553		(7)		(598)		645		47
Other interest-earning assets			508		(561)		(53)		517		(611)		(94)		(274)		256		(18)		(275)		289		14
Total interest-earning assets			4,117		(1,939)		2,178		6,673		(2,414)		4,259		(1,691)		2,194		503		(1,221)		2,652		1,431
Interest expense:
Interest-bearing accounts			24		(17)		7		6		35		41
Interest-bearing checking accounts															28		463		491		(7)		737		730
Money market deposit accounts			894		(962)		(68)		785		(814)		(29)		323		591		914		273		1,851		2,124
Savings and club accounts			33		(20)		13		46		(2)		44		(3)		(6)		(9)		(6)		(5)		(11)
Certificates of deposit			1,142		(1,070)		72		1,166		(990)		176		428		422		850		333		1,291		1,624
Total interest-bearing deposits			2,093		(2,069)		24		2,003		(1,771)		232		776		1,470		2,246		593		3,874		4,467
FHLB advances			(136)		33		(103)		(104)		30		(74)
FHLB advances and other borrowings															(634)		716		82		(629)		915		286
Total interest-bearing liabilities			1,957		(2,036)		(79)		1,899		(1,741)		158		142		2,186		2,328		(36)		4,789		4,753
Net change in net interest income		$	2,160	$	97	$	2,257	$	4,774	$	(673)	$	4,101	$	(1,833)	$	8	$	(1,825)	$	(1,185)	$	(2,137)	$	(3,322)

Non-GAAP Financial Information

In this report, we present the non-GAAP financial measures discussed below, which are used to evaluate our performance and exclude the effects of certain transactions and one-time events that we believe are unrelated to our core business and not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility into our core businesses and underlying trends that may, to some extent, be obscured by inclusion of such items.

~~Return on Average Assets (Excluding Prepayment Penalties).~~Tangible Book Value per Share. ~~Return on average assets (excluding prepayment penalties)~~Tangible book value per share represents our ~~adjusted net income (adjusted by the exclusion of prepayment penalties resulting from the prepayment of higher cost FHLB of Pittsburgh advances)~~total equity less goodwill and other intangible assets divided by ~~average assets.~~total common shares outstanding. Management believes ~~that~~tangible book value per share helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the ~~presentation of this non-GAAP measure assists investors in understanding the impact of non-recurring items on our return on average assets ratio.~~U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of ~~our return on average assets ratio (excluding prepayment penalties)~~tangible book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure, for ~~each of~~ the periods ~~presented in the table below:~~presented.

For the Six Months Ended December 31,


2020

2019

Net income

$
2,046

$
1,783

Less adjustments:





Prepayment penalties

161

—

Adjusted net income

$
2,207

$
1,783

Average assets

$
740,058

$
427,384

Return on average assets (excluding prepayment penalties)

0.60
%

0.83
%


(Dollars in thousands, except share and per share data)
	As of December 31,		As of June 30,
Calculation of Tangible Book Value per Share:	2023		2023
Total stockholders' equity	$	128,946	$	160,745
Less: goodwill and other intangible assets		5,295		5,377
Total tangible equity (non-GAAP)		123,651		155,368

Total common shares outstanding		9,637,072		12,452,921

Book value per share (GAAP)	$	13.38	$	12.91
Tangible book value per share (non-GAAP)	$	12.83	$	12.48

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~~Return on Average Equity (Excluding Prepayment Penalties).~~ ~~Return on average equity (excluding prepayment penalties) represents our adjusted~~Core net income, (adjusted by the exclusion of prepayment penalties resulting from the prepayment of higher cost FHLB of Pittsburgh advances) divided by average equity. Management believes that the presentation of this non-GAAP measure assists investors in understanding the impact of non-recurring items on ourcore earnings per share, core return on average ~~equity ratio.~~assets, and core return on average equity. These non-GAAP financial measures exclude certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments. We believe these ratios help management and investors better understand the earnings attributable to our core business. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of ~~our return on average equity ratio (excluding prepayment penalties) for each of~~these non-GAAP financial measures to the ~~periods presented in the table below:~~most directly comparable GAAP financial measures.

For the Six Months Ended December 31,


2020

2019

Net income

$
2,046

$
1,783

Less adjustments:





Prepayment penalties

161

—

Adjusted net income

$
2,207

$
1,783

Average equity

$
96,411

$
75,702

Return on average equity (excluding prepayment penalties)

4.58
%

4.71
%


	For the Three Months Ended				For the Six Months Ended
	December 31,		December 31,		December 31,		December 31,
	2023		2022		2023		2022
Calculation of core net income:
Net income (GAAP)	$	11	$	1,061	$	190	$	2,088
Less pre-tax adjustments:
Net gain on sale of securities		(85)		—		(85)		—
Net gain on disposition of premises and equipment		—		(300)		—		(299)
Unrealized (gain) loss on equity securities		(148)		(54)		(221)		219
Tax impact of pre-tax adjustments		54		81		70		18
Income tax benefit adjustment		—		—		—		(211)
Core net income (non-GAAP)	$	(168)	$	788	$	(46)	$	1,815

Calculation of core earnings per share:
Earnings per share (GAAP)	$	—	$	0.08	$	0.02	$	0.16
Less pre-tax adjustments:
Net gain on sale of securities		(0.01)		—		(0.01)		—
Net gain on disposition of premises and equipment		—		(0.02)		—		(0.02)
Unrealized (gain) loss on equity securities		(0.02)		(0.01)		(0.02)		0.02
Tax impact of pre-tax adjustments		0.01		0.01		0.01		—
Income tax benefit adjustment		—		—		—		(0.02)
Core earnings per share (non-GAAP)	$	(0.02)	$	0.06	$	(0.00)	$	0.14

Calculation of core return on average assets:
Return on average assets (GAAP)		0.01%		0.49%		0.05%		0.48%
Less pre-tax adjustments:
Net gain on sale of securities		(0.04)		—		(0.02)		—
Net gain on disposition of premises and equipment		—		(0.13)		—		(0.06)
Unrealized (gain) loss on equity securities		(0.08)		(0.03)		(0.06)		0.05
Tax impact of pre-tax adjustments		0.03		0.04		0.02		—
Income tax benefit adjustment		—		—		—		(0.05)
Core return on average assets (non-GAAP)		(0.08)%		0.37%		(0.01)%		0.42%

Average assets	$	822,124	$	863,370	$	829,109	$	864,060

Calculation of core return on average equity:
Return on average equity (GAAP)		0.04%		2.38%		0.27%		2.24%
Less pre-tax adjustments:
Net gain on sale of securities		(0.27)		—		(0.12)		—
Net gain on disposition of premises and equipment		—		(0.67)		—		(0.32)
Unrealized (gain) loss on equity securities		(0.48)		(0.12)		(0.32)		0.23
Tax impact of pre-tax adjustments		0.17		0.18		0.10		0.02
Income tax benefit adjustment		—		—		—		(0.22)
Core return on average equity (non-GAAP)		(0.54)%		1.77%		(0.07)%		1.95%

Average equity	$	125,199	$	178,546	$	138,707	$	186,485

Liquidity and Capital Resources

We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. The Bank’s liquidity ratio was ~~31.0%~~40.1% as of December 31, ~~2020~~2023 compared to ~~27.3%~~40.8% as of June 30, ~~2020.~~2023. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our liquidity ratio is calculated as the sum of total cash and cash equivalents and unencumbered

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investments securities divided by the sum of total deposits and ~~advances from the FHLB of Pittsburgh.~~total borrowings. The Bank maintains a liquidity ratio policy that requires this metric to be above 10.0% to provide for the effective management of extension risk and other interest rate risks.

Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh to provide ~~advances.~~advances and with the Federal Reserve Bank to provide an overnight line of credit. We also have available credit from the Atlantic Community Bankers Bank to purchase federal funds. As a member of the FHLB of Pittsburgh, we are required to own capital stock in the FHLB of Pittsburgh and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to ~~credit-worthiness~~creditworthiness have been met. We had an available borrowing limit of ~~$299.4~~$284.1 million with the FHLB of Pittsburgh at December 31, ~~2020.~~2023. There were ~~$41.0~~$54.0 million of FHLB of Pittsburgh advances outstanding at December 31, ~~2020.~~2023.

At December 31, ~~2020,~~2023, we had outstanding commitments to originate loans of ~~$12.6~~$5.1 million, unfunded commitments under lines of credit of ~~$43.9~~$66.1 million and ~~$1.0 million~~$117 thousand of standby letters of credit. At December 31, ~~2020,~~2023, certificates of deposit scheduled to mature in less than one year totaled ~~$122.0~~$131.8 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as FHLB of Pittsburgh advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.

~~Table of Contents~~

Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).

Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The analysis at December 31, ~~2020~~2023 indicates a level of risk within the parameters of our model. Our management believes that the December 31, ~~2020~~2023 analysis indicates a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.

Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities,

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which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.

These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of the Bank. Both types of simulation assist in identifying, measuring, monitoring, and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.

We produce these simulation reports and discuss them with our management Asset and Liability Committee and Board Risk Committee on at least a quarterly basis. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers ~~both~~ a static (current position) ~~and dynamic (forecast changes in volume)~~ analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures.

If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at December 31, ~~2020.~~2023. The income simulation analysis presented represents a one-year impact of the interest scenario assuming a static balance sheet. Various assumptions are made regarding the prepayment speed and optionality of loans, investment securities and deposits, which are based on analysis and market information. The assumptions regarding optionality, such as prepayments of loans and the effective lives and repricing of non-maturity deposit products, are documented periodically through evaluation of current market conditions and historical correlations to our specific asset and liability products under varying interest rate scenarios. Because the prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities or agency issued collateralized obligations (secured by one- to four-family loans and multi-family loans). Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates and assumes a constant asset base. Management periodically reviews the rate assumptions based on existing and projected economic conditions and consults with industry experts to validate our model and simulation results.

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The table below sets forth, as of December 31, ~~2020,~~2023, the Bank’s net portfolio value, the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous parallel changes in market interest rates.


	Twelve Month						Twelve Month
	Net Interest		Net Portfolio				Net Interest		Net Portfolio
	Income		Value				Income		Value
	Percent		Estimated		Percent		Percent		Estimated		Percent
Change in Interest Rates (Basis Points)	of Change		NPV		of Change		of Change		NPV		of Change
+200	(2.32)	%	$	116,940	(7.34)	%	(17.92)	%	$	136,205	(5.85)	%
+100	(1.05)	%		121,795	(3.49)	%	(8.89)			140,179	(3.10)
0	—			126,201	—		—			144,667	—
-50	1.80	%		117,987	(6.51)	%
-100							5.83			147,151	1.72
-200							11.77			150,102	3.76

As of December 31, ~~2020,~~2023, based on the scenarios above, net interest income would decrease by approximately ~~1.05%~~8.89% to ~~2.32%~~17.92%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would increase by approximately ~~1.80%~~5.83% to 11.77% in a declining interest rate ~~environment over the same period.~~environment.

Economic value at risk would be negatively impacted by ~~both~~ a rise orin interest rates and would be positively impacted by a decline in interest rates. We have established an interest rate floor of zero percent for measuring interest rate risk. ~~The difference between the two results reflects the relatively long terms~~

Table of ~~a portion of our assets which is captured by the economic value at risk but has less impact on the one-year net interest income sensitivity.~~Contents

Overall, our December 31, 2020 analysis indicates that we are adequately positioned with an acceptable net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that they are alerted in a timely manner about material information relating to the Company required to be filed in its periodic Securities and Exchange Commission filings.

During the quarter ended December 31, ~~2020,~~2023, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.

ITEM 1A. RISK FACTORS

For information regarding the Company’s risk factors, refer to the “Risk Factors” in Item 1A of the ~~prospectus of William Penn Bancorporation,~~Company’s Annual Report on Form 10-K for the year ended June 30, 2023, filed with the Securities and Exchange Commission ~~pursuant to Rule 424(b)(3)~~ on ~~January 25, 2021.~~September 7, 2023 (the “Form 10-K”). As of December 31, ~~2020,~~2023, the risk factors of the Company have not changed materially from those disclosed in the ~~prospectus.~~Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Not applicable. Please see the Explanatory Note.~~

On March 11, 2022, the Company announced its first stock repurchase program, which became effective on March 25, 2022 and authorized the purchase of up to 758,528 shares. Under this previously announced program, 758,528 shares of common stock have been repurchased at a cost of $8,981,445, or $11.84 per share. The Company completed this repurchase program on June 29, 2022.

On June 9, 2022, the Company announced its second stock repurchase program, which became effective upon the completion of the Company’s first stock repurchase program and authorized the purchase of up to 771,445 shares. Under this previously announced program, 771,445 shares of common stock have been repurchased at a cost of $8,945,802, or $11.60 per share. The Company completed this repurchase program on January 10, 2023.

On August 18, 2022, the Company announced its third stock repurchase program, which became effective upon the completion of the Company’s second stock repurchase program and authorized the purchase of up to 739,385 shares. Under this previously announced program, 739,385 shares of common stock have been repurchased at a cost of $8,467,495, or $11.45 per share. The Company completed this repurchase program on April 3, 2023.

On February 17, 2023, the Company announced its fourth stock repurchase program, which became effective upon the completion of the Company’s third stock repurchase program and authorized the purchase of up to 698,312 shares. Under this previously announced program, 698,312 shares of common stock have been repurchased at a cost of $7,268,678, or $10.41 per share. The Company completed this repurchase program on May 31, 2023.

On May 5, 2023, the Company announced its fifth stock repurchase program, which became effective upon the completion of the Company’s fourth stock repurchase program and authorized the purchase of up to 1,281,019 shares. Under this previously announced program, 1,281,019 shares of common stock have been repurchased at a cost of $14,955,344, or $11.67 per share. The Company completed this repurchase program on August 28, 2023.

On August 29, 2023, the Company announced its sixth stock repurchase program, which was authorized following the completion of the Company’s fifth stock repurchase program on August 28, 2023, and authorized the purchase of up to 1,138,470 shares. Under this

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previously announced program, 1,138,470 shares of common stock have been repurchased at a cost of $14,109,837, or $12.39 per share. The Company completed this repurchase program on October 30, 2023.

On October 18, 2023, the Company announced its seventh stock repurchase program, which became effective upon the completion of the Company’s sixth stock repurchase program and authorized the purchase of up to 1,046,610 shares. Under this previously announced program, 721,461 shares of common stock have been repurchased at a cost of $8,833,099, or $12.24 per share. As of February 1, 2024, there were 325,149 shares remaining to be repurchased under this existing program.

Each of the Company’s stock repurchase programs was adopted following the Company's consultation with the Federal Reserve Board.

The following table provides information on repurchases by the Company of its common stock under the Company’s Board approved program.


				Total Number of		Maximum Number
				Shares Purchased		of Shares that May
	Total Number			as Part of Publicly		Yet Be Purchased
	of Shares	Average Price		Announced Plans		Under the Plans
Period	Purchased	Paid Per Share		or Programs		or Programs
October 1 - 31, 2023	753,062	$	12.26		753,062	876,218
November 1 - 30, 2023	349,263		12.17		349,263	526,955
December 1 - 31, 2023	89,506		12.43		89,506	437,449
Total	1,191,831	$	12.25		1,191,831

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable. ~~Please see the Explanatory Note.~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~

During the fiscal quarter ended December 31, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.

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ITEM 6. EXHIBITS

See Exhibit Index.

EXHIBIT INDEX


Exhibit No.		Description

3.1		Amended and Restated Articles of Incorporation of William Penn Bancorporation (Incorporated by reference to Exhibit 3.1 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))

3.2		Bylaws of William Penn Bancorporation (Incorporated by reference to Exhibit 3.2 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of William Penn Bancorporation

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of William Penn Bancorporation

32.1		Certification of Chief Executive Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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32.2		Certification of Chief Financial Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0		The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended December 31, ~~2020,~~2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive ~~Income,~~Loss, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

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


	WILLIAM PENN BANCORPORATION

Date: ~~March~~February 1, ~~2021~~2024	By:	/s/ Kenneth J. Stephon
		Kenneth J. Stephon
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~March~~February 1, ~~2021~~2024	By:	/s/ Jonathan T. Logan
		Jonathan T. Logan
		~~Senior~~Executive Vice President and Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

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	Three Months Ended December,				Six Months Ended December,
	2020		2019		2020		2019

Net income	$	1,376	$	929	$	2,046	$	1,783

Other comprehensive income (loss):
Changes in net unrealized gain (loss) on securities available for sale		367		(302)		827		(454)
Tax effect		(83)		68		(186)		102
Reclassification adjustment for loss (gain) recognized in net income		30		—		30		(93)
Tax effect		(7)		—		(7)		21
Other comprehensive income (loss), net of tax		307		(234)		664		(424)
Comprehensive income	$	1,683	$	695	$	2,710	$	1,359


(Dollars in thousands)
	Gains (Losses)
	on Securities
Accumulated Other Comprehensive (Loss) Income (1)	Available for Sale
Balance at June 30, 2019	$	228
Other comprehensive loss before reclassifications		(118)
Amounts reclassified from accumulated other comprehensive loss		(72)
Period change		(190)
Balance at September 30, 2019	$	38
Other comprehensive loss before reclassifications		(234)
Amounts reclassified from accumulated other comprehensive loss		—
Period change		(234)
Balance at December 31, 2019	$	(196)


(Dollars in thousands)	Amounts Reclassified from
	Other Comprehensive Income (1)
Details about Accumulated Other Comprehensive	Six Months Ended		Six Months Ended		Affected Line Item in the
Income Components	December 31, 2020		December 31, 2019		Consolidated Statements of Income
Securities available for sale:
Net securities (losses) gains reclassified into net income	$	(30)	$	93	Net (loss)/gain on sale of securities
Related income tax benefit (expense)		7		(21)	Income tax expense (benefit)
	$	(23)	$	72


(Dollars in thousands)	Accretable Discount
Balance, May 1, 2020	$	57
Accretion		(4)
Balance, June 30, 2020	$	53
Accretion		(7)
Balance, September 30, 2020	$	46
Accretion		(16)
Balance, December 31, 2020	$	30


	Quantative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation	Unobservable
(Dollars in thousands)	Estimate		Techniques	Input	Range
June 30, 2020
Impaired loans	$	190	Appraisal of collateral (1)	Appraisal adjustments (2)	0-28	%
Foreclosed real estate owned	$	100	Appraisal of collateral (1)(3)	Liquidation expenses (2)	0	%


	Three Months Ended December 31,
							Change 2020/2019
(Dollars in thousands)	2020			2019			$		%
Net interest income	$	5,599		$	3,342		$	2,257		67.53	%
Provision for loan losses		32			—			32		100.00	%
Non-interest income		840			287			553		192.68	%
Non-interest expense		4,661			3,038			1,623		53.42	%
Income tax expense (benefit)		370			(338)			708		209.47	%
Net income	$	1,376		$	929		$	447		48.12	%

Return on average assets (annualized)		0.74	%		0.85	%
Return on average equity (annualized)		5.72	%		4.91	%