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 ~~September 30,~~December 31, 2022

☐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. 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
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 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 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 ~~November 3, 2022: 14,345,730~~February 2, 2023: 14,024,657 shares.

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 ~~September 30,~~December 31, 2022 and June 30, 2022	3

	Consolidated Statements of Income for the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021	4

	Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021	5

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021	6

	Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~September 30,~~December 31, 2022 and 2021	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3133

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4248

Item 4.	Controls and Procedures	4349

Part II	Other Information

Item 1.	Legal Proceedings	4450

Item 1A.	Risk Factors	4450

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4450

Item 3.	Defaults Upon Senior Securities	4450

Item 4.	Mine Safety Disclosures	4450

Item 5.	Other Information	4450

Item 6.	Exhibits	4551



Signatures

Table of Contents

PART I —FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

As of ~~September 30,~~December 31, 2022 and June 30, 2022 (unaudited)


	September 30,		June 30,		December 31,		June 30,
	2022		2022		2022		2022

ASSETS
Cash and due from banks	$	9,082	$	8,117	$	7,860	$	8,117
Interest bearing deposits with other banks		10,041		28,053		11,282		28,053
Total cash and cash equivalents		19,123		36,170		19,142		36,170
Interest-bearing time deposits		600		600		600		600
Securities available for sale		170,860		182,745		171,951		182,745
Securities held to maturity, fair value of $84,997 and $88,321, as of September 30, 2022 and June 30, 2022, respectively		104,376		102,135
Securities held to maturity, fair value of $85,504 and $88,321, as of December 31, 2022 and June 30, 2022, respectively						103,030		102,135
Equity securities		1,985		2,258		2,039		2,258
Loans receivable, net of allowance for loan losses of $3,333 and $3,409 as of September 30, 2022 and June 30, 2022, respectively		472,499		475,511
Loans receivable, net of allowance for loan losses of $3,334 and $3,409 as of December 31, 2022 and June 30, 2022, respectively						492,163		475,511
Premises and equipment, net		11,553		11,696		11,355		11,696
Regulatory stock, at cost		3,379		3,807		3,567		3,807
Deferred income taxes		9,434		7,459		9,267		7,459
Bank-owned life insurance		39,443		39,170		39,717		39,170
Goodwill		4,858		4,858		4,858		4,858
Intangible assets		664		712		615		712
Operating lease right-of-use assets		6,716		6,843		8,306		6,843
Accrued interest receivable and other assets		6,005		5,988		4,334		5,988
TOTAL ASSETS	$	851,495	$	879,952	$	870,944	$	879,952

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	600,174	$	606,617	$	615,438	$	606,617
Advances from Federal Home Loan Bank		55,000		65,000		60,000		65,000
Advances from borrowers for taxes and insurance		2,001		3,356		2,643		3,356
Operating lease liabilities		6,833		6,949		8,439		6,949
Accrued interest payable and other liabilities		6,293		5,704		5,194		5,704
TOTAL LIABILITIES		670,301		687,626		691,714		687,626
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; 14,499,238 shares issued and outstanding at September 30, 2022 and 14,896,590 shares issued and outstanding at June 30, 2022		145		149
Common stock, $0.01 par value, 150,000,000 shares authorized; 14,143,327 shares issued and outstanding at December 31, 2022 and 14,896,590 shares issued and outstanding at June 30, 2022						141		149
Additional paid-in capital		155,458		159,546		151,942		159,546
Unearned common stock held by employee stock ownership plan		(9,497)		(9,599)		(9,395)		(9,599)
Retained earnings		58,195		57,587		58,851		57,587
Accumulated other comprehensive loss		(23,107)		(15,357)		(22,309)		(15,357)
TOTAL WILLIAM PENN BANCORPORATION STOCKHOLDERS' EQUITY		181,194		192,326		179,230		192,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	851,495	$	879,952	$	870,944	$	879,952

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

For the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021 (unaudited)

Three Months Ended September 30,

2022

2021

INTEREST INCOME

Loans receivable, including fees

$
5,297

$
5,214
Securities

1,657

664
Other

129

106
Total interest income

7,083

5,984
INTEREST EXPENSE




Deposits

509

484
Borrowings

333

238
Total interest expense

842

722

Net interest income

6,241

5,262

Provision (recovery) for loan losses

—

(30)




NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES

6,241

5,292
OTHER INCOME




Service fees

211

213
Net gain on sale of securities

—

62
Earnings on bank-owned life insurance

273

238
Unrealized (loss) gain on equity securities

(273)

105
Net loss on disposition of premises and equipment

(1)

—
Other

72

87
Total other income

282

705
OTHER EXPENSES




Salaries and employee benefits

3,241

2,712
Occupancy and equipment

788

675
Data processing

431

421
Professional fees

263

248
Amortization of intangible assets

48

57
Prepayment penalties

—

64
Other

792

690
Total other expense

5,563

4,867

Income before income taxes

960

1,130

Income tax benefit

(67)

(30)
NET INCOME

$
1,027

$
1,160

Basic and diluted earnings per share

$
0.08

$
0.08


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021

INTEREST INCOME
Loans receivable, including fees	$	5,666	$	5,109	$	10,963	$	10,323
Securities		1,707		1,033		3,364		1,697
Other		187		40		316		146
Total interest income		7,560		6,182		14,643		12,166
INTEREST EXPENSE
Deposits		974		421		1,483		905
Borrowings		550		231		883		469
Total interest expense		1,524		652		2,366		1,374

Net interest income		6,036		5,530		12,277		10,792

Provision (recovery) for loan losses		—		—		—		(30)

NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES		6,036		5,530		12,277		10,822
OTHER INCOME
Service fees		209		243		420		456
Net gain on sale of securities		—		—		—		62
Earnings on bank-owned life insurance		274		278		547		516
Unrealized gain (loss) on equity securities		54		35		(219)		140
Net gain on disposition of premises and equipment		300		—		299		—
Other		65		108		137		195
Total other income		902		664		1,184		1,369
OTHER EXPENSES
Salaries and employee benefits		3,222		2,796		6,463		5,508
Occupancy and equipment		907		726		1,695		1,401
Data processing		472		419		903		840
Professional fees		258		241		521		489
Amortization of intangible assets		49		56		97		113
Prepayment penalties		—		—		—		64
Other		752		601		1,544		1,291
Total other expense		5,660		4,839		11,223		9,706

Income before income taxes		1,278		1,355		2,238		2,485

Income tax expense		217		180		150		150
NET INCOME	$	1,061	$	1,175	$	2,088	$	2,335

Basic and diluted earnings per share	$	0.08	$	0.08	$	0.16	$	0.16

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(Dollars in thousands)

For the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021 (unaudited)

Three Months Ended September 30,


2022

2021

Net income

$
1,027

$
1,160

Other comprehensive loss:




Changes in net unrealized loss on securities available for sale

(10,066)

(710)
Tax effect

2,316

160
Reclassification adjustment for gain recognized in net income

—

(62)
Tax effect

—

14
Other comprehensive loss, net of tax

(7,750)

(598)
Comprehensive (loss) income

$
(6,723)

$
562


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021

Net income	$	1,061	$	1,175	$	2,088	$	2,335

Other comprehensive income (loss):
Changes in net unrealized loss on securities available for sale		1,038		(576)		(9,028)		(1,285)
Tax effect		(240)		129		2,076		288
Reclassification adjustment for gain recognized in net income		—		—		—		(62)
Tax effect		—		—		—		14
Other comprehensive income (loss), net of tax		798		(447)		(6,952)		(1,045)
Comprehensive income (loss)	$	1,859	$	728	$	(4,864)	$	1,290

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands, except share amounts)

For the Three and Six Months Ended ~~September 30,~~December 31, 2022 and 2021 (unaudited)

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


						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

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, 2021

15,170,566

$
152

$
168,349

$
(10,004)

$
58,493

$
(64)

$
216,926
Net income

—

—

—

—

1,160

—

1,160
Other comprehensive loss

—

—

—

—

—

(598)

(598)
ESOP shares committed to be released

—

—

5

103

—

—

108
Special cash dividend paid ($0.30 per share)

—

—

—

—

(4,551)

—

(4,551)
Balance, September 30, 2021

15,170,566

$
152

$
168,354

$
(9,901)

$
55,102

$
(662)

$
213,045


						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, 2021	15,170,566	$	152	$	168,349	$	(10,004)	$	58,493	$	(64)	$	216,926
Net income	—		—		—		—		1,160		—		1,160
Other comprehensive loss	—		—		—		—		—		(598)		(598)
ESOP shares committed to be released	—		—		5		103		—		—		108
Special cash dividend paid ($0.30 per share)	—		—		—		—		(4,551)		—		(4,551)
Balance, September 30, 2021	15,170,566	$	152	$	168,354	$	(9,901)	$	55,102	$	(662)	$	213,045
Net income	—		—		—		—		1,175		—		1,175
Other comprehensive loss	—		—		—		—		—		(447)		(447)
ESOP shares committed to be released	—		—		6		101		—		—		107
Balance, December 31, 2021	15,170,566	$	152	$	168,360	$	(9,800)	$	56,277	$	(1,109)	$	213,880

See accompanying notes to consolidated financial statements

Table of Contents

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

For the ~~Three~~Six Months Ended ~~September 30,~~December 31, 2022 and 2021 (unaudited)


	Three Months Ended				Six Months Ended
	September 30,				December 31,
	2022		2021		2022		2021

Cash flows from operating activities
Net income	$	1,027	$	1,160	$	2,088	$	2,335
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (recovery) for loan losses		—		(30)		—		(30)
Depreciation expense		265		231		584		470
Other accretion, net		(133)		(258)		(190)		(483)
Net loss on disposition of premises and equipment		1		—
Deferred income taxes						319		204
Net gain on sale of fixed assets held for sale						(299)		—
Amortization of core deposit intangibles		48		57		97		113
Amortization of ESOP		102		108		206		215
Net gain on sale of securities		—		(62)		—		(62)
Unrealized loss (gain) on equity securities		273		(105)		219		(140)
Earnings on bank-owned life insurance		(273)		(238)		(547)		(516)
Stock based compensation expense		490		—		945		—
Other, net		799		214		(515)		338
Net cash provided by operating activities		2,599		1,077		2,907		2,444
Cash flows from investing activities
Securities available for sale:
Purchases		(1,923)		(10,100)		(4,778)		(22,687)
Maturities, calls and principal paydowns		3,637		2,896		6,325		6,342
Proceeds from sale of securities		—		5,008		—		5,008
Securities held to maturity:
Purchases		(4,484)		(38,252)		(5,023)		(106,967)
Maturities, calls and principal paydowns		2,243		122		4,130		1,126
Equity securities:
Purchases		—		(2,500)		—		(2,500)
Net decrease in loans receivable		3,181		7,369
Net (increase) decrease in loans receivable						(16,374)		5,026
Interest bearing time deposits:
Maturities and principal paydowns		—		500		—		750
Purchase of bank-owned life insurance		—		(2,000)		—		(2,000)
Regulatory stock purchases		(1,487)		(1)		(2,327)		(1)
Regulatory stock redemptions		1,915		358		2,567		393
Proceeds from the sale of fixed assets held for sale						1,934		—
Purchases of premises and equipment, net		(122)		(256)		(243)		(459)
Proceeds from the sale of premises and equipment		123		—
Net cash provided by (used in) investing activities		3,083		(36,856)
Net cash used in investing activities						(13,789)		(115,969)
Cash flows from financing activities
Net (decrease) increase in deposits		(6,373)		8,223
Net increase in deposits						8,950		17,922
Net repayment of short-term borrowed funds		(10,000)		(7,000)		(5,000)		(7,000)
Repurchase of common stock		(4,582)		—		(8,559)		—
Decrease in advances from borrowers for taxes and insurance		(1,355)		(1,667)		(713)		(943)
Cash dividends		(419)		(4,551)		(824)		(4,551)
Net cash used in financing activities		(22,729)		(4,995)
Net cash (used in) provided by financing activities						(6,146)		5,428
Net decrease in cash and cash equivalents		(17,047)		(40,774)		(17,028)		(108,097)
Cash and cash equivalents - beginning		36,170		168,722		36,170		168,722
Cash and cash equivalents - ending	$	19,123	$	127,948	$	19,142	$	60,625
Supplementary cash flows information
Interest paid	$	877	$	860	$	2,415	$	1,622
Income tax refunds		(467)		(575)		(107)		(666)
Operating lease right-of-use asset recorded		—		2,804		1,731		4,919
Operating lease liabilities recorded		—		2,804		1,731		4,919
Unsettled purchases of securities available for sale		—		2,344

See accompanying notes to consolidated financial statements

Table of Contents

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”) 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 ~~previously disclosed, 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 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 ~~thirteen~~twelve full-service branch offices in Bucks County and Philadelphia, Pennsylvania, and Burlington, Camden, and Mercer Counties in New Jersey. 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.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, the Bank, as well as the Bank’s wholly owned subsidiary, WPSLA Investment Corporation (“WPSLA”). WPSLA is a Delaware corporation organized in April 2000 to hold certain investment securities for the Bank. At ~~September 30,~~December 31, 2022, WPSLA held ~~$267.3~~$266.7 million of the Bank’s ~~$277.2~~$277.0 million investment securities portfolio. 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.

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 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 ~~September 30,~~December 31, 2022 are not necessarily indicative of the results of operations that

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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.

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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.

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 insurances, are not within the scope of ASC 606. The main types of noninterest income within the scope of ASC 606 include 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.

Segment Reporting

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 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This 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 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 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. The Company is actively working on preliminary test calculations and data validation, as well as process and procedural documentation. As of September 30, 2022, the Company began performing a parallel run of the new lifetime expected loss model with its current incurred loss model and is currently evaluating the results and assumptions of its new model to estimate lifetime credit losses. The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023, 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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinances and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have not yet adopted the amendments in Update 2016-13, which is discussed in greater detail above, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations.

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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

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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 ~~are~~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, ~~2022. This update is~~2024. These updates are not expected to have a significant impact on the Company’s financial statements.

~~In March 2022, the FASB issued ASU 2022-02,~~ ~~Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinances and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have not yet adopted the amendments in Update 2016-13, which is discussed in greater detail above, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations.

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 ~~September 30,~~December 31, 2022 and 2021. Earnings per share is computed by dividing net income available to common 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 no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of ~~$1.0~~$1.1 million and ~~$1.2~~$2.1 million for the three and six months ended ~~September 30,~~December 31, 2022, respectively, and $1.2 million and $2.3 million for the three and six months ended December 31, 2021, respectively, were used as the numerators. See Note 11 to these consolidated financial statements for further discussion of stock grants.

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				Three Months Ended				Six Months Ended
	September 30,				December 31,				December 31,
(Dollars in thousands, except share and per share amounts)	2022		2021		2022		2021		2022		2021
Basic and diluted earnings per share:
Net income	$	1,027	$	1,160	$	1,061	$	1,175	$	2,088	$	2,335

Basic average common shares outstanding		13,435,273		14,301,956		12,985,244		14,310,839		13,210,259		14,306,398
Effect of dilutive securities		17,629		—		44,892		—		31,303		—
Dilutive average shares outstanding		13,452,902		14,301,956		13,030,136		14,310,839		13,241,562		14,306,398
Earnings per share:
Basic	$	0.08	$	0.08	$	0.08	$	0.08	$	0.16	$	0.16
Diluted	$	0.08	$	0.08	$	0.08	$	0.08	$	0.16	$	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, 2022 and 2021.

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

The following tables present the changes in the balances of each component of accumulated other comprehensive loss (“AOCI”) for the three and six months ended ~~September 30,~~December 31, 2022 and 2021.

(Dollars in thousands)

Unrealized Losses on Securities

Available for Sale
Accumulated Other Comprehensive Loss (1)

2022

2021
Balance at June 30,

$
(15,357)

$
(64)
Other comprehensive loss before reclassifications

(7,750)

(550)
Amounts reclassified from accumulated other comprehensive loss

—

(48)
Period change

(7,750)

(598)
Balance at September 30,

$
(23,107)

$
(662)


(Dollars in thousands)
	Unrealized Losses on Securities
	Available for Sale
Accumulated Other Comprehensive Loss (1)	2022		2021
Balance at June 30,	$	(15,357)	$	(64)
Other comprehensive loss before reclassifications		(7,750)		(550)
Amounts reclassified from accumulated other comprehensive loss		—		(48)
Period change		(7,750)		(598)
Balance at September 30,	$	(23,107)	$	(662)
Other comprehensive income (loss) before reclassifications		798		(447)
Amounts reclassified from accumulated other comprehensive loss		—		—
Period change		798		(447)
Balance at December 31,	$	(22,309)	$	(1,109)

(1) All amounts are net of tax. Related income tax expense is calculated using an income tax rate approximating 23% and 22% for 2022, and 2021, respectively.

~~Table~~There were no reclassifications out of ~~Contents~~

AOCI during the three months ended December 31, 2022 and 2021. The following ~~tables present~~table presents reclassifications out of AOCI by component for the ~~three~~six months ended ~~September 30,~~December 31, 2022 and 2021:


(Dollars in thousands)	Amounts Reclassified from Accumulated					Amounts Reclassified from Accumulated
	Other Comprehensive Loss (1)					Other Comprehensive Loss (1)
Details about Accumulated Other Comprehensive	Three Months Ended September 30,				Affected Line Item in the	Six Months Ended December 31,				Affected Line Item in the
Loss Components	2022		2021		Consolidated Statements of Income	2022		2021		Consolidated Statements of Income
Securities available for sale:
Net securities gains reclassified into net income	$	—	$	62	Net gain on sale of securities	$	—	$	62	Net gain on sale of securities
Related income tax expense		—		(14)	Income tax benefit		—		(14)	Income tax expense
	$	—	$	48		$	—	$	48

(1)

Amounts in parenthesis indicate debits.

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Note 5 – Investment Securities

Debt Securities

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


	September 30, 2022								December 31, 2022
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Available For Sale:
Mortgage-backed securities	$	129,145	$	3	$	(19,734)	$	109,414	$	128,812	$	54	$	(18,185)	$	110,681
U.S. agency collateralized mortgage obligations		10,660		—		(1,714)		8,946		10,415		—		(1,753)		8,662
U.S. government agency securities		4,624		25		(86)		4,563		4,376		57		(92)		4,341
Municipal bonds		20,141		—		(5,699)		14,442		20,120		—		(5,739)		14,381
Corporate bonds		36,300		—		(2,805)		33,495		37,200		—		(3,314)		33,886
Total Available For Sale	$	200,870	$	28	$	(30,038)	$	170,860	$	200,923	$	111	$	(29,083)	$	171,951

Held To Maturity:
Mortgage-backed securities	$	99,891	$	—	$	(19,306)	$	80,585	$	98,002	$	—	$	(17,439)	$	80,563
U.S. government agency securities		4,485		—		(73)		4,412		4,968		—		(87)		4,881
Municipal bonds										60		—		—		60
Total Held To Maturity	$	104,376	$	—	$	(19,379)	$	84,997	$	103,030	$	—	$	(17,526)	$	85,504


	June 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available For Sale:
Mortgage-backed securities	$	130,146	$	85	$	(12,725)	$	117,506
U.S. agency collateralized mortgage obligations		11,001		—		(1,292)		9,709
U.S. government agency securities		5,082		11		(55)		5,038
Municipal bonds		20,160		—		(4,518)		15,642
Corporate bonds		36,300		16		(1,466)		34,850
Total Available For Sale	$	202,689	$	112	$	(20,056)	$	182,745

Held To Maturity:
Mortgage-backed securities	$	102,135	$	—	$	(13,814)	$	88,321
Total Held To Maturity	$	102,135	$	—	$	(13,814)	$	88,321

The Company did not sell any investment securities during the three and six months ended ~~September 30,~~December 31, 2022. The Company recognized $62 thousand of gross gains on the sale of $5.0 million of investment securities during the six months ended December 31, 2021. The Company did not sell any investment securities during the three months ended ~~September 30,~~December 31, 2021.

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, 2022
	Available For Sale				Held To Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	—	$	—	$	541	$	541
Due after one year through five years		35		34		4,487		4,400
Due after five years through ten years		41,321		37,294		—		—
Due after ten years		159,567		134,623		98,002		80,563
	$	200,923	$	171,951	$	103,030	$	85,504

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September 30, 2022

Available For Sale

Held To Maturity

Amortized

Fair

Amortized

Fair
(Dollars in thousands)

Cost

Value

Cost

Value
Due in one year or less

$
—

$
—

$
—

$
—
Due after one year through five years

39

38

4,485

4,412
Due after five years through ten years

40,488

36,980

—

—
Due after ten years

160,343

133,842

99,891

80,585

$
200,870

$
170,860

$
104,376

$
84,997

The following tables provide information on the gross unrealized losses and fair market value of the Company's investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~September 30,~~December 31, 2022 and June 30, 2022:


	September 30, 2022												December 31, 2022
	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	$	73,334	$	(11,368)	$	34,153	$	(8,366)	$	107,487	$	(19,734)	$	66,449	$	(9,083)	$	40,433	$	(9,102)	$	106,882	$	(18,185)
U.S. agency collateralized mortgage obligations		1,334		(282)		7,612		(1,432)		8,946		(1,714)		1,176		(257)		7,486		(1,496)		8,662		(1,753)
U.S. government agency securities		61		(3)		1,224		(83)		1,285		(86)		—		—		1,138		(92)		1,138		(92)
Municipal bonds		393		(119)		14,049		(5,580)		14,442		(5,699)		376		(135)		14,005		(5,604)		14,381		(5,739)
Corporate bonds		28,460		(2,590)		1,785		(215)		30,245		(2,805)		25,163		(2,487)		5,473		(827)		30,636		(3,314)
		103,582		(14,362)		58,823		(15,676)		162,405		(30,038)		93,164		(11,962)		68,535		(17,121)		161,699		(29,083)
Held To Maturity:
Mortgage-backed securities		54,170		(12,738)		26,415		(6,568)		80,585		(19,306)		2,282		(461)		78,281		(16,978)		80,563		(17,439)
U.S. government agency securities		4,412		(73)		—		—		4,412		(73)		4,881		(87)		—		—		4,881		(87)
		58,582		(12,811)		26,415		(6,568)		84,997		(19,379)		7,163		(548)		78,281		(16,978)		85,444		(17,526)
Total Temporarily Impaired Securities	$	162,164	$	(27,173)	$	85,238	$	(22,244)	$	247,402	$	(49,417)	$	100,327	$	(12,510)	$	146,816	$	(34,099)	$	247,143	$	(46,609)


	June 30, 2022
	Less than 12 Months				12 Months or More				Total		Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Available For Sale:
Mortgage-backed securities	$	93,726	$	(10,351)	$	13,750	$	(2,374)	$	107,476	$	(12,725)
U.S. agency collateralized mortgage obligations		2,968		(488)		6,741		(804)		9,709		(1,292)
U.S. government agency securities		61		(3)		1,556		(52)		1,617		(55)
Municipal bonds		7,415		(1,979)		8,227		(2,539)		15,642		(4,518)
Corporate bonds		25,584		(1,466)		—		—		25,584		(1,466)
		129,754		(14,287)		30,274		(5,769)		160,028		(20,056)
Held To Maturity:
Mortgage-backed securities		88,321		(13,814)		—		—		88,321		(13,814)
		88,321		(13,814)		—		—		88,321		(13,814)
Total Temporarily Impaired Securities	$	218,075	$	(28,101)	$	30,274	$	(5,769)	$	248,349	$	(33,870)

The Company evaluates its investment 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 and whether it is more likely than not the Company will be required to sell 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 Statement of Financial Condition date. For securities that meet neither of these conditions, management performs an analysis to determine whether any of these

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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.

The unrealized loss on securities is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at ~~September 30,~~December 31, 2022 and June 30, 2022. There were ~~122~~124 investment securities that were temporarily impaired at ~~September 30,~~December 31, 2022 and 115 investment securities that were temporarily impaired at June 30, 2022.

At ~~September 30,~~December 31, 2022 and June 30, 2022, ~~$1.8~~$2.5 million and $2.0 million, respectively, of investment securities were pledged to secure municipal deposits.

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Equity Securities

The Company had one equity security with a fair value of $2.0 million as of ~~September 30,~~December 31, 2022 and $2.3 million as of June 30, 2022. During the three and six months ended ~~September 30,~~December 31, 2022, the Company recorded $54 thousand of unrealized gains and $219 thousand of unrealized losses, respectively, and during the three and six months ended December 31, 2021, the Company recorded ~~$273~~$35 thousand and $140 thousand, respectively, of unrealized ~~losses and $105 thousand of unrealized~~ gains, ~~respectively,~~ which were recorded in Unrealized gain (loss) ~~gain~~ on equity securities in the Consolidated Statements of Income.

Note 6 – Loans

Major classifications of loans at ~~September 30,~~December 31, 2022 and June 30, 2022 are summarized as follows:


	September 30,				June 30,				December 31,				June 30,
	2022				2022				2022				2022
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Residential real estate:
1 - 4 family	$	144,290	30.29	%	$	147,061	30.66	%	$	142,055	28.62	%	$	147,061	30.66	%
Home equity and HELOCs		32,235	6.76			32,529	6.78			32,527	6.56			32,529	6.78
Construction -residential		11,630	2.44			14,834	3.09			11,736	2.37			14,834	3.09
Commercial real estate:
1 - 4 family investor		94,794	19.89			96,850	20.19			99,589	20.07			96,850	20.19
Multi-family (five or more)		14,922	3.13			13,069	2.72			15,595	3.14			13,069	2.72
Commercial non-residential		157,606	33.08			158,727	33.10			166,154	33.48			158,727	33.10
Construction and land		7,953	1.67			4,951	1.03			10,750	2.17			4,951	1.03
Commercial		10,932	2.29			9,409	1.96			15,577	3.14			9,409	1.96
Consumer loans		2,154	0.45			2,239	0.47			2,215	0.45			2,239	0.47
Total Loans		476,516	100.00	%		479,669	100.00	%		496,198	100.00	%		479,669	100.00	%

Unearned loan origination fees		(684)				(749)				(701)				(749)
Allowance for loan losses		(3,333)				(3,409)				(3,334)				(3,409)
Net Loans	$	472,499			$	475,511			$	492,163			$	475,511

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 ~~$13.5~~$13.1 million and $14.4 million at ~~September 30,~~December 31, 2022 and June 30, 2022, 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.

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 ~~September 30,~~December 31, 2022 and June 30, 2022, the Company had one shared national credit loan commitment for $12.5 million with ~~$8.3~~$7.1 million and $9.2 million outstanding, respectively, that is a purchased participation classified as pass rated and all payments are current and the loan is performing in accordance with its contractual terms. The Company’s accounting policies for shared national credits, including our charge off and reserve policy, are consistent with the significant accounting

~~Table of Contents~~

policies disclosed in our financial statements for the Company’s total 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 loan is evaluated. Additionally, the Bank obtains quarterly financial information and 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 the analysis is provided by the borrower through the agent bank.

Allowance for Loan Losses. The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category 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. The Company 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 value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. The Company considers the allowance for loan losses of $3.3 million and $3.4 million adequate to cover loan losses inherent in the loan portfolio at both September 30, 2022 and June 30, 2022, respectively.

~~The following table presents by portfolio segment, the changes in the allowance for loan losses for the three months ended September 30, 2022 and 2021:~~

September 30, 2021

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

$
709

$
133

$
487

$
843

$
159

$
854

$
362

$
51

$
15

$
3,613
Charge-offs

—

—

—

—

—

—

—

—

—

—
Recoveries

—

7

—

—

—

—

—

—

1

8
Provision (recovery)

(51)

(17)

(101)

33

(11)

114

6

(2)

(1)

(30)
Ending Balance

$
658

$
123

$
386

$
876

$
148

$
968

$
368

$
49

$
15

$
3,591

During the three months ended September 30, 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 three months ended September 30, 2022 can be primarily attributed to an improving asset quality and continued low levels of net charge-offs and non-performing assets.

During the three months ended September 30, 2021, 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 decrease in the allowance and provision credit during the three months ended September 30, 2021 can be primarily attributed to an improving economic outlook combined with continued stable asset quality metrics.

Table of Contents

as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. The ~~following tables present~~Company considers the allowance for loan losses of $3.3 million and ~~recorded investment by~~$3.4 million adequate to cover loan losses inherent in the loan portfolio ~~classification as September 30,~~at both December 31, 2022 and June 30, ~~2022:~~2022, respectively.

The following table presents by portfolio segment, the changes in the allowance for loan losses for the three months ended December 31, 2022 and 2021:


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	$	493	$	116	$	301	$	495	$	112	$	1,431	$	224	$	111	$	50	$	3,333
Charge-offs		—		—		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—		1		1
Provision (recovery)		21		(7)		(29)		13		(20)		(22)		25		12		7		—
Ending Balance	$	514	$	109	$	272	$	508	$	92	$	1,409	$	249	$	123	$	58	$	3,334

September 30, 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 ending balance:




















Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—
Collectively evaluated for impairment

493

116

301

495

112

1,431

224

111

50

3,333
Total allowance

$
493

$
116

$
301

$
495

$
112

$
1,431

$
224

$
111

$
50

$
3,333

Loans receivable ending balance:




















Individually evaluated for impairment

$
1,605

$
343

$
—

$
99

$
291

$
1,474

$
—

$
—

$
—

$
3,812
Collectively evaluated for impairment

80,250

15,810

11,630

80,666

14,378

138,332

7,953

10,311

521

359,851
Acquired non-credit impaired loans ⁽¹⁾

62,302

16,059

—

14,029

253

17,800

—

621

1,633

112,697
Acquired credit impaired loans ⁽²⁾

133

23

—

—

—

—

—

—

—

156
Total portfolio

$
144,290

$
32,235

$
11,630

$
94,794

$
14,922

$
157,606

$
7,953

$
10,932

$
2,154

$
476,516

~~(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.~~


December 31, 2021	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	$	658	$	123	$	386	$	876	$	148	$	968	$	368	$	49	$	15	$	3,591
Charge-offs		(15)		—		—		(55)		—		—		—		—		—		(70)
Recoveries		—		1		—		42		—		—		—		—		—		43
Provision (recovery)		(38)		(15)		(60)		(121)		(32)		352		(103)		(18)		35		—
Ending Balance	$	605	$	109	$	326	$	742	$	116	$	1,320	$	265	$	31	$	50	$	3,564

The following table presents by portfolio segment, the changes in the allowance for loan losses for the six months ended December 31, 2022 and 2021:

June 30, 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 ending balance:




















Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—
��
$
—

$
—
Collectively evaluated for impairment

506

113

386

527

110

1,451

166

100

50

3,409
Total allowance

$
506

$
113

$
386

$
527

$
110

$
1,451

$
166

$
100

$
50

$
3,409

Loans receivable ending balance:




















Individually evaluated for impairment

$
3,336

$
275

$
—

$
173

$
291

$
1,213

$
—

$
—

$
—

$
5,288
Collectively evaluated for impairment

78,478

15,679

14,834

81,834

12,525

138,812

4,951

8,626

531

356,270
Acquired non-credit impaired loans ⁽¹⁾

65,114

16,552

—

14,843

253

18,702

—

783

1,708

117,955
Acquired credit impaired loans ⁽²⁾

133

23

—

—

—

—

—

—

—

156
Total portfolio

$
147,061

$
32,529

$
14,834

$
96,850

$
13,069

$
158,727

$
4,951

$
9,409

$
2,239

$
479,669

~~(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.~~


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

~~(2)~~

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


December 31, 2021	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	$	709	$	133	$	487	$	843	$	159	$	854	$	362	$	51	$	15	$	3,613
Charge-offs		(15)		—		—		(55)		—		—		—		—		—		(70)
Recoveries		—		8		—		42		—		—		—		—		1		51
Provision (recovery)		(89)		(32)		(161)		(88)		(43)		466		(97)		(20)		34		(30)
Ending Balance	$	605	$	109	$	326	$	742	$	116	$	1,320	$	265	$	31	$	50	$	3,564

~~Credit Quality Information~~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 improved asset quality metrics with continued low levels of net charge-offs and a decrease in non-performing assets.

During the three and six months ended December 31, 2021, 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 non-residential real estate portfolio and a corresponding increase in the provision for loan losses for this portfolio. The ~~following tables represent~~overall decrease in the allowance and provision credit ~~exposures by internally assigned grades as of September 30, 2022 and June 30, 2022. The grading analysis estimates~~during the ~~capability of the borrower~~six months ended December 31, 2021 can be primarily attributed to ~~repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences~~an improving economic outlook combined with ~~similarly graded loans.~~

~~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.~~improved asset quality metrics.

Table of Contents

The following tables present the allowance for loan losses and recorded investment by loan portfolio classification as December 31, 2022 and June 30, 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 ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		514		109		272		508		92		1,409		249		123		58		3,334
Total allowance	$	514	$	109	$	272	$	508	$	92	$	1,409	$	249	$	123	$	58	$	3,334

Loans receivable ending balance:
Individually evaluated for impairment	$	1,612	$	297	$	—	$	94	$	275	$	1,063	$	—	$	—	$	—	$	3,341
Collectively evaluated for impairment		80,331		16,798		11,736		86,323		15,068		147,688		10,750		14,842		624		384,160
Acquired non-credit impaired loans ⁽¹⁾		59,981		15,409		—		13,172		252		17,403		—		735		1,591		108,543
Acquired credit impaired loans ⁽²⁾		131		23		—		—		—		—		—		—		—		154
Total portfolio	$	142,055	$	32,527	$	11,736	$	99,589	$	15,595	$	166,154	$	10,750	$	15,577	$	2,215	$	496,198

(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, 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 ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		506		113		386		527		110		1,451		166		100		50		3,409
Total allowance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409

Loans receivable ending balance:
Individually evaluated for impairment	$	3,336	$	275	$	—	$	173	$	291	$	1,213	$	—	$	—	$	—	$	5,288
Collectively evaluated for impairment		78,478		15,679		14,834		81,834		12,525		138,812		4,951		8,626		531		356,270
Acquired non-credit impaired loans ⁽¹⁾		65,114		16,552		—		14,843		253		18,702		—		783		1,708		117,955
Acquired credit impaired loans ⁽²⁾		133		23		—		—		—		—		—		—		—		156
Total portfolio	$	147,061	$	32,529	$	14,834	$	96,850	$	13,069	$	158,727	$	4,951	$	9,409	$	2,239	$	479,669

(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.

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of December 31, 2022 and June 30, 2022. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

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 the amounts of the portfolio of classified asset categories for the commercial loan portfolios at September 30, 2022 and June 30, 2022:~~

September 30, 2022

Commercial Real Estate

1 - 4 family

Construction

investor

Multi-family

Non-residential

and land

Commercial

Total
Pass

$
93,322

$
14,631

$
156,132

$
7,953

$
10,932

$
282,970
Special Mention

1,373

—

289

—

—

1,662
Substandard

99

291

1,185

—

—

1,575
Doubtful

—

—

—

—

—

—
Loss

—

—

—

—

—

—
Ending Balance

$
94,794

$
14,922

$
157,606

$
7,953

$
10,932

$
286,207

June 30, 2022

Commercial Real Estate

1 - 4 family

Construction

investor

Multi-family

Non-residential

and land

Commercial

Total
Pass

$
95,271

$
12,778

$
157,514

$
4,951

$
9,409

$
279,923
Special Mention

1,473

—

300

—

—

1,773
Substandard

106

291

913

—

—

1,310
Doubtful

—

—

—

—

—

—
Loss

—

—

—

—

—

—
Ending Balance

$
96,850

$
13,069

$
158,727

$
4,951

$
9,409

$
283,006

~~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 September 30, 2022 and June 30, 2022:~~

Residential Real Estate and Consumer Loans

Credit Risk Internally Assigned

(Dollars in thousands)

September 30, 2022

Residential Real Estate

Home equity &

1 - 4 family

HELOCs

Construction

Consumer

Total
Performing

$
141,372

$
32,046

$
11,630

$
2,038

$
187,086
Non-performing

2,918

189

—

116

3,223

$
144,290

$
32,235

$
11,630

$
2,154

$
190,309

June 30, 2022

Residential Real Estate

Home equity &

1 - 4 family

HELOCs

Construction

Consumer

Total
Performing

$
142,280

$
32,188

$
14,834

$
2,122

$
191,424
Non-performing

4,781

341

—

117

5,239

$
147,061

$
32,529

$
14,834

$
2,239

$
196,663

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~~ the ~~Company applies the provisions of ASC 310-30, as of September 30,~~commercial loan portfolios at December 31, 2022 and June 30, ~~2022, are as follows:~~2022:


December 31, 2022
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	98,151	$	15,320	$	165,091	$	10,750	$	15,577	$	304,889
Special Mention		1,344		—		278		—		—		1,622
Substandard		94		275		785		—		—		1,154
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	99,589	$	15,595	$	166,154	$	10,750	$	15,577	$	307,665

(Dollars in thousands)

September 30, 2022

June 30, 2022
Outstanding principal balance

$
229

$
229
Carrying amount

156

156


June 30, 2022
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	95,271	$	12,778	$	157,514	$	4,951	$	9,409	$	279,923
Special Mention		1,473		—		300		—		—		1,773
Substandard		106		291		913		—		—		1,310
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	96,850	$	13,069	$	158,727	$	4,951	$	9,409	$	283,006

The ~~accretable discount on~~following tables set forth the amounts of the portfolio that are not rated by class of loans ~~acquired with deteriorated credit quality was fully accreted as of September 30,~~for the residential and consumer loan portfolios at December 31, 2022 and June 30, ~~2022.~~2022:

~~Loan Delinquencies and Non-accrual Loans~~

~~Following are tables which include an aging analysis of the recorded investment of past due loans as of September 30, 2022 and June 30, 2022.~~


Residential Real Estate and Consumer Loans
Credit Risk Internally Assigned
(Dollars in thousands)
December 31, 2022
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	139,160	$	32,436	$	11,736	$	2,099	$	185,431
Non-performing		2,895		91		—		116		3,102
	$	142,055	$	32,527	$	11,736	$	2,215	$	188,533

Aged Analysis of Past Due and Non-accrual Loans

As of September 30, 2022

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

$
387

$
960

$
1,564

$
2,911

$
133

$
141,246

$
144,290

$
—

$
2,918
Home equity and HELOCs

—

—

38

38

23

32,174

32,235

—

189
Construction - residential

—

—

—

—

—

11,630

11,630

—

—
Commercial real estate:
















1 - 4 family investor

—

—

—

—

—

94,794

94,794

—

99
Multi-family

—

291

—

291

—

14,631

14,922

—

291
Commercial non-residential

—

—

1,185

1,185

—

156,421

157,606

—

1,185
Construction and land

—

—

—

—

—

7,953

7,953

—

—
Commercial

—

—

—

—

—

10,932

10,932

—

—
Consumer

—

10

32

42

—

2,112

2,154

—

116
Total

$
387

$
1,261

$
2,819

$
4,467

$
156

$
471,893

$
476,516

$
—

$
4,798


June 30, 2022
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	142,280	$	32,188	$	14,834	$	2,122	$	191,424
Non-performing		4,781		341		—		117		5,239
	$	147,061	$	32,529	$	14,834	$	2,239	$	196,663

Aged Analysis of Past Due and Non-accrual Loans

As of June 30, 2022

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

$
1,528

$
622

$
2,392

$
4,542

$
133

$
142,386

$
147,061

$
—

$
4,781
Home equity and HELOCs

19

—

183

202

23

32,304

32,529

—

341
Construction - residential

—

—

—

—

—

14,834

14,834

—

—
Commercial real estate:
















1 - 4 family investor

—

—

—

—

—

96,850

96,850

—

106
Multi-family

—

—

—

—

—

13,069

13,069

—

291
Commercial non-residential

275

494

418

1,187

—

157,540

158,727

—

875
Construction and land

—

—

—

—

��

4,951

4,951

—

—
Commercial

—

—

—

—

—

9,409

9,409

—

—
Consumer

27

—

—

27

—

2,212

2,239

—

117
Total

$
1,849

$
1,116

$
2,993

$
5,958

$
156

$
473,555

$
479,669

$
—

$
6,511

Interest income on non-accrual loans that would have been recorded if these loans had performed in accordance with their terms was approximately $75 thousand and $65 thousand during the three months ended September 30, 2022 and 2021, respectively.

~~Impaired Loans~~

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.

Table of Contents

~~The following~~Loan Delinquencies and Non-accrual Loans

Following are tables which include an aging analysis of the recorded investment ~~and unpaid principal balances for impaired~~of past due loans ~~with the associated allowance amount, if applicable, at September 30,~~as of December 31, 2022 and June 30, 2022.


September 30, 2022
			Unpaid
	Recorded		Principal		Related		Aged Analysis of Past Due and Non-accrual Loans
(Dollars in thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1 - 4 family residential real estate	$	1,605	$	1,719	$	—
							As of December 31, 2022
																					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							$	599	$	1,595	$	1,240	$	3,434	$	131	$	138,490	$	142,055	$	—	$	2,895
Home equity and HELOCs		343		344		—		147		—		—		147		23		32,357		32,527		—		91
Construction residential		—		—		—
1 - 4 family investor commercial real estate		99		112		—
Construction - residential								—		—		—		—		—		11,736		11,736		—		—
Commercial real estate:
1 - 4 family investor								—		—		—		—		—		99,589		99,589		—		94
Multi-family		291		308		—		275		776		—		1,051		—		14,544		15,595		—		275
Commercial non-residential		1,474		1,527		—		—		—		308		308		—		165,846		166,154		—		785
Construction and land		—		—		—		—		—		—		—		—		10,750		10,750		—		—
Commercial		—		—		—		—		—		—		—		—		15,577		15,577		—		—
Consumer		—		—		—		6		—		13		19		—		2,196		2,215		—		116

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	$	1,605	$	1,719	$	—
Home equity and HELOCs		343		344		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		99		112		—
Multi-family		291		308		—
Commercial non-residential		1,474		1,527		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total							$	1,027	$	2,371	$	1,561	$	4,959	$	154	$	491,085	$	496,198	$	—	$	4,256


	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2022
															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	$	1,528	$	622	$	2,392	$	4,542	$	133	$	142,386	$	147,061	$	—	$	4,781
Home equity and HELOCs		19		—		183		202		23		32,304		32,529		—		341
Construction - residential		—		—		—		—		—		14,834		14,834		—		—
Commercial real estate:
1 - 4 family investor		—		—		—		—		—		96,850		96,850		—		106
Multi-family		—		—		—		—		—		13,069		13,069		—		291
Commercial non-residential		275		494		418		1,187		—		157,540		158,727		—		875
Construction and land		—		—		—		—		—		4,951		4,951		—		—
Commercial		—		—		—		—		—		9,409		9,409		—		—
Consumer		27		—		—		27		—		2,212		2,239		—		117
Total	$	1,849	$	1,116	$	2,993	$	5,958	$	156	$	473,555	$	479,669	$	—	$	6,511

~~The impaired~~Interest income on non-accrual loans ~~table above includes accruing troubled debt restructurings (“TDRs”) in the amount of $586 thousand~~ that ~~are performing~~would have been recorded if these loans had performed in accordance with their ~~modified terms. The Company recognized $10~~terms was approximately $56 thousand, ~~of interest income on accruing TDRs~~$111 thousand, $58 thousand, and $115 thousand during the three and six months ended ~~September 30, 2022.~~December 31, 2022 and 2021, respectively.

Impaired Loans

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.

Table of Contents

The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at December 31, 2022 and June 30, 2022.


December 31, 2022
			Unpaid
	Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1 - 4 family residential real estate	$	1,612	$	1,750	$	—
Home equity and HELOCs		297		297		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		94		108		—
Multi-family		275		297		—
Commercial non-residential		1,063		1,066		—
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	$	1,612	$	1,750	$	—
Home equity and HELOCs		297		297		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		94		108		—
Multi-family		275		297		—
Commercial non-residential		1,063		1,066		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

The impaired loans table above includes accruing troubled debt restructurings (“TDRs”) in the amount of $575 thousand that are performing in accordance with their modified terms. The Company recognized $9 thousand and $19 thousand of interest income on accruing TDRs during the three and six months ended December 31, 2022, respectively. The table above does not include $154 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

Table of Contents


June 30, 2022
			Unpaid
	Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1-4 Family residential real estate	$	3,336	$	3,582	$	—
Home equity and HELOCs		275		277		—
Construction Residential		—		—		—
1 - 4 Family investor commercial real estate		173		185		—
Multi-family		291		308		—
Commercial non-residential		1,213		1,265		—
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	$	3,336	$	3,582	$	—
Home equity and HELOCs		275		277		—
Construction Residential		—		—		—
1 - 4 Family investor commercial real estate		173		185		—
Multi-family		291		308		—
Commercial non-residential		1,213		1,265		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

The impaired loans table above includes accruing TDRs in the amount of $593 thousand that are performing in accordance with their modified terms. The Company recognized ~~$12~~$11 thousand and $23 thousand of interest income on accruing TDRs during the three and six months ended ~~September 30, 2021.~~December 31, 2021, respectively. The table above does not include $156 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

1920

Table of Contents

The following tables include the average recorded investment balances for impaired loans and the interest income recognized for the three and six months ended ~~September 30,~~December 31, 2022 and 2021.


September 30, 2022	Three Months Ended
December 31, 2022					Three Months Ended				Six Months Ended
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
1-4 family residential real estate	$	2,476	$	—	$	1,599	$	—	$	2,099	$	—
Home equity and HELOCs		385		4		320		4		353		8
Construction residential		—		—		—		—		—		—
1-4 family investor commercial real estate		121		1		99		—		111		1
Multi-family		291		—		283		—		286		—
Commercial non-residential		1,348		5		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	$	2,476	$	—	$	1,599	$	—	$	2,099	$	—
Home equity and HELOCs		385		4		320		4		353		8
Construction residential		—		—		—		—		—		—
1-4 family investor commercial real estate		121		1		99		—		111		1
Multi-family		291		—		283		—		286		—
Commercial non-residential		1,348		5		1,035		7		1,149		12
Construction and land		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—

2021

Table of Contents


September 30, 2021	Three Months Ended
December 31, 2021					Three Months Ended				Six Months Ended
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
1-4 family residential real estate	$	1,802	$	—	$	1,785	$	—	$	1,801	$	—
Home equity and HELOCs		558		5		449		5		504		9
Construction residential		—		—		—		—		—		—
1-4 family investor commercial real estate		461		1		388		1		406		2
Multi-family		258		—		500		—		261		—
Commercial non-residential		870		6		968		6		928		12
Construction and land		—		—		—		—		—		—
Commercial		—		—		5		—		3		—
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	$	1,802	$	—	$	1,785	$	—	$	1,801	$	—
Home equity and HELOCs		558		5		449		5		504		9
Construction residential		—		—		—		—		—		—
1-4 family investor commercial real estate		461		1		388		1		406		2
Multi-family		258		—		500		—		261		—
Commercial non-residential		870		6		968		6		928		12
Construction and land		—		—		—		—		—		—
Commercial		—		—		5		—		3		—
Consumer		—		—		—		—		—		—

Generally, the Bank 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 ~~September 30,~~December 31, 2022, had impaired loans been current according to their original terms, amounted to $29 thousand and $76 thousand, respectively. Interest income that would have been recorded for the three and six months ended December 31, 2021, had impaired loans been current according to their original terms, amounted to $47 thousand and ~~$34~~$93 thousand, respectively.

Troubled Debt Restructurings

The Bank determines whether 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 satisfaction 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;

Table of Contents

●

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 and six months ended ~~September 30,~~December 31, 2022 and 2021, there were no loans modified that were identified as a TDR. The Company did not experience any re-defaulted TDRs subsequent to the loan being modified during the three and six months ended ~~September 30,~~December 31, 2022 and 2021.

Note 7 – Premises and Equipment

The components of premises and equipment are as follows as of ~~September 30,~~December 31, 2022 and June 30, 2022:


	September 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2022		2022		2022		2022
Land	$	2,156	$	2,156	$	2,156	$	2,156
Office buildings and improvements		11,391		11,769		11,515		11,769
Furniture, fixtures and equipment		2,411		2,540		2,398		2,540
Automobiles		58		58		58		58
		16,016		16,523		16,127		16,523

Accumulated depreciation		(4,463)		(4,827)		(4,772)		(4,827)
	$	11,553	$	11,696	$	11,355	$	11,696

Depreciation expense amounted to ~~$265~~$319 thousand and $584 thousand for the three and six months ended ~~September 30,~~December 31, 2022, respectively, and ~~$231~~$239 thousand and $470 thousand for the three and six months ended ~~September 30, 2021.~~December 31, 2021, respectively. During the three months ended September 30, 2022, the Company made a strategic decision to close the Bank’s branch office located in Collingswood, New Jersey and to consolidate the deposits from this branch office into the Bank’s Audubon, New Jersey branch office after assessing the branch’s profitability and its close geographic proximity to the Audubon, New Jersey branch location. The branch office located in Collingswood, New Jersey was closed effective December 31, 2022.

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 ~~September 30,~~December 31, 2022 and June 30, 2022, the other intangibles consisted of ~~$664~~$615 thousand and $712 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, 2022, management included considerations of the current economic environment caused by COVID-19 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, 2022. During the ~~three~~six months ended ~~September 30,~~December 31, 2022, 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 ~~three~~six months ended ~~September 30,~~December 31, 2022.

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

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

2223

Table of Contents

Core Deposit
(Dollars in thousands)

Goodwill

Intangibles
Balance, June 30, 2021

$
4,858

$
937
Adjustments:




Additions

—

—
Amortization

—

(57)
Balance, September 30, 2021

$
4,858

$
880

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


			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


			Core Deposit
(Dollars in thousands)	Goodwill		Intangibles
Balance, June 30, 2021	$	4,858	$	937
Adjustments:
Additions		—		—
Amortization		—		(57)
Balance, September 30, 2021	$	4,858	$	880
Adjustments:
Additions		—		—
Amortization		—		(56)
Balance, December 31, 2021	$	4,858	$	824

Aggregate amortization expense was ~~$48~~$49 thousand and ~~$57~~$97 thousand for the three and six months ended ~~September 30,~~December 31, 2022, respectively, and $56 thousand and $113 thousand for the three and six months ended December 31, 2021, respectively.

Note 9 – Deposits

Deposits consist of the following major classifications as of ~~September 30,~~December 31, 2022 and June 30, 2022:




(Dollars in thousands)	September 30, 2022		June 30, 2022		December 31, 2022		June 30, 2022
Non-interest bearing checking	$	63,135	$	75,758	$	66,656	$	75,758
Interest bearing checking		129,955		122,675		125,148		122,675
Money market accounts		174,283		171,316		188,501		171,316
Savings and club accounts		103,435		105,507		97,692		105,507
Certificates of deposit		129,366		131,361		137,441		131,361
	$	600,174	$	606,617	$	615,438	$	606,617

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

The Bank is a member of the ~~FHLB~~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 ~~$296.1~~$294.5 million and $292.7 million at ~~September 30,~~December 31, 2022 and June 30, 2022, respectively. FHLB advances are secured by qualifying assets of the Bank, which include Federal Home Loan Bank stock and loans. The Bank had ~~$428.3~~$426.2 million and $423.1 million of loans pledged as collateral as of ~~September 30,~~December 31, 2022 and June 30, 2022, 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 ~~$3.1~~$3.3 million and $3.5 million at ~~September 30,~~December 31, 2022 and June 30, 2022, respectively.

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Advances from the FHLB of Pittsburgh consisted of ~~the following~~$60.0 million and $65.0 million of fixed rate short-term borrowings as of ~~September 30,~~December 31, 2022 and June 30, ~~2022:~~2022, respectively.

(Dollars in thousands)

September 30, 2022

June 30, 2022
FHLB advances:




Convertible

$
—

$
—
Fixed

55,000

65,000
Mid-term

—

—
Total FHLB advances

$
55,000

$
65,000

As of December 31, 2022, the Bank had $11.4 million of loans pledged as collateral to secure a $4.5 million overnight line of credit with the Federal Reserve Bank. The Bank had no loans pledged to the Federal Reserve Bank as of June 30, 2022. There was no outstanding balance for the overnight line of credit with the Federal Reserve Bank as of December 31, 2022 and June 30, 2022.

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.

~~The Company held a special meeting of shareholders on~~On May 10, 2022, ~~at which meeting~~ 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 ~~William Penn Bancorporation~~Company common stock.

~~Table of Contents~~

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 ~~September 30,~~December 31, 2022 was ~~$289 thousand.~~$269 thousand and $558 thousand, respectively. The expected future compensation expense related to the ~~492,960~~ non-vested restricted shares outstanding at ~~September 30,~~December 31, 2022 is ~~$5.3~~$4.9 million over a weighted average period of ~~4.63~~4.37 years.

The following is a summary of the Company's restricted stock activity during the ~~three~~six months ended ~~September 30,~~December 31, 2022:


	Number of		Average		Number of		Average
Summary of Non-vested Restricted Stock Award Activity	Shares		Grant Price		Shares		Grant Price
Non-vested Restricted Stock Awards outstanding July 1, 2022		492,960	$	11.67		492,960	$	11.67
Issued		—		—		—		—
Vested		—		—		—		—
Forfeited		—		—		(13,904)		11.82
Non-vested Restricted Stock Awards outstanding September 30, 2022		492,960	$	11.67
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 the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration 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: expected life of 6.5 years, risk-free rate of return of 2.92%, volatility of 24.85%, and a dividend yield of 1.03%. Compensation expense recognized for the stock options for the three and six months ended ~~September 30,~~December 31, 2022 was ~~$201 thousand.~~$186 thousand and $387 thousand, respectively. The expected future compensation expense related to the ~~1,232,400~~ non-vested stock options outstanding at ~~September 30,~~December 31, 2022 is ~~$3.7~~$3.4 million over a weighted average period of ~~4.63~~4.37 years.

The following is a summary of the Company's stock option activity during the ~~three~~six months ended ~~September 30,~~December 31, 2022:


	Number of		Exercise Price		Number of		Exercise Price
Summary of Stock Option Activity	Options		per Shares		Options		per Shares
Beginning balance July 1, 2022		1,232,400	$	11.67		1,232,400	$	11.67
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		—		—		(34,760)		11.82
Expired		—		—		—		—
Ending balance September 30, 2022		1,232,400	$	11.67
Ending balance December 31, 2022						1,197,640	$	11.66

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The weighted average remaining contractual term was approximately ~~9.63~~9.38 years and 9.88 years as of ~~September 30,~~December 31, 2022 and June 30, 2022, respectively. ~~There was no aggregate intrinsic value for options outstanding as of September 30, 2022.~~ The aggregate intrinsic value was $545 thousand and $80 thousand for outstanding options as of December 31, 2022 and June 30, ~~2022.~~2022, respectively.

Note 12 – Commitments and Contingencies

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 the Company’s Consolidated Statements of Financial Condition.

A summary of the Company's loan commitments is as follows as of ~~September 30,~~December 31, 2022 and June 30, 2022:


	September 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2022		2022		2022		2022
Commitments to extend credit	$	19,995	$	16,894	$	6,681	$	16,894
Unfunded commitments under lines of credit		72,146		71,999		68,917		71,999
Standby letters of credit		30		30		30		30

~~Table of Contents~~

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. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by 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.

Note 13 - 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.

As of ~~September 30,~~December 31, 2022 and June 30, 2022, the most recent notiﬁcation from the regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

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Federal banking agencies have established an optional “community bank leverage ratio” of between 8% to 10% tangible equity to average total consolidated assets for qualifying institutions with assets of less than $10 billion of assets. Institutions with capital meeting the specified requirement and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk-based 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 of 8 percent or greater and that meets the other existing qualifying criteria may elect to use the community bank leverage ratio framework. The modified rule also states that the community bank leverage ratio requirement will be 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 transition rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.

The Bank has elected to adopt the optional community bank leverage ratio framework. Management believes, as of September 30, 2022 and June 30, 2022, that the Bank meets all capital adequacy requirements to which it is subject. The leverage ratios of the Bank at September 30, 2022 and June 30, 2022 are as follows:



					CBLR Framework
As of December 31, 2022	Actual				Requirement
(Dollars in thousands except for ratios)	Amount		Ratio		Amount		Ratio
William Penn Bank:
Tier 1 leverage	$	160,448	18.26	%	$	79,077		9.00	%



					CBLR Framework
As of September 30, 2022	Actual				Requirement
(Dollars in thousands except for ratios)	Amount		Ratio		Amount		Ratio
William Penn Bank:
Tier 1 leverage	$	158,915	18.25	%	$	78,380		9.00	%


					CBLR Framework									CBLR Framework
As of June 30, 2022	Actual				Requirement					Actual				Requirement
(Dollars in thousands except for ratios)	Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio
William Penn Bank:
Tier 1 leverage	$	157,519	18.28	%	$	77,547		9.00	%	$	157,519	18.28	%	$	77,547		9.00	%

~~Table of Contents~~

Note 14 – Fair Value of Financial Instruments

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 the Company believes its valuation methods are consistent with other financial institutions, the use 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 the Company’s Consolidated Statements of Financial Condition at their fair value as of September 30, 2022 and June 30, 2022, 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.

September 30, 2022
(Dollars in thousands)

Level I

Level II

Level III

Total
Assets:








Investments available for sale:












Mortgage-backed securities

$
—

$
109,414

$
—

$
109,414
U.S. agency collateralized mortgage obligations

—

8,946

—

8,946
U.S. government agency securities

—

4,563

—

4,563
Municipal bonds

—

14,442

—

14,442
Corporate bonds

—

33,495

—

33,495
Equity securities

1,985

—

—

1,985
Total Assets

$
1,985

$
170,860

$
—

$
172,845

2627

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The following table presents the assets required to be measured and reported on a recurring basis on the Company’s Consolidated Statements of Financial Condition at their fair value as of December 31, 2022 and June 30, 2022, 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, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
Investments available for sale:
Mortgage-backed securities	$	—	$	110,681	$	—	$	110,681
U.S. agency collateralized mortgage obligations		—		8,662		—		8,662
U.S. government agency securities		—		4,341		—		4,341
Municipal bonds		—		14,381		—		14,381
Corporate bonds		—		33,886		—		33,886
Equity securities		2,039		—		—		2,039
Total Assets	$	2,039	$	171,951	$	—	$	173,990


	June 30, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
Investments available for sale:
Mortgage-backed securities	$	—	$	117,506	$	—	$	117,506
U.S. agency collateralized mortgage obligations		—		9,709		—		9,709
U.S. government agency securities		—		5,038		—		5,038
Municipal bonds		—		15,642		—		15,642
Corporate bonds		—		34,850		—		34,850
Equity securities		2,258		—		—		2,258
Total Assets	$	2,258	$	182,745	$	—	$	185,003

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 are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating impaired loan collateral 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 ~~September 30,~~December 31, 2022 and June 30, 2022, the Company charged-off the collateral deficiency on impaired loans. As a result, there were no specific reserves on impaired loans as of ~~September 30,~~December 31, 2022 and June 30, 2022.

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. ~~There~~

As of December 31, 2022, there were no ~~OREO properties held by the Company as of September 30, 2022.~~

assets required to be measured and reported at fair value on a non-recurring basis. As of June 30, 2022, assets required to be measured and reported at fair value on a non-recurring basis are summarized as follows:


	June 30, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
Impaired loans	$	—	$	—	$	1,690	$	1,690
Premises transferred to held for sale		—		—		1,596		1,596
	$	—	$	—	$	3,286	$	3,286

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Quantitative information regarding assets measured at fair value on a non-recurring basis as of June 30, 2022 is as follows:


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation	Unobservable
(Dollars in thousands)	Estimate		Techniques	Input	Range
June 30, 2022
Impaired loans	$	1,690	Appraisal of collateral ⁽¹⁾⁽³⁾	Appraisal adjustments ⁽²⁾	0-7	%
Premises transferred to held for sale		1,596	Appraisal of premises ⁽¹⁾⁽³⁾	Appraisal adjustments ⁽²⁾	0-1	%

(1)	Fair 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 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 the Company could have realized in sales transaction on the dates indicated. The estimated fair

~~Table of Contents~~

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 since a fair value calculation is only provided for a limited portion of 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 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.

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 similar terms are adjusted for 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.

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Bank-Owned Life Insurance

The Company reports bank-owned life insurance on its Consolidated Statements of Financial Condition at the cash surrender value. The carrying amount of bank-owned life insurance approximates fair value because the fair value of bank-owned life insurance is equal to the cash surrender value of the life insurance policies.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and payable 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 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.

~~Table of Contents~~

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. The tables below exclude financial instruments for which the carrying amount approximates fair value.


	Fair Value Measurements at September 30, 2022										Fair Value Measurements at December 31, 2022
					Quoted Prices		Significant		Significant						Quoted Prices		Significant		Significant
					in Active Markets		Other Observable		Unobservable						in Active Markets		Other Observable		Unobservable
	Carrying		Fair		for Identical Assets		Inputs		Inputs		Carrying		Fair		for Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets:
Loans receivable, net	$	472,499	$	444,984	$	—	$	—	$	444,984	$	492,163	$	448,367	$	—	$	—	$	448,367
Securities held to maturity		104,376		84,997		—		84,997		—		103,030		85,504		—		85,504		—

Financial instruments - liabilities:
Certificates of deposit		129,366		127,158		—		—		127,158		137,441		133,961		—		—		133,961
Advances from Federal Home Loan Bank		55,000		55,000		—		—		55,000		60,000		60,000		—		—		60,000

Off-balance sheet financial instruments		—		—		—		—		—		—		—		—		—		—

Table of Contents


	Fair Value Measurements at June 30, 2022
					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	$	475,511	$	468,485	$	—	$	—	$	468,485
Securities held to maturity		102,135		88,321		—		88,321		—

Financial instruments - liabilities:
Certificates of deposit		131,361		130,974		—		—		130,974
Advances from Federal Home Loan Bank		65,000		65,000		—		—		65,000

Off-balance sheet financial instruments		—		—		—		—		—

Note 15 – Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee include real estate property for branches and office space with terms extending through 2043. Topic 842 requires the Company to recognize a right-of-use (“ROU”) asset and corresponding lease liability for each of its operating leases. The operating lease ROU asset was ~~$6.7~~$8.3 million and $6.8 million as of ~~September 30,~~December 31, 2022 and June 30, 2022, respectively, and the operating lease liability was ~~$6.8~~$8.4 million and $6.9 million as of ~~September 30,~~December 31, 2022 and June 30, 2022, respectively. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months of less), or equipment leases (deemed immaterial) on the Consolidated Statements of Financial Condition.

~~Table of Contents~~

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

During the six months ended December 31, 2022, the Company’s lease agreement for the Levittown branch office location commenced, which reulted in an increase of the ROU asset and lease liability of $1.7 million.


	~~September 30,~~December 31,
	2022
Weighted average remaining lease term
Operating leases	~~17.5~~16.8	years
Weighted average discount rate
Operating leases	~~2.01~~2.66	%


	June 30,
	2022
Weighted average remaining lease term
Operating leases	17.6	years
Weighted average discount rate
Operating leases	2.01	%

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The Company recorded ~~$162~~$191 thousand and ~~$114~~$353 thousand of net lease costs during the three and six months ended ~~September 30,~~December 31, 2022, respectively. The Company recorded $151 thousand and $265 thousand of net lease costs during the three and six months ended December 31, 2021, respectively. Future minimum payments for operating leases with initial or remaining terms of one year or more as of ~~September 30,~~December 31, 2022 were as follows:


	September 30,		December 31,
	2022		2022
	Operating		Operating
(in thousands)	Leases		Leases
Twelve months ended September 30,
Twelve months ended December 31,
2023	$	609	$	750
2024		612		751
2025		547		641
2026		390		544
2027		400		558
Thereafter		5,675		7,381
Total future minimum lease payments	$	8,233	$	10,625
Amounts representing interest		(1,400)		(2,186)
Present value of net future minimum lease payments	$	6,833	$	8,439

Note 16 – Subsequent Events

On ~~October 19,~~January 10, 2023, the Company exhausted its second stock repurchase program that was approved on June 9, 2022 and began repurchasing shares under its third stock repurchase program that was approved on August 18, 2022.

On January 18, 2023, the Company declared a cash dividend of $0.03 per share, payable on ~~November 10, 2022,~~February 9, 2023, to common shareholders of record at the close of business on ~~October 31, 2022.~~January 30, 2023.

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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 (including higher inflation and its impact on national and local economic conditions); (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) 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 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) our ability to successfully execute our business plan and integrate the business operations of acquired businesses into our business operations, (xiii) the inability to successfully deploy the proceeds raised in our recently completed second-step conversion offering; (xiv) adverse changes in the securities markets; (xv) the inability of third party service providers to perform; and (xvi) 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 Losses

We consider the allowance for loan and 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 adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.

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The allowance for loan 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, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish 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 to be applied to the various segments of 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. Although we believe that we use the best information available to establish the allowance for loan 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 Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses.

Our financial results are affected by the changes in and the level of the allowance for loan 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 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 losses. Such an adjustment could materially affect net income as a result of the change in provision for loan losses. We also have approximately ~~$4.8~~$4.3 million as of ~~September 30,~~December 31, 2022 in non-performing assets consisting of non-performing loans. 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 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. The Company is actively working on preliminary test calculations and data validation, as well as process and procedural documentation. As of September 30, 2022 and December 31, 2022, the Company began performing a parallel run of the new expected lifetime loss model with its current incurred loss model and is currently evaluating the results and assumptions of its new model to estimate lifetime credit losses. The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023, 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.

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 ~~September 30,~~December 31, 2022. 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 ~~September 30,~~December 31, 2022, 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 and six months ended ~~September 30,~~December 31, 2022.

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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 of 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 of 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 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 ~~September 30,~~December 31, 2022, we had net deferred tax assets totaling ~~$9.4~~$9.3 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 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 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 ~~September 30,~~December 31, 2022 and June 30, 2022

Summary. Total assets decreased ~~$28.5~~$9.1 million, or ~~3.2%~~1.0%, to ~~$851.5~~$870.9 million at ~~September 30,~~December 31, 2022, from $880.0 million at June 30, 2022, primarily due to $8.6 million of cash used to repurchase shares, a ~~$17.1 million decrease in cash and cash equivalents and a $7.8~~$7.0 million increase in the unrealized loss on available for sale securities net of deferred ~~taxes.~~taxes, and a $5.0 million decrease in advances from the FHLB of Pittsburgh, partially offset by an $8.8 million increase in deposits.

Cash and cash equivalents decreased $17.1 million, or 47.1%, to $19.1 million at ~~September 30,~~December 31, 2022, from $36.2 million at June 30, 2022. The decrease in cash and cash equivalents was primarily driven by a ~~$10.0~~$16.7 million increase in net loans, the repurchase of 739,359 shares at a total cost of $8.6 million, and a $5.0 million decrease in advances from the FHLB of Pittsburgh, ~~and a $6.4~~partially offset by an $8.8 million ~~decrease~~increase in deposits.

Investments. Total investments decreased ~~$9.9~~$10.1 million, or 3.5%, to ~~$277.2~~$277.0 million at ~~September 30,~~December 31, 2022, from $287.1 million at June 30, 2022. The decrease in investments was primarily due to a ~~$10.1~~$9.0 million increase in the gross unrealized loss on available for sale securities. The increase in the gross unrealized loss on available for sale securities is due to current interest rate levels relative to the Company’s cost and not credit quality. The Company remains focused on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.

Loans. Net loans ~~decreased $3.0~~increased $16.7 million, or ~~0.6%~~3.5%, to ~~$472.5~~$492.2 million at ~~September 30,~~December 31, 2022, from $475.5 million at June 30, 2022. ~~The interest rate environment has created a highly competitive market for lending.~~During the six months ended December 31, 2022, the Company originated $44.3 million of new loans, including $36.5 million of commercial loans. The Company maintains conservative lending practices and is focused on lending to borrowers with high credit quality within its market footprint.

Deposits. Deposits ~~decreased $6.4~~increased $8.8 million, or ~~1.1%~~1.5%, to ~~$600.2~~$615.4 million at ~~September 30,~~December 31, 2022, from $606.6 million at June 30, 2022. The ~~decrease~~increase in deposits was primarily due to a ~~$13.5~~$17.2 million ~~decrease~~increase in ~~non-interest-bearing checking~~money market accounts and a $6.1 million increase in time

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deposit accounts, partially offset by an $8.5 million decrease in non-interest bearing checking accounts and a ~~$7.3~~$7.8 million ~~increase~~decrease in ~~interest-bearing checking~~savings accounts. The interest rate environment has created a highly competitive market for deposits.

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Borrowings. Borrowings decreased ~~$10.0~~$5.0 million, or ~~15.4%~~7.7%, to ~~$55.0~~$60.0 million at ~~September 30,~~December 31, 2022, from $65.0 million at June 30, 2022.

Stockholders’ Equity. Stockholders’ equity decreased ~~$11.1~~$13.1 million, or ~~5.8%~~6.8%, to ~~$181.2~~$179.2 million at ~~September 30,~~December 31, 2022, from $192.3 million at June 30, 2022. The decrease in stockholders’ equity was primarily due to the payment of a ~~$7.8~~$0.03 per share quarterly cash dividend in August 2022 totaling $419 thousand and in November 2022 totaling $405 thousand and a $7.0 million increase in the accumulated other comprehensive loss component of the unrealized loss on available for sale securities, as well as the repurchase of ~~397,352~~739,359 shares at a total cost of ~~$4.6~~$8.6 million, or ~~$11.53~~$11.58 per share, ~~and~~during the ~~payment of a $0.03 per share quarterly cash dividend in August~~six months ended December 31, 2022 ~~totaling $419 thousand,~~under the Company’s previously announced stock repurchase programs. These decreases to stockholders’ equity were partially offset by ~~$1.0~~$2.1 million of net income ~~recorded~~ during the ~~quarter~~six months ended ~~September 30,~~December 31, 2022.

Book value per share measured ~~$12.50~~$12.67 as of ~~September 30,~~December 31, 2022, compared to $12.91 as of June 30, 2022, and tangible book value per share measured ~~$12.12~~$12.29 as of ~~September 30,~~December 31, 2022, compared to $12.54 as of June 30, 2022. Tangible book value per share is a non-GAAP financial measure that excludes goodwill and other intangible assets. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of tangible book value per share to book value per share.

As previously announced, ~~on August 18, 2022,~~ the Company’s Board of Directors had authorized ~~a third~~three stock repurchase ~~program~~programs to acquire up to ~~739,385~~2,269,358 shares ~~or approximately 5.0%,~~ of the Company’s outstanding ~~shares, commencing upon the completion of the Company’s second stock repurchase program.~~shares. As of ~~September 30,~~December 31, 2022, the Company had repurchased a total of ~~1,164,288~~1,506,295 shares under these repurchase programs at a total cost of ~~$13.7~~$17.6 million, or ~~$11.73~~$11.71 per share.

Results of Operations for the Three Months Ended ~~September 30,~~December 31, 2022 and 2021

Summary

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


	Three Months Ended September 30,											Three Months Ended December 31,
							Change Fiscal 2022/2021											Change Fiscal 2022/2021
(Dollars in thousands)	2022			2021			$		%			2022			2021			$		%
Net interest income	$	6,241		$	5,262		$	979		18.61	%	$	6,036		$	5,530		$	506		9.15	%
Provision (recovery) for loan losses		—			(30)			30		100.00
Provision for loan losses													—			—			—		—
Non-interest income		282			705			(423)		(60.00)			902			664			238		35.84
Non-interest expenses		5,563			4,867			696		14.30			5,660			4,839			821		16.97
Income tax benefit		(67)			(30)			(37)		123.33
Income tax expense													217			180			37		20.56
Net income	$	1,027		$	1,160		$	(133)		(11.47)		$	1,061		$	1,175		$	(114)		(9.70)

Return on average assets (annualized)		0.48	%		0.56	%							0.49	%		0.57	%
Core return on average assets⁽¹⁾ (non-GAAP) (annualized)		0.48			0.41								0.37			0.53
Return on average equity (annualized)		2.14			2.16								2.38			2.21
Core return on average equity⁽¹⁾ (non-GAAP) (annualized)		2.14			1.57								1.77			2.06

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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

The Company recorded net income of ~~$1.0~~$1.1 million, or $0.08 per basic and diluted share, for the three months ended ~~September 30,~~December 31, 2022, compared to net income of $1.2 million, or $0.08 per basic and diluted share, for the three months ended ~~September~~December 30, 2021. The Company recorded core net income of ~~$1.0~~$788 thousand, or $0.06 per basic and diluted share, for the three months ended December 31, 2022, compared to core net income of $1.1 million, or $0.08 per basic and diluted share, for the three months ended ~~September 30, 2022, compared to core net income of $846 thousand, or $0.06 per basic diluted share, for the three months ended September~~December 30, 2021. Core net 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 income to net income.

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Net Interest Income

For the three months ended ~~September 30,~~December 31, 2022, net interest income was ~~$6.2~~$6.0 million, an increase of ~~$979~~$506 thousand, or ~~18.6%~~9.2%, from the three months ended ~~September 30,~~December 31, 2021. The increase in net interest income was primarily due to an increase in interest income on

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investments and loans, partially offset by an increase in interest expense on borrowings and deposits. The net interest margin measured ~~3.19%~~3.10% for the three months ended ~~September 30,~~December 31, 2022, compared to ~~2.80%~~3.00% for the three months ended ~~September 30,~~December 31, 2021. The increase in the net interest margin during the three months ended ~~September 30,~~December 31, 2022, compared to the same period in 2021 was primarily due to an improvement in asset mix during the twelve months ended ~~September 30,~~December 31, 2022, including a ~~$108.8~~$41.5 million decrease in cash and cash equivalents, a ~~$109.5~~$35.5 million increase in investment securities and an ~~$18.3~~$35.4 million increase in net loans.

Provision for Loan Losses

We did not record a provision for loan losses during the three months ended ~~September 30,~~December 31, 2022 due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets. ~~The~~We did not record a provision for loan losses ~~was a $30 thousand net recovery~~ during the ~~quarter~~three months ended ~~September~~December 30, ~~2021. The provision credit for the quarter ended September 30,~~ 2021 ~~was primarily~~ due to continued stable asset quality metrics, including ~~continued~~ low levels of net charge-offs and non-performing assets. Our allowance for loan losses totaled $3.3 million, or ~~0.70%~~0.67% of total loans, and ~~0.92%~~0.86% of total loans, excluding acquired loans, as of ~~September 30,~~December 31, 2022, compared to $3.4 million, or 0.71% of total loans, and 0.94% of total loans, excluding acquired loans, as of June 30, 2022. Total loans, excluding acquired loans, is a non-GAAP financial measure that excludes loans acquired in a business combination. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans. Based on a review of the loans that were in the loan portfolio at ~~September 30,~~December 31, 2022, 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.

Management uses available information to establish the appropriate level of the allowance for loan 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 losses may not be sufficient to cover actual loan losses, and future provisions for loan 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 losses.

Non-Interest Income

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


	Three Months Ended September,				Three Months Ended December 31,
(Dollars in thousands)	2022		2021		2022		2021
Service fees	$	211	$	213	$	209	$	243
Net gain on sale of securities		—		62
Earnings on bank-owned life insurance		273		238		274		278
Unrealized (loss) gain on equity securities		(273)		105
Net loss on disposition of premises and equipment		(1)		—
Net gain on disposition of premises and equipment						300		—
Unrealized gain on equity securities						54		35
Other		72		87		65		108
Total	$	282	$	705	$	902	$	664

For the three months ended ~~September 30,~~December 31, 2022, non-interest income totaled ~~$282~~$902 thousand, ~~a decrease~~an increase of ~~$423~~$238 thousand, or ~~60.0%~~35.8%, from the three months ended ~~September 30,~~December 31, 2021. The ~~decrease~~increase was primarily due to a ~~$273~~$300 thousand ~~unrealized loss~~net gain on ~~equity securities recorded~~the sale of premises and equipment associated with the sale of two properties with a total carrying value of $1.5 million that were transferred to the held for sale classification during the three months ended September 30, 2022 compared to a $105 thousand unrealized gain on equity securities recorded during the three months ended September 30, 2021, as well as a $62 thousand gain on sale of securities recorded during the three months ended September 30, 2021. These decreases to non-interest income were partially offset by a $35 thousand increase in earnings on bank-owned life insurance due to the purchase of additional bank-owned life insurance (“BOLI”) during fiscal year ended June 30, 2022.

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Non-Interest Expense

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


	Three Months Ended
	September 30,				Three Months Ended December 31,
(Dollars in thousands)	2022		2021		2022		2021
Salaries and employee benefits	$	3,241	$	2,712	$	3,222	$	2,796
Occupancy and equipment		788		675		907		726
Data processing		431		421		472		419
Professional fees		263		248		258		241
Amortization of intangible assets		48		57		49		56
Prepayment penalties		—		64
Other		792		690		752		601
Total	$	5,563	$	4,867	$	5,660	$	4,839

For the three months ended ~~September 30,~~December 31, 2022, non-interest expense totaled ~~$5.6~~$5.7 million, an increase of ~~$696~~$821 thousand, or ~~14.3%~~17.0%, from the three months ended ~~September 30,~~December 31, 2021. The increase in non-interest expense was primarily due to a ~~$529~~$426 thousand increase in salaries and employee benefits due to annual merit increases and a $351 thousand increase in employee stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan. The increase in non-interest expense can also be attributed to a ~~$113~~$181 thousand increase in occupancy and equipment expense associated with new branch locations in Doylestown, Pennsylvania and Hamilton Township, New Jersey that were opened during the three months ended December 31, 2021. In addition, the increase in non-interest expense can be attributed to a $104 thousand increase in director stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan. During the three months ended September 30, 2022, the Company made a strategic decision to close the Bank’s branch office located in Collingswood, New Jersey and to consolidate the deposits from this branch office into the Bank’s Audubon, New Jersey branch office after assessing the branch’s profitability and its close geographic proximity to the Audubon, New Jersey branch location. The branch office located in Collingswood, New Jersey was closed effective December 31, 2022.

Income Taxes

For the three months ended ~~September 30,~~December 31, 2022, wethe Company recorded a ~~$67~~provision for income taxes of $217 thousand, ~~income tax benefit,~~ reflecting an effective tax rate of ~~(7.0)%~~17.0%, compared to a ~~$30~~provision for income taxes of $180 thousand, ~~income tax benefit,~~ reflecting an effective tax rate of ~~(2.7)%~~13.3%, for the same period in 2021. The increase in the provision for income taxes and the effective tax rate during the three months ended December 31, 2022, compared to the same period in 2021, can primarily be attributed to a $53 thousand income tax benefit recorded during the three months ended December 31, 2021 related to refunds received associated with the carryback of net operating losses under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

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Results of Operations for the Six Months Ended December 31, 2022 and 2021

Summary

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


	Six Months Ended December 31,
							Change 2022/2021
(Dollars in thousands)	2022			2021			$		%
Net interest income	$	12,277		$	10,792		$	1,485		13.76	%
Provision (recovery) for loan losses		—			(30)			30		100.00
Non-interest income		1,184			1,369			(185)		(13.51)
Non-interest expenses		11,223			9,706			1,517		15.63
Income tax expense		150			150			—		—
Net income	$	2,088		$	2,335		$	(247)		(10.58)

Return on average assets (annualized)		0.48	%		0.57	%
Core return on average assets⁽¹⁾ (non-GAAP) (annualized)		0.42			0.47
Return on average equity (annualized)		2.24			2.17
Core return on average equity⁽¹⁾ (non-GAAP) (annualized)		1.95			1.80

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General

The Company recorded net income of $2.1 million, or $0.16 per basic and diluted share, for the six months ended December 31, 2022, compared to net income of $2.3 million, or $0.16 per basic and diluted share, for the six months ended December 30, 2021. The Company recorded core net income of $1.8 million, or $0.14 per basic and diluted share, for the six months ended December 31, 2022, compared to core net income of $1.9 million, or $0.14 per basic diluted share, for the six months ended December 30, 2021. Core net 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 income to net income.

Net Interest Income

For the six months ended December 31, 2022, net interest income was $12.3 million, an increase of $1.5 million, or 13.8%, from the six months ended December 31, 2021. The increase in net interest income was primarily due to an increase in interest income on investments and loans, partially offset by an increase in interest expense on borrowings and deposits. The net interest margin measured 3.14% for the six months ended December 31, 2022, compared to 2.90% for the six months ended December 31, 2021. The increase in the net interest margin during the six months ended December 31, 2022, compared to the same period in 2021 was primarily due to the previously mentioned improvement in asset mix during the twelve months ended December 31, 2022.

Provision for Loan Losses

We did not record a provision for loan losses during the six months ended December 31, 2022 due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets. The provision for loan losses was a $30 thousand net recovery during the six months ended December 31, 2021. The credit to the provision for the six months ended December 31, 2021 was primarily due to continued stable asset quality metrics, including continued low levels of net charge-offs and non-performing assets. Our allowance for loan losses totaled $3.3 million, or 0.67% of total loans, and 0.86% of total loans, excluding acquired loans, as of December 31, 2022, compared to $3.4 million, or 0.71% of total loans, and 0.94% of total loans, excluding acquired loans, as of June 30, 2022. Total loans, excluding acquired loans, is non-GAAP financial measure that excludes loans acquired in a business combination. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans. Based on a review of the loans that were in the loan portfolio at December 31, 2022, 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.

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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,
(Dollars in thousands)	2022		2021
Service fees	$	420	$	456
Net gain on sale of securities		—		62
Earnings on bank-owned life insurance		547		516
Net gain on disposition of premises and equipment		299		—
Unrealized (loss) gain on equity securities		(219)		140
Other		137		195
Total	$	1,184	$	1,369

For the six months ended December 31, 2022, non-interest income totaled $1.2 million, a decrease of $185 thousand, or 13.5%, from the six months ended December 31, 2021. The decrease was primarily due to a $359 thousand increase in the unrealized loss on equity securities and a $62 thousand net gain on the sale of securities recorded during the six months ended December 31, 2021, partially offset by the previously discussed $300 thousand net gain on the sale of premises and equipment recorded during the three months ended December 31, 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)	2022		2021
Salaries and employee benefits	$	6,463	$	5,508
Occupancy and equipment		1,695		1,401
Data processing		903		840
Professional fees		521		489
Amortization of intangible assets		97		113
Prepayment penalties		—		64
Other		1,544		1,291
Total	$	11,223	$	9,706

For the six months ended December 31, 2022, non-interest expense totaled $11.2 million, an increase of $1.5 million, or 15.6%, from the six months ended December 31, 2021. The increase in non-interest expense was primarily due to a $955 thousand increase in salaries and employee benefits due to annual merit increases and a $702 thousand increase in employee stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan. The increase in non-interest expense can also be attributed to a $294 thousand increase in occupancy and equipment expense associated with new branch locations in Doylestown, Pennsylvania and Hamilton Township, New Jersey that were opened during the three months ended December 31, 2021. In addition, the increase in non-interest expense can be attributed to a $244 thousand increase in director stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan.

Income Taxes

For the six months ended December 31, 2022, the Company recorded a provision for income taxes of $150 thousand, reflecting an effective tax rate of 6.7%, compared to a provision for income taxes of $150 thousand, reflecting an effective tax rate of 6.0%, for the same period in 2021. The provision for income taxes and the effective tax rate for the six months ended December 31, 2022 and 2021 were impacted by a $211 thousand and a ~~$235~~$288 thousand income tax benefit related to refunds received associated with the carryback of net operating losses under the CARES Act during the ~~three~~six months ended ~~September 30,~~December 31, 2022 and 2021, respectively. Income tax benefit and the effective tax rate for the three months ended September 30, 2022 and 2021 were impacted by the previously discussed income tax benefit from refunds received associated with the carryback of net operating losses under the CARES Act.

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Asset Quality

During the ~~three~~six months ended ~~September 30,~~December 31, 2022, nonperforming assets decreased ~~26.3%~~34.6% to ~~$4.8~~$4.3 million from $6.5 million as of June 30, 2022. The decrease in nonperforming assets was driven by a decrease in nonaccrual loans primarily due to the payoff of one $1.7 million one-to four-family residential real estate loan that moved to non-accrual status during the fiscal year ended June 30, 2022. During the ~~three~~six months ended ~~September 30,~~December 31, 2022, ~~the Company~~we received ~~payment~~payments from ~~the borrower~~borrowers for full satisfaction of three non-performing loans with a total carrying value of $2.6 million. The payoff of these non-performing loans contributed to a significant reduction in our non-performing assets and the ~~loan.~~ Company’s ratio of non-performing assets to total assets decreased to 0.49% as of December 31, 2022 from 0.74% as of June 30, 2022.

Total nonperforming loans consisted of 3430 loans to 3328 unrelated borrowers at ~~September 30,~~December 31, 2022, as compared to 37 loans to 36 unrelated borrowers at June 30, 2022. Interest income related to non-performing loans would have been approximately ~~$75~~$111 thousand during the ~~three~~six months ended ~~September 30,~~December 31, 2022 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 TDRs during the ~~three~~six months ended ~~September 30,~~December 31, 2022.

Impaired loans at ~~September 30,~~December 31, 2022 included ~~$586~~$575 thousand of performing loans whose terms have been modified in TDRs, compared to $593 thousand at June 30, 2022. 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 ~~September 30,~~December 31, 2022, none of our ~~thirty-four~~thirty substandard loans with an aggregate balance of ~~$4.8~~$4.3 million were considered TDRs.

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Average Balances and Yields

The following 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. Non-accrual loans are included in the average balances only. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.


		Three Months Ended September 30,															Three Months Ended December 31,
		2022							2021								2022							2021
		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⁾		$	477,396	$	5,297		4.44	%	$	459,034	$	5,214		4.54	%		$	484,700	$	5,666		4.68	%	$	457,567	$	5,109		4.47	%
Investment securities⁽²⁾			287,696		1,657		2.30			131,784		664		2.02				276,741		1,707		2.47			209,553		1,033		1.97
Other interest-earning assets			17,736		129		2.91			160,400		106		0.26				17,508		187		4.27			69,601		40		0.23
Total interest-earning assets			782,828		7,083		3.62			751,218		5,984		3.19				778,949		7,560		3.88			736,721		6,182		3.36
Non-interest-earning assets			81,924							71,109								84,421							84,395
Total assets		$	864,752						$	822,327							$	863,370						$	821,116
Interest-bearing liabilities:
Interest-bearing accounts		$	130,261		65		0.20	%	$	103,803		19		0.07	%
Interest-bearing checking accounts																	$	133,690		97		0.29	%	$	106,365		14		0.05	%
Money market deposit accounts			172,948		216		0.50			145,032		122		0.34				179,357		544		1.21			159,356		119		0.30
Savings and club accounts			104,450		21		0.08			101,171		26		0.10				99,553		21		0.08			102,560		17		0.07
Certificates of deposit			129,583		207		0.64			155,786		317		0.81				136,352		312		0.92			147,193		271		0.74
Total interest-bearing deposits			537,242		509		0.38			505,792		484		0.38				548,952		974		0.71			515,474		421		0.33
FHLB advances and other borrowings			54,723		333		2.43			35,457		238		2.68				55,950		550		3.93			34,008		231		2.72
Total interest-bearing liabilities			591,965		842		0.57			541,249		722		0.53				604,902		1,524		1.01			549,482		652		0.47
Non-interest-bearing liabilities:
Non-interest-bearing deposits			65,149							50,670								63,282							53,635
Other non-interest-bearing liabilities			15,352							15,520								16,640							4,999
Total liabilities			672,466							607,439								684,824							608,116
Total stockholders' equity			192,286							214,888								178,546							213,000
Total liabilities and equity		$	864,752						$	822,327							$	863,370						$	821,116
Net interest income				$	6,241						$	5,262							$	6,036						$	5,530
Interest rate spread⁽³⁾					3.05	%						2.66	%							2.87	%						2.89	%
Net interest-earning assets⁽⁴⁾		$	190,863						$	209,969							$	174,047						$	187,239
Net interest margin⁽⁵⁾					3.19	%						2.80	%							3.10	%						3.00	%
Ratio of interest-earning assets to interest-bearing liabilities			132.24%							138.79%								128.77%							134.08%

⁽¹⁾ Includes nonaccrual loan balances and interest recognized on such loans.	⁽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.															⁽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.															⁽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.															⁽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.															⁽⁵⁾ Net interest margin represents net interest income divided by average total interest-earning assets.

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	Six Months Ended December 31,
	2022							2021
	Average		Interest and			Yield/		Average		Interest and			Yield/
(Dollars in thousands)	Balance		Dividends			Cost		Balance		Dividends			Cost
Interest-earning assets:
Loans⁽¹⁾	$	481,048	$	10,963		4.56	%	$	458,296	$	10,323		4.50	%
Investment securities⁽²⁾		282,218		3,364		2.38			170,668		1,697		1.99
Other interest-earning assets		17,622		316		3.59			114,989		146		0.25
Total interest-earning assets		780,888		14,643		3.75			743,953		12,166		3.27
Non-interest-earning assets		83,172							73,467
Total assets	$	864,060						$	817,420
Interest-bearing liabilities:
Interest-bearing checking accounts	$	131,975		163		0.25	%	$	105,084		33		0.06	%
Money market deposit accounts		176,153		760		0.86			152,194		240		0.32
Savings and club accounts		102,001		41		0.08			101,865		43		0.08
Certificates of deposit		132,967		519		0.78			151,490		589		0.78
Total interest-bearing deposits		543,096		1,483		0.55			510,633		905		0.35
FHLB advances and other borrowings		55,337		883		3.19			34,732		469		2.70
Total interest-bearing liabilities		598,433		2,366		0.79			545,365		1,374		0.50
Non-interest-bearing liabilities:
Non-interest-bearing deposits		64,216							52,152
Other non-interest-bearing liabilities		14,926							4,766
Total liabilities		677,575							602,283
Total stockholders' equity		186,485							215,137
Total liabilities and equity	$	864,060						$	817,420
Net interest income			$	12,277						$	10,792
Interest rate spread⁽³⁾				2.96	%						2.77	%
Net interest-earning assets⁽⁴⁾	$	182,455						$	198,588
Net interest margin⁽⁵⁾				3.14	%						2.90	%
Ratio of interest-earning assets to interest-bearing liabilities		130.49%							136.41%

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

⁽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.

⁽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 9/30/2022						Three Months Ended 12/31/2022						Six Months Ended 12/31/2022
	Compared to						Compared to						Compared to
	Three Months Ended 9/30/2021						Three Months Ended 12/31/2021						Six Months Ended 12/31/2021
	Increase (Decrease)						Increase (Decrease)						Increase (Decrease)
	Due to						Due to						Due to
(Dollars in thousands)	Volume		Rate		Total		Volume		Rate		Total		Volume		Rate		Total
Interest income:
Loans	$	664	$	(581)	$	83	$	254	$	303	$	557	$	202	$	438	$	640
Investment securities		(423)		1,416		993		343		331		674		456		1,211		1,667
Other interest-earning assets		(691)		714		23		(224)		371		147		(454)		624		170
Total interest-earning assets		(450)		1,549		1,099		373		1,005		1,378		204		2,273		2,477
Interest expense:
Interest-bearing checking accounts		37		9		46		25		58		83		25		105		130
Money market deposit accounts		250		(156)		94		106		319		425		114		406		520
Savings and club accounts		5		(10)		(5)		(3)		7		4		—		(2)		(2)
Certificates of deposit		(1,565)		1,455		(110)		(113)		154		41		(77)		7		(70)
Total interest-bearing deposits		(1,273)		1,298		25		15		538		553		62		516		578
FHLB advances and other borrowings		233		(138)		95		170		149		319		105		309		414
Total interest-bearing liabilities		(1,040)		1,160		120		185		687		872		167		825		992
Net change in net interest income	$	590	$	389	$	979	$	188	$	318	$	506	$	37	$	1,448	$	1,485

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.

Tangible Book Value per Share. Tangible book value per share represents our total equity less goodwill and other intangible assets divided by total common shares outstanding. Management believes 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 U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of tangible book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure, for the periods presented.


(Dollars in thousands, except share and per share data)
	As of September 30,		As of June 30,		As of December 31,		As of June 30,
Calculation of Tangible Book Value per Share:	2022		2022		2022		2022
Total stockholders' equity	$	181,194	$	192,326	$	179,230	$	192,326
Less: goodwill and other intangible assets		5,522		5,570		5,473		5,570
Total tangible equity (non-GAAP)		175,672		186,756		173,757		186,756

Total common shares outstanding		14,499,238		14,896,590		14,143,327		14,896,590

Book value per share (GAAP)	$	12.50	$	12.91	$	12.67	$	12.91
Tangible book value per share (non-GAAP)	$	12.12	$	12.54	$	12.29	$	12.54

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Ratio of the Allowance for Loan Losses to Total Loans, Excluding Acquired Loans. The ratio of the allowance for loan losses to total loans, excluding acquired loans, represents our allowance for loan losses divided by our gross loans receivable less loans acquired in a business combination. We believe the ratio of the allowance for loan losses to total loans, excluding acquired loans, helps management and investors better understand and assess changes from period to period in the allowance for loan losses exclusive of acquired loans. 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 the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans, the most directly comparable GAAP financial measure.


(Dollars in thousands)
	As of September 30,			As of June 30,			As of December 31,			As of June 30,
Calculation of Allowance for Loan Losses to Total Loans, Excluding Acquired Loans:	2022			2022			2022			2022
Gross loans receivable	$	476,516		$	479,669		$	496,198		$	479,669
Less: Loans acquired in a business combination		112,853			118,111			108,697			118,111
Gross loans receivable, excluding acquired loans (non-GAAP)		363,663			361,558			387,501			361,558

Allowance for loan losses	$	3,333		$	3,409		$	3,334		$	3,409

Allowance for loan losses to total loans (GAAP)		0.70	%		0.71	%		0.67	%		0.71	%
Allowance for loan losses to total loans, excluding acquired loans (non-GAAP)		0.92	%		0.94	%		0.86	%		0.94	%

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Core net income, core earnings per share, core return on average 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 these non-GAAP financial measures to the most directly comparable GAAP financial measures.


	For the Three Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,		September 30,		December 31,		December 31,		December 31,		December 31,
	2022		2021		2022		2021		2022		2021
Calculation of core net income:
Net income (GAAP)	$	1,027	$	1,160	$	1,061	$	1,175	$	2,088	$	2,335
Less pre-tax adjustments:
Net gain on sale of securities		-		(62)		-		-		-		(62)
Net loss on disposition of premises and equipment		1		-
Unrealized loss (gain) on equity securities		273		(105)
Net (gain) loss on disposition of premises and equipment						(300)		-		(299)		-
Unrealized (gain) loss on equity securities						(54)		(35)		219		(140)
Prepayment penalties	��	-		64		-		-		-		64
Tax impact of pre-tax adjustments		(63)		24		81		8		18		31
Income tax benefit adjustment		(211)		(235)		-		(53)		(211)		(288)
Core net income (non-GAAP)	$	1,027	$	846	$	788	$	1,095	$	1,815	$	1,940

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

Calculation of core return on average assets:
Return on average assets (GAAP)		0.48%		0.56%		0.49%		0.57%		0.48%		0.57%
Less pre-tax adjustments:
Net gain on sale of securities		-		(0.03)		-		-		-		(0.03)
Net loss on disposition of premises and equipment		-		-
Unrealized loss (gain) on equity securities		0.13		(0.05)
Net (gain) loss on disposition of premises and equipment						(0.13)		-		(0.06)		-
Unrealized (gain) loss on equity securities						(0.03)		(0.01)		0.05		(0.03)
Prepayment penalties		-		0.03		-		-		-		0.02
Tax impact of pre-tax adjustments		(0.03)		0.01		0.04		-		-		0.01
Income tax benefit adjustment		(0.10)		(0.11)		-		(0.03)		(0.05)		(0.07)
Core return on average assets (non-GAAP)		0.48%		0.41%		0.37%		0.53%		0.42%		0.47%

Average assets	$	864,752	$	822,327	$	863,370	$	821,116	$	864,060	$	817,420

Calculation of core return on average equity:
Return on average equity (GAAP)		2.14%		2.16%		2.38%		2.21%		2.24%		2.17%
Less pre-tax adjustments:
Net gain on sale of securities		-		(0.11)		-		-		-		(0.06)
Net loss on disposition of premises and equipment		-		-
Unrealized loss (gain) on equity securities		0.57		(0.20)
Net (gain) loss on disposition of premises and equipment						(0.67)		-		(0.32)		-
Unrealized (gain) loss on equity securities						(0.12)		(0.07)		0.23		(0.13)
Prepayment penalties		-		0.12		-		-		-		0.06
Tax impact of pre-tax adjustments		(0.13)		0.04		0.18		0.02		0.02		0.03
Income tax benefit adjustment		(0.44)		(0.44)		-		(0.10)		(0.22)		(0.27)
Core return on average equity (non-GAAP)		2.14%		1.57%		1.77%		2.06%		1.95%		1.80%

Average equity	$	192,286	$	214,888	$	178,546	$	213,000	$	186,485	$	215,137

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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 ~~41.7%~~40.6% as of ~~September 30,~~December 31, 2022 compared to 44.1% as of June 30, 2022. 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 investments securities divided by the sum of total deposits and advances from the FHLB of Pittsburgh. 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. 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 creditworthiness have been met. We had an available borrowing limit of ~~$296.1~~$294.5 million with the FHLB of Pittsburgh at ~~September 30,~~December 31, 2022. There were ~~$55.0~~$60.0 million of FHLB of Pittsburgh advances outstanding at ~~September 30,~~December 31, 2022.

At ~~September 30,~~December 31, 2022, we had outstanding commitments to originate loans of ~~$20.0~~$6.7 million, unfunded commitments under lines of credit of ~~$72.1~~$68.9 million and $30 thousand of standby letters of credit. At ~~September 30,~~December 31, 2022, certificates of deposit scheduled to mature in less than one year totaled ~~$78.9~~$95.0 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.

Inflation

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

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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.

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 ~~September 30,~~December 31, 2022 indicates a level of risk within the parameters of our model. Our management believes that the ~~September 30,~~December 31, 2022 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, 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 ~~September 30,~~December 31, 2022. 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 ~~September 30,~~December 31, 2022, 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	(3.80)	%	$	210,256	(10.50)	%	(5.08)	%	$	192,938	(8.53)	%
+100	(1.88)			221,923	(5.53)		(2.49)			201,537	(4.45)
0	—			234,920	—		—			210,919	—
-100	4.08			249,096	6.03		1.88			220,579	4.58
-200	3.60			261,430	11.28		2.99			229,972	9.03

As of ~~September 30,~~December 31, 2022, based on the scenarios above, net interest income would decrease by approximately ~~1.88%~~2.49% to ~~3.80%~~5.08%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would increase by approximately ~~3.60%~~1.88% to ~~4.08%~~2.99% in a declining interest rate environment.

Economic value at risk would be negatively impacted by a rise in 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 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.

Overall, our ~~September 30,~~December 31, 2022 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.

~~Inflation.~~ Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

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 ~~September 30,~~December 31, 2022, 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.

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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 Company’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on September 8, 2022 (the “Form 10-K”). As of ~~September 30,~~December 31, 2022, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

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

On March 11, 2022, the Company issued a press release announcing that the Company’s Board of Directors has authorized a stock repurchase program to acquire up to 758,528 shares of the Company’s outstanding common stock, or approximately 5% of outstanding shares. That stock repurchase program became effective on March 25, 2022.

On June 9, 2022, the Company issued a press release announcing that the Company’s Board of Directors had authorized a second stock repurchase program to acquire up to 771,445 shares, or approximately 5.0%, of the Company’s currently issued and outstanding stock, commencing upon the completion of the Company’s first stock repurchase program. As of June 30, 2022, the Company had exhausted the first repurchase program and began repurchasing shares under the second repurchase program.

On August 18, 2022, the Company issued a press release announcing that the Company's Board of Directors has authorized a third stock repurchase program to acquire up to 739,385 shares, or approximately 5.0%, of the Company's currently issued and outstanding common stock, commencing upon the completion of the Company's second stock repurchase program. As of ~~September 30,~~December 31, 2022, there were ~~1,105,070~~763,063 shares remaining to be repurchased under the Company’s second and third repurchase programs.

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				Total Number of		Maximum Number
				Shares Purchased		of Shares that May				Shares Purchased		of Shares that May
	Total Number			as Part of Publicly		Yet Be Purchased	Total Number			as Part of Publicly		Yet Be Purchased
	of Shares	Average Price		Announced Plans		Under the Plans	of Shares	Average Price		Announced Plans		Under the Plans
Period	Purchased	Paid Per Share		or Programs		or Programs	Purchased	Paid Per Share		or Programs		or Programs
July 1 - 31, 2022	76,185	$	11.55		76,185	686,852
August 1 - 31, 2022	55,992		11.44		55,992	1,370,245
September 1 - 30, 2022	265,175		11.50		265,175	1,105,070
October 1 - 31, 2022							149,408	$	11.43		149,408	955,662
November 1 - 30, 2022							77,752		11.43		77,752	877,910
December 1 - 31, 2022							114,847		11.92		114,847	763,063
Total	397,352	$	11.50		397,352		342,007	$	11.60		342,007

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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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

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 ~~September 30,~~December 31, 2022, 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, (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: ~~November 3, 2022~~February 2, 2023	By:	/s/ Kenneth J. Stephon
		Kenneth J. Stephon
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 3, 2022~~February 2, 2023	By:	/s/ Jonathan T. Logan
		Jonathan T. Logan
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

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