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WMPN William Penn Bancorporation

Filed: 15 Oct 20, 4:34pm
As filed with the Securities and Exchange Commission on October 15, 2020
Registration No. 333-           
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
William Penn Bancorporation
and
William Penn Bank 401(k) Retirement Savings Plan
(Exact name of registrant as specified in its charter)
Maryland
State or other jurisdiction of incorporation or organization
6036
(Primary Standard Industrial Classification Code Number)
To be provided
(IRS Employer Identification No.)
10 Canal Street, Suite 104
Bristol, Pennsylvania 19007
(267) 540-8500
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Kenneth J. Stephon
President and Chief Executive Officer
William Penn Bancorporation
10 Canal Street, Suite 104
Bristol, Pennsylvania 19007
(267) 540-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Gary R. Bronstein, Esq.
Stephen F. Donahoe, Esq.
Kilpatrick Townsend & Stockton LLP
607 14th Street, NW, Suite 900
Washington, DC 20005
(202) 508-5800
P. Ross Bevan, Esq.
Silver, Freedman, Taff & Tiernan LLP
3299 K Street, NW, Suite 100
Washington, DC 20007
(202) 295-4500
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Calculation of Registration Fee
Title of each class of securities to be registered
Amount to be
registered
Proposed
maximum
offering
price per unit
Proposed
maximum
aggregate
offering price(1)
Amount of
registration fee
Common Stock, $0.01 par value15,208,616$10.00$152,086,160$16,593
Participation interests
(2)
$10.00
(3)
(3)
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Regulation 457(o) under the Securities Act.
(2)
In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the employee benefit plan described herein.
(3)
The securities of William Penn Bancorporation to be purchased by the William Penn Bank 401(k) Retirement Savings Plan are included in the common stock. Accordingly, no separate fee is required for the participation interests pursuant to Rule 457(h)(2) of the Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

PROSPECTUS
[MISSING IMAGE: lg_williampenn-4clr.jpg]
(Proposed New Holding Company for William Penn Bank)
Up to 12,650,000 Shares of Common Stock
William Penn Bancorporation, a newly formed Maryland corporation, is offering common stock for sale in connection with the conversion of William Penn, MHC from the mutual holding company form of organization to the stock form of organization. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
We are offering up to 12,650,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 9,350,000 shares to complete the offering. All shares are offered at a price of $10.00 per share. Purchasers will not pay a commission to purchase shares of common stock in the offering. The amount of capital being raised is based on an independent appraisal of William Penn Bancorporation. Most of the terms of this offering are required by regulations of the Board of Governors of the Federal Reserve System (which we refer to as the Federal Reserve Board).
The shares we are offering represent the 82.7% ownership interest in William Penn Bancorp, Inc., a Pennsylvania corporation, now owned by William Penn, MHC. The remaining 17.3% interest in William Penn Bancorp currently owned by the public will be exchanged for shares of common stock of William Penn Bancorporation. The 778,231 shares of William Penn Bancorp currently owned by the public will be exchanged for between 1,891,151 shares and 2,558,616 shares of common stock of William Penn Bancorporation so that William Penn Bancorp’s existing public stockholders will own approximately the same percentage of William Penn Bancorporation common stock as they owned of William Penn Bancorp’s common stock immediately before the conversion. William Penn Bancorp and William Penn, MHC will cease to exist upon completion of the conversion and William Penn Bancorporation will succeed them.
The shares of common stock are first being offered in a subscription offering to eligible depositors, certain borrowers and the tax-qualified employee stock ownership plan of William Penn Bank. Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to natural persons residing in Bucks and Philadelphia Counties in Pennsylvania and Burlington, Camden, Gloucester and Mercer Counties in New Jersey. We also may offer for sale shares of common stock not purchased in the subscription or community offerings through a syndicate of broker-dealers, referred to in this prospectus as the syndicated offering. The syndicated offering may commence before the subscription and community offerings (including any extensions) have expired. The subscription, community, and syndicated offerings are collectively referred to in this prospectus as the offering. Piper Sandler & Co. will assist us in selling the shares on a best efforts basis in the subscription and community offerings, and will serve as sole book-running manager for any syndicated offering. Piper Sandler & Co. is not required to purchase any shares of common stock that are sold in the subscription and community offerings.
The minimum order is 25 shares. The subscription offering will end at [•], Eastern time, on [•]. We expect that the community offering, if held, will terminate at the same time, although it may continue without notice to you until [•] or longer if the Federal Reserve Board approves a later date. No single extension may exceed 90 days and the offering must be completed by [•]. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [•], or the number of shares of common stock to be sold is increased to more than 12,650,000 shares or decreased to less than 9,350,000 shares. If we extend the offering beyond [•], all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest calculated at William Penn Bank’s statement savings rate or cancel your deposit account withdrawal authorization. If we intend to sell fewer than 9,350,000 shares or more than 12,650,000 shares, we will promptly return all funds and set a new offering range. All subscribers will be resolicited and given the opportunity to place a new order. Funds received before the completion of the subscription and community offerings will be held in a segregated account at William Penn Bank and will earn interest at William Penn Bank’s statement savings rate, which is currently 0.15% per annum.
William Penn Bancorp’s common stock is currently quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group under the trading symbol “WMPN,” and we expect the shares of William Penn Bancorporation common stock will be listed on the Nasdaq Capital Market under the symbol “WMPN” upon the completion of the conversion.
OFFERING SUMMARY
Price: $10.00 Per Share
MinimumMidpointMaximum
Number of shares9,350,00011,000,00012,650,000
Gross offering proceeds$93,500,000$110,000,000$126,500,000
Estimated offering expenses, excluding selling agent and underwriters’ commissions$1,400,000$1,400,000$1,400,000
Selling agent and underwriters’ commissions(1)
$847,180$998,980$1,150,780
Estimated net proceeds$91,252,820$107,601,020$123,949,220
Estimated net proceeds per share$9.76$9.78$9.80
(1)
The amounts shown assume that 100% of the shares of common stock will be sold in the subscription offering. See “Pro Forma Data” and “The Conversion and Offering — Plan of Distribution; Selling Agent and Underwriter Compensation” for information regarding compensation to be received by Piper Sandler & Co. in the subscription and community offerings and the compensation to be received by Piper Sandler & Co. and the other broker-dealers that may participate in the syndicated offering. If all the shares of common stock were sold in the syndicated offering, the selling agent fees would be approximately $4.7 million, $5.5 million and $6.3 million at the minimum, midpoint and maximum levels of the offering, respectively, and our net proceeds and net proceeds per share from the offering would be $87.4 million and $9.35 at the minimum of the offering range, $103.1 million and $9.37 at the midpoint of the offering range and $118.7 million and $9.39 at the maximum of the offering range.
This investment involves a degree of risk, including the possible loss of principal. Please read “Risk Factors” beginning on page 17.
These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Pennsylvania Department of Banking and Securities, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
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For assistance, please contact the Stock Information Center at [•]
The date of this prospectus is [•]

 
[Map of Pennsylvania and New Jersey showing offices of William Penn Bank]
 

 
TABLE OF CONTENTS
Page
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129
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139
141
Annexes:
A-1
B-1
C-1
 
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SUMMARY
The following summary explains the significant aspects of the conversion, the offering and the exchange of existing shares of William Penn Bancorp common stock for shares of William Penn Bancorporation common stock. It may not contain all of the information that is important to you. Before making an investment decision, you should read this entire document carefully, including the consolidated financial statements and the notes thereto, and the section entitled “Risk Factors.” In this prospectus, the terms “we,” “us” and “our” refer to William Penn Bancorp and its consolidated subsidiary or its successor William Penn Bancorporation, unless the context requires otherwise.
The financial information at June 30, 2020 and 2019 and for the years then ended that is included in this prospectus is derived in part from the audited consolidated financial statements that appear in this prospectus. The financial information as of June 30, 2018, 2017 and 2016 and for the years then ended that is included in this prospectus is derived in part from the audited financial statements of William Penn Bancorp that do not appear in this prospectus.
Our Companies
William Penn Bank.   William Penn Bank is a Pennsylvania-chartered stock savings bank headquartered in Bristol, Pennsylvania, a suburb of Philadelphia. William Penn Bank has provided community banking services to individuals and small- to medium-sized businesses in the Delaware Valley area since 1870. William Penn Bank currently conducts business through its twelve branch offices located in Bucks and Philadelphia Counties in Pennsylvania and Burlington and Camden Counties in New Jersey.
William Penn Bank’s principal business consists of originating one- to four-family residential real estate mortgage loans and home equity lines of credit, and to a lesser extent, non-residential real estate, multi-family and construction loans. We also offer commercial loans and other consumer loans. We offer a variety of retail deposits to the general public in the areas surrounding our main office and our branch offices. We offer our customers a variety of deposit products with interest rates that are competitive with those of similar products offered by other financial institutions operating in our market area. We also utilize borrowings as a source of funds. Our revenues are derived primarily from interest on loans and, to a lesser extent, interest on investment securities and mortgage-backed securities. We also generate revenues from other income including deposit fees and service charges, realized gains on sales of securities, realized gains on sales of loans associated with loan production and realized gains on sales of other real estate owned.
At June 30, 2020, William Penn Bank exceeded all regulatory capital requirements and was considered a “well-capitalized” bank. William Penn Bank is regulated by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation.
William Penn Bancorp.   William Penn Bancorp, whose legal name is William Penn Bancorp, Inc., is the Pennsylvania- chartered bank holding company for William Penn Bank and is regulated by the Federal Reserve Board and the Pennsylvania Department of Banking and Securities. In April 2008, in connection with William Penn Bank’s reorganization into the mutual holding company structure, William Penn Bancorp completed its initial public offering in which it (i) sold 1,025,283 shares of its outstanding common stock to the public, (ii) issued 2,548,713 shares of its common stock to William Penn, MHC and (iii) contributed 67,022 shares of its outstanding common stock to The William Penn Community Foundation. William Penn Bancorp’s common stock is currently quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group under the trading symbol “WMPN.”
At June 30, 2020, William Penn Bancorp had consolidated total assets of $736.5 million, net loans of $508.6 million, total deposits of $559.8 million and total stockholders’ equity of $96.4 million. As of the date of this prospectus, William Penn Bancorp had 4,489,345 shares of common stock outstanding. After completion of the conversion and offering, William Penn Bancorp will cease to exist.
William Penn, MHC.   William Penn, MHC is the Pennsylvania-chartered mutual holding company of William Penn Bancorp and is regulated by the Federal Reserve Board and the Pennsylvania Department of Banking and Securities. William Penn, MHC’s sole business activity is the ownership of 3,711,114 shares of common stock of William Penn Bancorp, or 82.7% of the common stock outstanding as of the date of
 
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this prospectus. William Penn, MHC engages in no other business activities and has no stockholders. After completion of the conversion and offering, William Penn, MHC will cease to exist.
William Penn Bancorporation.   William Penn Bancorporation is a newly formed Maryland corporation. Following the completion of the conversion and offering, William Penn Bancorporation will become the publicly-traded bank holding company for William Penn Bank. The shares of William Penn Bancorporation’s common stock will trade on the Nasdaq Capital Market under the symbol “WMPN” upon the completion of the conversion.
Our principal executive offices are located at 10 Canal Street, Suite 104, Bristol, Pennsylvania 19007 and our telephone number is (267) 540-8500. Our website address is www.williampenn.bank. Information on our web site should not be considered a part of this prospectus.
Recent Acquisition History
Acquisitions of banking institutions and other financial service companies within and surrounding our market area have been, and we expect will continue to be, a key component of our strategy.
In July 2018, we acquired Audubon Savings Bank, a New Jersey-chartered mutual savings association headquartered in Audubon, New Jersey and with two additional branch offices located in Mount Laurel and Pine Hill, New Jersey. The acquisition of Audubon Savings Bank enhanced our market share in Burlington and Camden Counties in New Jersey, and provided William Penn Bank with a physical presence in Southern New Jersey.
In May 2020, we acquired both (i) Fidelity Savings and Loan Association of Bucks County, a Pennsylvania-chartered mutual savings bank headquartered in Bristol, Pennsylvania and with a branch office located in Bristol, Pennsylvania, and (ii) Washington Savings Bank, a Pennsylvania-chartered mutual savings bank headquartered in Philadelphia, Pennsylvania and with three additional branch offices located in Philadelphia, Pennsylvania. The acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank further increased our market presence in our existing market area.
Effective May 1, 2020, in connection with William Penn Bank’s acquisition of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, William Penn Bancorp and William Penn, MHC each converted from a federally-chartered savings and loan holding company to a Pennsylvania-chartered bank holding company. After completion of the conversion and offering, William Penn Bancorp and William Penn, MHC will cease to exist.
Our Market Area
We are headquartered in Bristol, Pennsylvania and currently operate twelve full-service branch offices in Bucks and Philadelphia Counties in Pennsylvania and in Burlington and Camden Counties in New Jersey. We periodically evaluate our network of banking offices to optimize the penetration in our market area. Our business strategy currently includes opening new branches in and around our market area, which may include neighboring counties.
We consider our primary market area to be the Philadelphia suburbs of lower Bucks County and Northeast Philadelphia in Pennsylvania, and the Philadelphia suburbs located in Southern New Jersey. This area has historically benefitted from having a large number of corporate headquarters and a concentration of financial services-related industries located within it. The area benefits from having a well-educated employment base and the diversity provided by a large number of industrial, service, retail and high technology businesses. Other employment is provided by a variety of wholesale trade, manufacturing, federal, state and local governments, hospitals and utilities.
Our Business Strategy
Our business strategy is to continue to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

continuing our transformation to a relationship-based banking business model;
 
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maintaining our emphasis on residential portfolio lending while also increasing our commercial lending activities;

recruiting and retaining top talent and personnel;

continuing to invest in our facilities and expanding our branch network through de novo branching;

executing a multi-faceted expansion plan that involves branch acquisitions and the possible acquisition of other financial institutions and/or financial services companies;

improving our technology platform; and

employing a stockholder-focused management of capital.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Strategy” for additional information.
Description of the Conversion
William Penn Bank has been organized in the mutual holding company structure since 2008. The following diagram shows our current organizational structure, reflecting ownership percentages as of June 30, 2020:
[MISSING IMAGE: tm2032852d2-fc_descbw.jpg]
The “second-step” conversion process that we are now undertaking involves a series of transactions by which we will convert our organization from the partially public mutual holding company form to the fully public stock holding company structure. In the stock holding company structure, all of William Penn Bank’s common stock will be owned by William Penn Bancorporation, and all of William Penn Bancorporation’s common stock will be owned by the public. We are conducting the conversion and offering under the terms of our plan of conversion and reorganization (which is referred to in this prospectus as the “plan of conversion”). Upon completion of the conversion and offering, William Penn Bancorp and William Penn, MHC will cease to exist.
As part of the conversion, we are offering for sale shares of common stock representing the 82.7% ownership interest of William Penn Bancorp that is currently held by William Penn, MHC. At the conclusion of the conversion and offering, existing public stockholders of William Penn Bancorp will receive shares of common stock of William Penn Bancorporation in exchange for their existing shares of common stock of William Penn Bancorp, based upon an exchange ratio of 2.4301 to 3.2877 at the minimum and maximum of the offering range, respectively. The actual exchange ratio will be determined at the conclusion of the conversion and the offering based on the total number of shares sold in the offering, and is intended to result in William Penn Bancorp’s existing public stockholders owning approximately the same percentage interest, 17.3%, of William Penn Bancorporation common stock as they currently own of William Penn Bancorp common stock, as adjusted to reflect the assets of William Penn, MHC, without giving effect to cash paid in lieu of issuing fractional shares or shares that existing stockholders may purchase in the offering. The exchange ratio will be adjusted downward to reflect assets held by William Penn, MHC (other than shares
 
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of stock of William Penn Bancorp) at the completion of the conversion, which assets currently consist of cash. For more information, see “— Effect of William Penn, MHC’s Assets on Minority Stock Ownership.”
After the conversion and offering, our ownership structure will be as follows:
[MISSING IMAGE: tm2032852d2-fc_ownerbw.jpg]
The normal business operations of William Penn Bank will continue without interruption during the conversion and offering, and the same officers and directors who currently serve William Penn Bancorp and William Penn Bank in the mutual holding company structure will serve the new holding company and William Penn Bank in the fully converted stock form.
Reasons for the Conversion and Offering
Our primary reasons for the conversion and offering are as follows:

Strengthen our capital position with the additional capital we will raise in the stock offering to support our planned growth.   A strong capital position is essential to achieving our long-term objectives of growing William Penn Bank and building stockholder value. While William Penn Bank exceeds all regulatory capital requirements, the proceeds from the offering will greatly strengthen our capital position and enable us to support our planned growth.

Improve the liquidity of our shares of common stock.   The larger number of shares that will be outstanding after completion of the conversion and offering, and the listing of the shares on the Nasdaq Capital Market, is expected to result in a more liquid and active market for William Penn Bancorporation common stock. A more liquid and active market will make it easier for our stockholders to buy and sell our common stock and will give us greater flexibility in implementing capital management strategies.

Transition us to a more familiar and flexible organizational structure.   The stock holding company structure is a more familiar form of organization, which we believe will make our common stock more appealing to investors. The stock holding company structure will also give us greater flexibility to access the capital markets through possible future equity and debt offerings, although we have no current plans or arrangements for any such offerings.

Facilitate future mergers and acquisitions.   Although we do not currently have any understandings or agreements regarding any specific acquisition transaction, the stock holding company structure will give us greater flexibility to structure, and make us a more attractive and competitive bidder for, mergers and acquisitions of other financial institutions as opportunities arise. The additional capital raised in the offering also will enable us to consider larger merger transactions.

Facilitate our ability to continue to pay dividends to our public stockholders.   Current regulations of the Federal Reserve Board substantially restrict the ability of certain mutual holding companies, such as William Penn, MHC, to waive dividends declared by their subsidiaries. Accordingly, because any dividends declared and paid by William Penn Bancorp must also be paid to William Penn, MHC, along with all other stockholders, the amount of dividends available for all other stockholders is less than if William Penn, MHC were to waive the receipt of dividends. The conversion will eliminate
 
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our mutual holding company structure and will facilitate our ability to continue to pay dividends to all stockholders of William Penn Bancorporation, subject to legal, regulatory and financial considerations applicable to all financial institutions. See “Our Dividend Policy.”
Terms of the Offering
We are offering between 9,350,000 and 12,650,000 shares of common stock in a subscription offering to eligible depositors and certain borrowers of William Penn Bank and to our tax-qualified employee stock ownership plan. To the extent shares remain available, we may offer shares in a community offering to natural persons residing in Bucks and Philadelphia Counties in Pennsylvania and Burlington, Camden, Gloucester and Mercer Counties in New Jersey and to the general public. If necessary, we will also offer shares to the general public in a syndicated offering. Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond [•], or the number of shares of common stock to be sold is increased to more than 12,650,000 shares or decreased to less than 9,350,000 shares. We may terminate the conversion and offering with the concurrence of the Federal Reserve Board. If terminated, orders for common stock already submitted will be canceled, subscribers’ funds will be promptly returned with interest calculated at William Penn Bank’s statement savings rate and all deposit account withdrawal authorizations will be canceled. If we extend the offering beyond [•], all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest calculated at William Penn Bank’s statement savings rate or cancel your deposit account withdrawal authorization. If we intend to sell fewer than 9,350,000 shares or more than 12,650,000 shares, we will promptly return all funds and set a new offering range. All subscribers will be resolicited and given the opportunity to place a new order.
The purchase price is $10.00 per share. All investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock in the offering. Piper Sandler & Co., our conversion advisor and marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock in the subscription and community offering. Piper Sandler & Co. is not obligated to purchase any shares of common stock in the subscription or the community offerings or the syndicated offering, if conducted.
How We Determined the Offering Range and Exchange Ratio
Federal regulations require that the aggregate purchase price of the securities sold in the offering be based upon our estimated pro forma market value after the conversion (i.e., taking into account the expected receipt of proceeds from the sale of securities in the offering), as determined by an independent appraisal. In accordance with the regulations of the Federal Reserve Board, a valuation range is established which ranges from 15% below to 15% above this pro forma market value. We have retained RP Financial, LC., which is experienced in the evaluation and appraisal of financial institutions, to prepare the appraisal. RP Financial has indicated that in its valuation as of September 2, 2020, the full market value of William Penn Bancorporation’s common stock was $132.2 million, resulting in a range from $112.4 million at the minimum to $152.1 million at the maximum. Based on this valuation, we are selling the number of shares representing the 82.7% of William Penn Bancorp currently owned by William Penn, MHC. This results in an offering range of $93.5 million to $126.5 million, with a midpoint of $110.0 million. RP Financial will receive fees totaling $100,000 for its appraisal report, plus $15,000 for any appraisal updates (of which there will be at least one) and reimbursement of out-of-pocket expenses.
In preparing its appraisal, RP Financial considered the information in this prospectus, including our financial statements. RP Financial also considered the following factors, among others:

the trading market for William Penn Bancorp common stock and securities of comparable institutions and general conditions in the market for such securities;

our historical and projected operating results and financial condition, including, but not limited to, net interest income, the amount and volatility of interest income and interest expense relative to changes in market conditions and interest rates, asset quality, levels of loan loss provisions, the amount and sources of noninterest income, and the amount of noninterest expense;
 
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the economic, demographic and competitive characteristics of our market area, including, but not limited to, employment by industry type, unemployment trends, size and growth of the population, trends in household and per capita income, and deposit market share;

a comparative evaluation of our operating and financial statistics with those of other similarly-situated, publicly-traded banks and bank and savings and loan holding companies, which included a comparative analysis of balance sheet composition, income statement and balance sheet ratios, credit and interest rate risk exposure; and

the effect of the capital raised in this offering on our net worth and earnings potential, including, but not limited to, the increase in consolidated equity resulting from the offering, the estimated increase in earnings resulting from the investment of the net proceeds of the offering, and the estimated impact on consolidated equity and earnings resulting from adoption of the proposed employee stock benefit plans.
Four measures that some investors use to analyze whether a stock might be a good investment are the ratios of the offering price to the issuer’s “book value” and “tangible book value” and the ratios of the offering price to the issuer’s earnings and “core earnings.” RP Financial considered these ratios in preparing its appraisal, among other factors. Book value is the same as total equity and represents the difference in value between the issuer’s assets and liabilities. Tangible book value is equal to total equity minus intangible assets. For purposes of the appraisal, core earnings is defined as net earnings after taxes, excluding the after-tax portion of income from non-recurring items.
The appraisal was based in part upon William Penn Bancorp’s financial condition and results of operations, the effect of the additional capital that will be raised from the sale of common stock in this offering and an analysis of a peer group of ten publicly traded thrift holding companies that RP Financial considered comparable to William Penn Bancorp. The appraisal peer group consists of the companies listed below. Total assets are as of June 30, 2020.
Company Name and Ticker SymbolExchangeHeadquartersTotal Assets
(in millions)
Prudential Bancorp, Inc. (PBIP)NasdaqPhiladelphia, Pennsylvania$1,188
Elmira Savings Bank (ESBK)NasdaqElmira, New York676
HMN Financial, Inc. (HMNF)NasdaqRochester, Minnesota863
Home Federal Bancorp, Inc. of Louisiana
(HFBL)
NasdaqShreveport, Louisiana518
HV Bancorp, Inc. (HVBC)NasdaqDoylestown, Pennsylvania425
IF Bancorp, Inc. (IROQ)NasdaqWatseka, Illinois736
Randolph Bancorp, Inc. (RNDB)NasdaqStoughton, Massachusetts724
Severn Bancorp, Inc. (SVBI)NasdaqAnnapolis, Maryland924
Standard AVB Financial Corp. (STND)NasdaqMonroeville, Pennsylvania1,061
WVS Financial Corp. (WVFC)NasdaqPittsburgh, Pennsylvania357
In applying each of the valuation methods, RP Financial considered adjustments to our pro forma market value based on a comparison of William Penn Bancorporation with the peer group. RP Financial made a downward adjustment for profitability, growth and viability of earnings and marketing of the issue and made an upward adjustment for financial condition and asset growth.
The following table presents a summary of selected pricing ratios for the peer group companies utilized by RP Financial in its appraisal and the pro forma pricing ratios for us as calculated by RP Financial in its appraisal report, based on financial data as of and for the twelve months ended June 30, 2020. Stock prices are as of September 2, 2020, as reflected in the appraisal report.
 
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Price to Core
Earnings Multiple(1)
Price to Book
Value Ratio
Price to Tangible
Book Value Ratio
William Penn Bancorporation (pro forma):
Minimum57.14x62.34%64.52%
Midpoint75.00x67.93%70.13%
Maximum97.54x72.78%74.96%
Peer group companies as of September 2, 2020:
Average11.04x69.28%72.84%
Median11.29x69.65%72.74%
(1)
Price to core earnings multiples calculated by RP Financial in the independent appraisal are based on an estimate of “core” or recurring earnings on a trailing twelve month basis through June 30, 2020. These ratios are different than presented in “Pro Forma Data.”
Compared to the average pricing ratios of the peer group, at the maximum of the offering range, our common stock would be priced at a premium of 783.5% to the peer group on a price-to-core earnings basis, a premium of 5.1% to the peer group on a price-to-book basis and a premium of 2.9% to the peer group on a price-to-tangible book basis. This means that, at the maximum of the offering range, a share of our common stock would be more expensive than the peer group on an earnings basis, a book value basis and a tangible book value basis.
Compared to the average pricing ratios of the peer group, at the minimum of the offering range, our common stock would be priced at a premium of 417.6% the peer group on a price-to-core earnings basis, a discount of 10.0% to the peer group on a price-to-book basis and a discount of 11.4% to the peer group on a price-to-tangible book basis. This means that, at the minimum of the offering range, a share of our common stock would be more expensive than the peer group on an earnings basis and less expensive than the peer group on a book value and tangible book value basis.
Our board of directors reviewed RP Financial’s appraisal report, including the methodology and the assumptions used by RP Financial, and determined that the offering range was reasonable and adequate. Our board of directors has decided to offer the shares for a price of $10.00 per share. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the market price of our stock before adoption of the plan of conversion, the requirement under Federal Reserve Board regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock, and desired liquidity in the common stock after the offering. Based upon such formula and the offering range, the exchange ratio will range from a minimum of 2.4301 shares to a maximum of 3.2877 shares of William Penn Bancorporation common stock for each current share of William Penn Bancorp common stock, with a midpoint of 2.8589 shares. Based upon this exchange ratio, we expect to issue between 1,891,151 shares and 2,558,616 shares of William Penn Bancorporation common stock to the holders of William Penn Bancorp common stock outstanding immediately before the completion of the conversion and offering.
Because of differences in important factors such as operating characteristics, location, financial performance, asset size, capital structure and business prospects between us and other fully converted institutions, you should not rely on these comparative valuation ratios as an indication as to whether or not our common stock is an appropriate investment for you. The appraisal is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our common stock. The appraisal does not indicate market value. You should not assume or expect that the appraisal described above means that our common stock will trade at or above the $10.00 purchase price after the offering.
Our board of directors makes no recommendation of any kind as to the advisability of purchasing shares of common stock in the offering.
Possible Change in Offering Range
RP Financial will update its appraisal before we complete the conversion and offering. If our pro forma market value at that time is either below $112.4 million or above $152.1 million, then, after consulting with
 
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the Federal Reserve Board, we may: terminate the offering and promptly return all funds with interest; set a new offering range and give all subscribers the opportunity to place a new order; or take such other actions as may be permitted by the Federal Reserve Board and the Securities and Exchange Commission.
Effect of William Penn, MHC’s Assets on Minority Stock Ownership
In the exchange, the public stockholders of William Penn Bancorp will receive shares of common stock of William Penn Bancorporation in exchange for their shares of common stock of William Penn Bancorp pursuant to an exchange ratio that is designed to provide, subject to adjustment, existing public stockholders with approximately the same ownership percentage of the common stock of William Penn Bancorporation after the conversion as their ownership percentage in William Penn Bancorp immediately prior to the conversion, without giving effect to new shares purchased in the offering or cash paid in lieu of any fractional shares. However, the exchange ratio will be adjusted downward to reflect assets held by William Penn, MHC (other than shares of stock of William Penn Bancorp) at the completion of the conversion, which assets currently consist of cash. William Penn, MHC had net assets of $3.9 million as of June 30, 2020, not including William Penn Bancorp common stock. This adjustment will decrease William Penn Bancorp’s public stockholders’ ownership interest in William Penn Bancorporation from 17.3% to 16.8%, and will increase the ownership interest of persons who purchase stock in the offering from 82.7% (the amount of William Penn Bancorp’s outstanding common stock held by William Penn, MHC) to 83.2%.
The Exchange of Existing Shares of William Penn Bancorp Common Stock
If you are a stockholder of William Penn Bancorp on the date we complete the conversion and offering, your existing shares will be canceled and exchanged for shares of William Penn Bancorporation. The number of shares you will receive will be based on an exchange ratio determined as of the completion of the conversion and offering. The following table shows how the exchange ratio will adjust, based on the appraised value of William Penn Bancorporation as of September 2, 2020, assuming public stockholders of William Penn Bancorp own 17.3% of William Penn Bancorp common stock and William Penn, MHC has net assets of $3.9 million immediately prior to the completion of the conversion. The table also shows how many shares of William Penn Bancorporation a hypothetical owner of William Penn Bancorp common stock would receive in the exchange for 100 shares of common stock owned at the completion of the conversion, depending on the number of shares issued in the offering.
Shares to be Sold in the
Offering
Shares to be Exchanged
for Existing Shares of
William Penn Bancorp
Total Shares
of Common
Stock to be
Outstanding
Exchange
Ratio
Equivalent
per Share
Value(1)
Shares to be
Received
for 100
Existing
Shares(2)
AmountPercentAmountPercent
Minimum9,350,00083.2%1,891,15116.8%11,241,1512.4301$24.30243
Midpoint11,000,00083.22,224,88416.813,224,8842.858928.59285
Maximum12,650,00083.22,558,61616.815,208,6163.287732.88328
(1)
Represents the value of shares of William Penn Bancorporation common stock received in the conversion by a holder of one share of William Penn Bancorp common stock at the exchange ratio, assuming a market price of $10.00 per share.
(2)
Cash will be paid instead of issuing any fractional shares.
No fractional shares of William Penn Bancorporation common stock will be issued in the conversion and offering. For each fractional share that would otherwise be issued, we will pay cash in an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 per share offering price.
How We Intend to Use the Proceeds of this Offering
The following table summarizes how we intend to use the proceeds of the offering, based on the sale of shares at the minimum and maximum of the offering range.
 
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9,350,000
Shares at
$10.00 per
Share
12,650,000
Shares at
$10.00 per
Share
(In thousands)
Offering proceeds$93,500$126,500
Less: offering expenses2,2472,551
Net offering proceeds91,253123,949
Less:
Proceeds contributed to William Penn Bank45,62661,975
Proceeds used for loan to employee stock ownership plan7,48010,120
Proceeds remaining for William Penn Bancorporation$38,147$51,854
Initially, we intend to invest the proceeds of the offering in short-term investments. In the future, William Penn Bancorporation may use the funds it retains to invest in securities, repurchase shares of its common stock (subject to regulatory restrictions) pay cash dividends or for general corporate purposes. William Penn Bank intends to use the portion of the proceeds that it receives to fund new loans, to invest in securities or for general corporate purposes. However, we have not allocated specific dollar amounts to any particular area of our loan portfolio. The amount of time that it will take to deploy the proceeds of the offering into loans will depend primarily on the level of loan demand. We may also use the proceeds of the offering to acquire other companies as opportunities arise, primarily in or adjacent to our existing market areas, although we have no specific understandings or agreements to do so at this time.
Purchases by Directors and Executive Officers
We expect that our directors and executive officers, together with their associates, will subscribe for approximately 130,200 shares, which is 1.2% of the shares offered at the midpoint of the offering. Our directors and executive officers will pay the same $10.00 per share price as everyone else who purchases shares in the offering. Like all of our depositors, our directors and executive officers have subscription rights based on their deposits and, in the event of an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion. Purchases by our directors and executive officers will count towards the minimum number of shares we must sell to close the offering. Following the conversion and offering, and including shares received in exchange for shares of William Penn Bancorp, our directors and executive officers, together with their associates, are expected to own [•] shares of William Penn Bancorporation common stock, which would equal [•]% of our outstanding shares if 11,000,000 shares are sold at the midpoint of the offering range.
Persons Who Can Order Stock in the Offering
We are offering shares of William Penn Bancorporation common stock first in a subscription offering to the following persons in the following order of priority:
1.
Persons with aggregate balances of $50 or more on deposit at William Penn Bank as of the close of business on June 30, 2019.
2.
Our employee stock ownership plan.
3.
Persons with aggregate balances of $50 or more on deposit at William Penn Bank (other than directors and executive officers of William Penn Bank) as of the close of business on [•] who are not eligible in category 1 above.
4.
William Penn Bank’s depositors as of the close of business on [•], who are not eligible under categories 1 or 3 above, and each borrower of William Penn Bank as of June 1, 2005 whose loan remained outstanding as of the close of business on [•].
The plan of conversion provides that each holder of a deposit account in Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank (each of which was merged with and into
 
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William Penn Bank effective as of May 1, 2020) has the same rights and privileges as a depositor of William Penn Bank under the plan of conversion as if such holder’s deposit account had been established at William Penn Bank on the date established at Fidelity Savings and Loan Association of Bucks County or Washington Savings Bank.
If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. See “The Conversion and Offering — Subscription Offering and Subscription Rights” for a description of the allocation procedure.
Shares of common stock not purchased in the subscription offering will be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in Bucks and Philadelphia Counties in Pennsylvania and in Burlington, Camden, Gloucester and Mercer Counties in New Jersey, and then to members of the general public. The community offering may begin concurrently with, or any time after, the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering or the community offering through a syndicated offering, which would be an offering to the general public on a best efforts basis by a syndicate of selected broker-dealers. Piper Sandler & Co. will act as sole book-running manager for any syndicated offering. We have the right to accept or reject, in our sole discretion, orders received in the community offering or in a syndicated offering. Any determination to accept or reject stock orders in the community offering or any syndicated offering will be based on the facts and circumstances available to management at the time of the determination.
Subscription Rights are Not Transferable
You are not allowed to transfer your subscription rights and we will act to ensure that you do not do so. You will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding with another person to sell or transfer subscription rights or the shares that you purchase. On your order form, you cannot add the names of other individuals for your stock registration unless they are also named on the qualifying deposit account. We will not accept any stock orders that we believe involve the transfer of subscription rights. Eligible depositors who enter into agreements to allow ineligible investors to participate in the subscription offering may be violating federal and state law and may be subject to civil enforcement actions or criminal prosecution.
Purchase Limitations
Pursuant to our plan of conversion, our board of directors has established limitations on the purchase of common stock in the offering. These limitations include the following:

The minimum purchase is 25 shares.

No individual (or individuals exercising subscription rights through a single qualifying account held jointly) may purchase more than $750,000 of common stock (which equals 75,000 shares) in the offering. In addition, if any of the following persons purchase shares of common stock, their purchases, in all categories of the offering combined, when aggregated with your purchases, cannot exceed $1,500,000 of common stock (which equals 150,000 shares):

Any person who is related by blood or marriage to you and who either lives in your home or who is a director or officer of William Penn Bank;

Companies or other entities in which you are an officer or partner or have a 10% or greater beneficial ownership interest; and

Trusts or other estates in which you have a substantial beneficial interest or as to which you serve as a trustee or in another fiduciary capacity.
Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to this overall purchase limitation. We have the right to determine, in our sole discretion, whether prospective purchasers are associates or acting in concert.
 
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No individual, together with any associates, and no group of persons acting in concert may purchase shares of common stock so that, when combined with shares of William Penn Bancorporation common stock received in exchange for shares of William Penn Bancorp common stock, such person or persons would hold more than 4.9% of the number of shares of William Penn Bancorporation common stock outstanding upon completion of the conversion and offering. No person will be required to divest any shares of William Penn Bancorp common stock or be limited in the number of shares of William Penn Bancorporation to be received in exchange for shares of William Penn Bancorp common stock as a result of this purchase limitation.
Subject to the Federal Reserve Board’s approval, we may increase or decrease the purchase limitations at any time. If we increase the maximum purchase limitation to 5.0% of the shares of common stock sold in the offering, we may further increase the maximum purchase limitation to 9.99%, provided that orders for common stock exceeding 5.0% of the shares of common stock sold in the offering may not exceed in the aggregate 10.0% of the total shares of common stock sold in the offering. Our tax-qualified employee stock ownership plan is authorized to purchase up to 10% of the shares sold in the offering, without regard to these purchase limitations, although it currently expects to only subscribe for an amount equal to 8% of the shares sold in the offering.
Conditions to Completing the Conversion and Offering
We cannot complete the conversion and offering unless:

the plan of conversion is approved by at least a majority of votes eligible to be cast by members of William Penn, MHC;

the plan of conversion is approved by at least two-thirds of the outstanding shares of William Penn Bancorp, including shares held by William Penn, MHC;

the plan of conversion is approved by at least a majority of the votes eligible to be cast by stockholders of William Penn Bancorp, excluding shares held by William Penn, MHC;

we sell at least the minimum number of shares offered; and

we receive the final approval of the Federal Reserve Board and the Pennsylvania Department of Banking and Securities to complete the conversion and offering.
William Penn, MHC, which owns 82.7% of the outstanding shares of William Penn Bancorp, intends to vote these shares in favor of the plan of conversion. In addition, as of June 30, 2020, directors and executive officers of William Penn Bancorp and their associates beneficially owned 67,114 shares of William Penn Bancorp or [•]% of the outstanding shares, and they intend to vote those shares in favor of the plan of conversion. Tyndall Capital Partners LP and Jeffrey Halis who, together, beneficially own 342,817 shares of William Penn Bancorp common stock (representing 7.6% of William Penn Bancorp’s outstanding shares and 44.1% of outstanding shares held by William Penn Bancorp’s public stockholders) have entered into a written agreement with us pursuant to which they have agreed to vote all such shares in favor of the plan of conversion. See “Our Management — Stockholder Agreement” for a detailed description of the written agreement we have entered into with Tyndall Capital Partners LP and Mr. Halis.
Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares
We must sell a minimum of 9,350,000 shares to complete the conversion and offering. Purchases by our directors and executive officers and by our employee stock ownership plan will count towards the minimum number of shares we must sell to complete the offering. If we do not receive orders for at least 9,350,000 shares of common stock in the subscription and community offerings, we may increase the purchase limitations and/or seek regulatory approval to extend the offering beyond [•] (provided that any such extension will require us to resolicit subscribers). Alternatively, we may terminate the offering, in which case we will promptly return your funds with interest calculated at William Penn Bank’s statement savings rate, which is currently 0.15% per annum, and cancel all deposit account withdrawal authorizations.
 
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How to Purchase Common Stock
In the subscription offering and the community offering, you may pay for your shares by:
1.
personal check, bank check or money order made payable directly to “William Penn Bancorporation” (William Penn Bank lines of credit checks and third-party checks of any type will not be accepted); or
2.
authorizing us to withdraw money from a William Penn Bank deposit account.
William Penn Bank is not permitted to lend funds (including funds drawn on a William Penn Bank line of credit) to anyone to purchase shares of common stock in the offering.
You may not designate on your stock order form a direct withdrawal from a retirement account at William Penn Bank.
Personal checks will be immediately cashed, so the funds must be available within the account when your stock order form is received by us. Subscription funds submitted by check or money order will be held in a segregated account at William Penn Bank. We will pay interest calculated at William Penn Bank’s statement savings rate from the date those funds are received until completion or termination of the offering. Withdrawals from certificate of deposit accounts at William Penn Bank to purchase common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with William Penn Bank must be available within the deposit accounts at the time the stock order form is received. A hold will be placed on the amount of funds designated on your stock order form. Those funds will be unavailable to you during the offering; however, the funds will not be withdrawn from the accounts until the offering is completed and will continue to earn interest at the applicable contractual deposit account rate until the completion of the offering.
You may deliver your stock order form in one of three ways: by mail, using the stock order reply envelope provided; by overnight delivery to the address indicated on the stock order form or by hand-delivery to [•]. Stock order forms will not be accepted at our other William Penn Bank offices and should not be mailed to William Penn Bank. Once submitted, your order is irrevocable. We are not required to accept copies or facsimiles of order forms.
Using IRA Funds to Purchase Shares in the Offering
You may be able to subscribe for shares of common stock using funds in your individual retirement account(s), or IRA. If you wish to use some or all of the funds in your William Penn Bank IRA or other retirement account, the applicable funds must first be transferred to a self-directed retirement account maintained by an unaffiliated institutional trustee or custodian, such as a brokerage firm. An annual fee may be payable to the new trustee. If you do not have such an account, you will need to establish one and transfer your funds before placing your stock order. Our Stock Information Center can give you guidance if you wish to place an order for stock using funds held in a retirement account at William Penn Bank or elsewhere. Because processing retirement account transactions takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [•] offering deadline. Whether you may use retirement funds for the purchase of shares in the offering will depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.
Deadline for Ordering Stock in the Subscription and Community Offerings
The subscription offering will end at [•], Eastern time, on [•]. If you wish to purchase shares, a properly completed and signed original stock order form, together with full payment for the shares of common stock, must be received (not postmarked) no later than this time. We expect that the community offering, if held, will terminate at the same time, although it may continue until [•], or longer if the Federal Reserve Board approves a later date. No single extension may be for more than 90 days. We are not required to provide notice to you of an extension unless we extend the offering beyond [•], in which case all subscribers in the subscription and community offerings will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest calculated at William Penn Bank’s statement savings rate or cancel your deposit account withdrawal
 
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authorization. If we intend to sell fewer than 9,350,000 shares or more than 12,650,000 shares, we will promptly return all funds and set a new offering range. All subscribers will be notified and given the opportunity to place a new order.
Benefits of the Conversion to Management
We will recognize additional compensation expense related to the expanded employee stock ownership plan and the intended new equity incentive plan. The actual expense will depend on the market value of our common stock and will increase as the value of our common stock increases. As reflected under “Pro Forma Data,” based upon assumptions set forth therein, the annual expense related to the employee stock ownership plan and the intended new equity incentive plan would have been $1.8 million for the year ended June 30, 2020 on an after-tax basis, assuming shares had been sold at the maximum of the offering range. If awards under the intended new equity incentive plan are funded from authorized but unissued stock, your ownership interest would be diluted by up to approximately 10.4%. See “Pro Forma Data” for an illustration of the effects of each of these plans.
Employee Stock Ownership Plan.   In connection with our reorganization to the mutual holding company structure in April 2008, William Penn Bank’s employee stock ownership plan purchased 87,384 shares of William Penn Bancorp common stock in William Penn Bancorp’s minority stock offering using funds borrowed from William Penn Bancorp. The loan from William Penn Bancorp to the employee stock ownership plan has been fully repaid and our employee stock ownership plan is currently administered on a “pay as you go” basis, whereby William Penn Bank periodically contributes cash to the employee stock ownership plan to purchase shares of William Penn Bancorp common stock that will be allocated to plan participants’ accounts.
Our existing employee stock ownership plan intends to purchase an amount of shares equal to 8% of the shares sold in the offering. The plan will use the proceeds from a 25-year loan from William Penn Bancorporation to purchase these shares. We reserve the right to purchase shares of common stock in the open market following the offering to fund all or a portion of the intended purchases, subject to Federal Reserve Board approval. As the loan is repaid and shares are released from collateral, the shares will be allocated to the accounts of employee participants based on an individual’s compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the plan. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan.
New Equity Incentive Plan.   We do not maintain an existing equity incentive plan, but intend to implement a new equity incentive plan no earlier than six months after completion of the conversion and offering. We will submit this plan to our stockholders for their approval. Under this plan, we may grant stock options in an amount up to 10.0% of the number of shares sold in the offering and restricted stock awards in an amount up to 4.0% of the shares sold in the offering. Stock options will be granted at an exercise price equal to 100% of the fair market value of our common stock on the option grant date. Shares of restricted stock will be awarded at no cost to the recipient. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. The new equity incentive plan may award a greater number of options and restricted stock if the plan is adopted after one year from the date of the completion of the conversion. We have not yet determined the number of shares that would be reserved for issuance under this plan. The new equity incentive plan will comply with all applicable Federal Reserve Board regulations.
The following table summarizes, at the maximum of the offering range, the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards and stock options that are expected to be available under the new equity incentive plan (assuming the equity incentive plan is implemented within one year following the completion of the conversion). The equity incentive plan may award a greater number of options and restricted stock awards if the plan is adopted more than one year after completion of the conversion.
 
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Number of Shares to be Granted or Purchased
Dilution Resulting
From
the Issuance of
Shares for
Stock Benefit Plans
Total
Estimated
Value At
Maximum of
Offering
Range
(Dollars in thousands)
At Maximum of
Offering Range
As a Percentage of
Common Stock to be
Issued in the
Offering(3)
Employee stock ownership plan(1)
1,012,0008.0%0.00%$10,120
Restricted stock awards(1)
506,0004.03.225,060
Stock options(2)
1,265,00010.07.683,782
Total2,783,00022.0%10.43%$18,962
(1)
Assumes the value of William Penn Bancorporation common stock is $10.00 per share for determining the total estimated value.
(2)
Assumes the value of a stock option is $2.99, which was determined using the Black-Scholes option pricing formula. See “Pro Forma Data.”
(3)
At the maximum of the offering range, we will sell 12,650,000 shares.
We may fund our plans through open market purchases, as opposed to new issuances of authorized common stock. Federal Reserve Board regulations do not permit us to repurchase our shares during the first year following the completion of this offering except to fund the grants of restricted stock under the stock-based incentive plan or, with prior regulatory approval, under extraordinary circumstances.
The following table presents information regarding our existing employee stock ownership plan and additional shares to be purchased by our employee stock ownership plan, and our proposed new equity incentive plan. The table below assumes that 15,208,616 shares are outstanding after the offering, which includes the sale of 12,650,000 shares in the offering at the maximum of the offering range and the issuance of 2,558,616 shares in exchange for shares of William Penn Bancorp using an exchange ratio of 3.2877. It is also assumed that the value of the stock is $10.00 per share.
Eligible
Participants
Number of
Shares at
Maximum of
Offering Range
Estimated
Value of
Shares
Percentage of
Shares
Outstanding After
the Conversion
and Offering
(Dollars in thousands)
Employee Stock Ownership Plan:Employees
Shares purchased in 2008 offering(1)
287,292(2)$8741.89%
Shares to be purchased in this offering1,012,00010,1206.65
Total1,299,292$10,9948.54%
(1)
Represents 87,384 shares purchased in William Penn Bancorp’s 2008 minority stock offering, as adjusted for the 3.2877 exchange ratio at the maximum of the offering range.
(2)
As of June 30, 2020, all of these shares had been allocated to the accounts of participants and no shares remain unallocated.
Market for William Penn Bancorporation’s Common Stock
William Penn Bancorp’s common stock is currently quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group under the trading symbol “WMPN,” and we expect the shares of William Penn Bancorporation common stock will be listed on the Nasdaq Capital Market under the symbol “WMPN” upon the completion of the conversion. Once shares of the common stock begin trading, you may contact a stock broker to buy or sell shares. Persons purchasing the common stock in the offering may not be able to sell their shares at or above the $10.00 offering price. Brokerage firms typically charge commissions related to the purchase or sale of securities.
 
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Our Dividend Policy
William Penn Bancorp has historically paid an annual cash dividend to all stockholders and, for the year ended June 30, 2020, declared an annual cash dividend of $0.42 per share.
After the completion of the conversion and offering, we intend to pay cash dividends on a quarterly basis but have not determined the timing of our first quarterly dividend following the completion of the conversion and offering. In determining the amount of any dividends, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements and alternative uses for capital, the number of shares issued in the offering, industry standards and economic conditions.
We also intend to seek regulatory approval, subsequent to the completion of the conversion and offering, to pay a one-time, special dividend of up to $0.50 per share to all stockholders of William Penn Bancorporation. However, there can be no assurance that we will obtain such approval or when such approval may be obtained.
We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future. See “Our Dividend Policy” for additional information.
Tax Consequences
As a general matter, (1) the conversion will not be a taxable transaction for purposes of federal or state income taxes to us or to existing stockholders of William Penn Bancorp who receive William Penn Bancorporation common stock in exchange for their William Penn Bancorp common stock and (2) the conversion will not be a taxable transaction for purposes of federal or state income taxes to us or persons who receive or exercise subscription rights. Existing stockholders of William Penn Bancorp who receive cash in lieu of fractional share interests in shares of William Penn Bancorporation will recognize gain or loss equal to the difference between the cash received and the tax basis of the fractional share. Kilpatrick Townsend & Stockton LLP and S.R. Snodgrass, P.C. have issued us opinions to this effect, which are summarized under “The Conversion and Offering — Material Income Tax Consequences.”
Emerging Growth Company Status
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies. See“Risk Factors — Risks Related to Our Business — We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors” and “Supervision and Regulation — Emerging Growth Company Status.”
An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. We have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Book Entry Delivery
All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings or in any syndicated offering will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. We expect trading in the stock to begin on the day of the completion of the conversion and offering or the next business day. The conversion and offering are
 
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expected to be completed as soon as practicable following satisfaction of the conditions described above in “— Conditions to Completing the Conversion and Offering.”It is possible that until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Stock Information Center
Our banking office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the offering, please call our Stock Information Center. The telephone number is [•]. The Stock Information Center, which is located at [•], is open Monday through Friday from [•] a.m. to [•] p.m., Eastern time. The Stock Information Center will be closed weekends and bank holidays.
 
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RISK FACTORS
You should consider carefully the following risk factors in evaluating an investment in the shares of our common stock.
Risks Related to Our Business
Risks Related to COVID-19 Pandemic and Associated Economic Slowdown
The widespread outbreak of the novel coronavirus (“COVID-19”) has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.
The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States. In our market area, stay-at-home orders and travel restrictions — and similar orders imposed across the United States to restrict the spread of COVID-19 — resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and working remotely have limited the ability of businesses to return to pre-pandemic levels of activity.
We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities and limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.
The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. During the quarter ended June 30, 2020, we provided $2.4 million in Paycheck Protection Program (PPP) loans for 56 new and existing customers. We also granted eligible loan modifications in the form of payment deferral of principal and interest for $49.8 million of existing loans under the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.
The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could, among other things: (1) cause changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers; (2) cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the travel, lodging, retail, and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures; (3) cause the value of collateral for loans, especially real estate, to decline in value; (4) reduce the availability and productivity of our employees; (5) require us to increase our allowance for credit losses; (6) cause our vendors and counterparties to be unable to meet existing obligations to us; (7) negatively impact the business and operations of third party service providers that perform critical services for our business; (8) impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions; (9) cause the value of our securities portfolio to decline; and (10) cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.
 
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Risks Related to Our Lending Activities
Our emphasis on residential mortgage loans exposes us to lending risks.
At June 30, 2020, $345.9 million, or 66.9%, of our loan portfolio was secured by one- to four-family real estate and we intend to continue to make loans of this type after the offering. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.
Our origination of non-owner occupied one- to four-family residential mortgage loans may expose us to increased lending risks.
At June 30, 2020, loans secured by non-owner occupied one- to four-family residential properties totaled $114.1 million, or 27.9% of our total residential loan portfolio (including home equity loans and lines of credit and residential construction loans). We intend to continue to make loans secured by non-owner occupied one- to four-family residential properties in the future. Loans secured by non-owner occupied properties generally expose a lender to greater risk of non-payment and loss than loans secured by owner occupied properties because repayment of such loans depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties.
Our planned increase in commercial real estate and commercial lending could expose us to increased lending risks and related loan losses.
At June 30, 2020, we had $104.8 million in commercial real estate and business loans (which include non-residential real estate loans, multi-family loans, land loans and commercial loans), which represented 20.3% of our total loan portfolio at that date. Of this amount, $76.7 million, or 14.8% of our total loan portfolio, was comprised of non-residential real estate loans made to small and medium-sized business located in our market area. Our current business strategy is to continue to increase our originations of commercial real estate loans in accordance with our conservative underwriting guidelines. Commercial real estate loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans.
The offering will allow us to increase our loans-to-one borrower limit which may result in larger loan balances. In addition, to the extent that borrowers have more than one commercial loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. Furthermore, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.
If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.
In determining the amount of the allowance for loan losses, we analyze, among other things, our loss and delinquency experience by portfolio segments and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the actual results are different from our estimates, or our
 
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analyses are inaccurate, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance further in the future.
In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase our provision for loan losses. Any increase in our allowance for loan losses or loan charge-offs resulting from these regulatory reviews may have a material adverse effect on our results of operations and financial condition.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in our local market area.
While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in the suburbs of Philadelphia, particularly in Bucks and Philadelphia Counties in Pennsylvania and in Southern New Jersey. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investment securities, and our ongoing operations, costs and profitability. Further, declines in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our non-performing and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations. Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing non-performing loans and the lengthy foreclosure process in Pennsylvania and New Jersey, where the majority of our borrowers reside. To the extent that we must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect our capital, liquidity, and financial condition.
Risks Related to our Deferred Tax Assets and Goodwill
We may not be able to realize our deferred tax assets.
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At June 30, 2020, we had net deferred tax assets totaling $4.8 million. We have determined that no valuation allowance is required as of June 30, 2020, although there is no guarantee that those assets will be fully recognizable in future periods. Management regularly reviews the net deferred tax asset for recoverability based on our history of earnings, expectations for future earnings and expected timing of reversals of temporary differences.
The value of our goodwill may decline in the future.
As of June 30, 2020, we had $4.9 million of goodwill. A significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates, any or all of which could be materially impacted by many of the risk factors discussed herein, may necessitate our taking charges in the future related to the impairment of our goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If the fair value of our net assets improves at a faster
 
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rate than the market value of our reporting units, or if we were to experience increases in book values of a reporting unit in excess of the increase in fair value of equity, we may also have to take charges related to the impairment of our goodwill. If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations.
Risks Related to Our Growth Strategy
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
Acquisitions of banking institutions and other financial service companies within and surrounding our market area have been, and we expect will continue to be, a key component of our strategy. In July 2018, we acquired Audubon Savings Bank, a New Jersey- chartered mutual savings association headquartered in Audubon, New Jersey. Additionally, in May 2020, we acquired both Fidelity Savings and Loan Association of Bucks County, a Pennsylvania-chartered mutual savings bank headquartered in Bristol, Pennsylvania and Washington Savings Bank, a Pennsylvania-chartered mutual savings bank headquartered in Philadelphia, Pennsylvania. It is possible that we could acquire other banking institutions, other financial services companies or branches of financial institutions in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the dilution of our tangible book value per share. Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, stockholder approvals. Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the implementation of our business strategies. Furthermore, mergers and acquisitions involve a number of risks and challenges, including (1) our ability to achieve planned synergies and to integrate the branches and operations we acquire, and the internal controls and regulatory functions of the acquired entity into our current operations and (2) the diversion of management’s attention from existing operations, which may adversely affect our ability to successfully conduct our business and negatively impact our financial results.
The building of market share through our branch office strategy, and our ability to achieve profitability on new branch offices, may increase our expenses and negatively affect our earnings.
We believe there are branch expansion opportunities within our market area and adjacent markets, including markets in other states, and will seek to grow our deposit base by adding branches to our existing twelve-branch network. There are considerable costs involved in opening branch offices, especially in light of the capabilities needed to compete in today’s environment. Moreover, new branch offices generally require a period of time to generate sufficient revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, new branch offices could negatively impact our earnings and may do so for some period of time. Our investments in products and services, and the related personnel required to implement new policies and procedures, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future. The profitability of our expansion strategy will depend on whether the income that we generate from the new branch offices will offset the increased expenses resulting from operating these branch offices.
Risks Related to Our Business and Industry Generally
Ineffective liquidity management could adversely affect our financial results and condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. Our access to deposits may also
 
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be affected by the liquidity needs of our depositors. In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
Strong competition within our market area could hurt our profits and slow growth.
Our profitability depends upon our continued ability to compete successfully in our market area. We face intense competition both in making loans and attracting deposits. We continue to face stiff competition for one- to four-family residential loans from other financial service providers, including large national residential lenders, local community banks and credit unions. Other competitors for one- to four-family residential loans include credit unions and mortgage brokers which keep overhead costs and mortgage rates down by selling loans and not holding or servicing them. Our competitors for commercial real estate loans include other community banks and commercial lenders, some of which are larger than us and have greater resources and lending limits than we have and offer services that we do not provide. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. We expect competition to remain strong in the future.
Changes in interest rates may hurt our profits and asset values and our strategies for managing interest rate risk may not be effective.
We are subject to significant interest rate risk as a financial institution with a high percentage of fixed-rate loans and certificates of deposit on our balance sheet. During the past several years, it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels. As a result, recent market rates on the loans we have originated and the yields on securities we have purchased have been at relatively low levels. Our interest-bearing liabilities, on the other hand, likely will reprice or mature more quickly than our interest-earning assets, much of which has been booked relatively recently. Accordingly, if market interest rates increase, our net interest income may be adversely affected and may decrease, which may have an adverse effect on our future profitability. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted-average yield earned on our interest-earning assets and the weighted-average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect: (1) our ability to originate loans; (2) the value of our interest-earning assets and our ability to realize gains from the sale of such assets; (3) our ability to obtain and retain deposits in competition with other available investment alternatives; and (4) the ability of our borrowers to repay their loans, particularly adjustable or variable-rate loans. Interest rates are highly sensitive to many factors, including government monetary policies, domestic and international economic and political conditions and other factors beyond our control.
We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.
We depend upon the services of the members of our senior management team who direct our strategy and operations. Our executive officers and lending personnel possess expertise in our markets and key business relationships, and the loss of any one of them could be difficult to replace. Our loss of one or more of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets.
We are a community bank and our ability to maintain our reputation is critical to the success of our business. The failure to do so may adversely affect our performance.
We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local
 
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markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers or otherwise, our business and operating results may be materially adversely affected.
We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions and cybersecurity breaches could have a material adverse effect on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party service providers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on us.
Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our third-party service providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Security breaches and cybersecurity threats could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. While we have established policies and procedures to prevent or limit the impact of cyber-attacks, there can be no assurance that such events will not occur or will be adequately addressed if they do. In addition, we also outsource certain cybersecurity functions, such as penetration testing, to third party service providers, and the failure of these service providers to adequately perform such functions could increase our exposure to security breaches and cybersecurity threats. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other malicious code and cyber-attacks that could have an impact on information security. Any such breach or attacks could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties; disrupt our operations and the services we provide to customers; damage our reputation; and cause a loss of confidence in our products and services, all of which could adversely affect our financial condition and results of operations.
We must keep pace with technological change to remain competitive.
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel. In addition, technology has lowered barriers to entry into the financial services market
 
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and made it possible for financial technology companies and other non-bank entities to offer financial products and services traditionally provided by banks. The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or outside persons, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulations, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Although our control testing has not identified any significant deficiencies in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
Acts of terrorism and other external events could impact our business.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. The occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Regulation of the financial services industry is intense, and we may be adversely affected by changes in laws and regulations.
William Penn Bank is subject to extensive government regulation, supervision and examination by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities. In addition, William Penn, MHC and William Penn Bancorp are, and William Penn Bancorporation. will be, subject to extensive regulation, supervision and examination by the Federal Reserve Board and the Pennsylvania Department of Banking and Securities. Such regulation, supervision and examination govern the activities in which we may engage, and are intended primarily for the protection of the deposit insurance fund and William Penn Bank’s depositors and not for the protection of our stockholders. Federal and state regulatory agencies have the ability to take strong supervisory actions against financial institutions that have experienced increased loan production and losses and other underwriting weaknesses or have compliance weaknesses. These actions include the entering into of formal or informal written agreements and cease and desist orders that place certain limitations on their operations. If we were to become subject to a regulatory action, such action could negatively impact our ability to execute our business plan, and result in operational restrictions, as well as our ability to grow, pay dividends, repurchase stock or engage in mergers and acquisitions. See “Regulation — Banking Regulation — Capital Requirements” for a discussion of regulatory capital requirements.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
William Penn Bancorporation is an emerging growth company and, for so long as it continues to be an emerging growth company, William Penn Bancorporation may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
 
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nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, William Penn Bancorporation also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
William Penn Bancorporation will cease to be an emerging growth company upon the earliest of: (1) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (2) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. Investors may find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
Risks Related to the Trading History of our Common Stock
The trading history of our common stock is characterized by low trading volume. The value of your common stock may be subject to sudden decreases due to the volatility of the price of our common stock.
Although our common stock trades on OTC Pink Marketplace, it has not been regularly traded. We cannot predict the extent to which investor interest in us will lead to a more active trading market in our common stock or how liquid that market might become. A public trading market having the desired characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of willing buyers and sellers of our common stock at any given time, which presence is dependent upon the individual decisions of investors, over which we have no control.
The market price of our common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other risk factors and the following:

actual or anticipated fluctuations in our operating results;

changes in interest rates;

changes in the legal or regulatory environment in which we operate;

press releases, announcements or publicity relating to us or our competitors or relating to trends in our industry;

changes in expectations as to our future financial performance, including financial estimates or recommendations by securities analysts and investors;

future issuances of our common stock;

changes in economic conditions in our marketplace, general conditions in the U.S. economy, financial markets or the banking industry; and

other developments affecting our competitors or us.
These factors may adversely affect the trading price of our common stock, regardless of our actual operating performance, and could prevent you from selling your common stock at or above the price at which you purchased shares. In addition, the stock markets, from time to time, experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of our common stock, regardless of our trading performance.
 
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Risks Related to the Offering
The future price of the shares of common stock may be less than the $10.00 purchase price per share in the offering.
If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price in the offering. In many cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of William Penn Bancorporation and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.
William Penn Bancorp does not have an active trading market for its common stock and an active trading market for William Penn Bancorporation’s common stock may not develop.
William Penn Bancorp’s common stock is currently quoted on the OTC Pink Marketplace operated by OTC Markets Group under the trading symbol “WMPN.” Upon completion of the conversion, the common stock of William Penn Bancorporation will replace the existing shares of William Penn Bancorp, and we expect the common stock will be listed on the Nasdaq Capital Market. William Penn Bancorp does not have an active trading market for its common stock and an active public trading market for William Penn Bancorporation’s common stock may not develop or be sustained after the stock offering. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice, and the sale of a large number of shares at one time could depress the market price.
Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.
We intend to invest 50% of the net proceeds of the offering in William Penn Bank. We may use any remaining net proceeds to invest in short-term investments and for general corporate purposes, including repurchasing shares of our common stock and paying dividends. We also expect to use a portion of the net proceeds we retain to fund a loan to our employee stock ownership plan to purchase shares of common stock in the offering. William Penn Bank may use the net proceeds it receives to fund new loans, develop new products and services, expand its office network by establishing additional loan production offices, or for other general corporate purposes. However, with the exception of funding the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as opening or acquiring new branches or acquiring other financial institutions, may require the approval of the Federal Deposit Insurance Corporation, the Pennsylvania Department of Banking and Securities or the Federal Reserve Board. We have not established a timetable for investing the net proceeds, and we cannot predict how long we will require to invest the net proceeds. Our failure to reinvest these funds effectively would reduce our profitability and may adversely affect the value of our common stock.
Our stock-based benefit plans will increase our expenses and reduce our net income.
We intend to adopt one or more stock-based benefit plans after the conversion and offering, subject to stockholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the stock-based benefit plans. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors which we cannot predict at this time. If we adopt stock-based benefit
 
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plans within 12 months following the conversion, the shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the stock offering. If we adopt stock-based benefit plans more than 12 months after the completion of the conversion, we may award restricted shares of common stock or grant options in excess of these amounts, which would further increase costs.
In addition, we will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for shares purchased in the offering and for our new stock-based benefit plans has been estimated to be approximately $2.2 million ($1.8 million after tax) at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of our proposed stock-based plans, see “Our Management — Executive Compensation — Future Equity Incentive Plan.”
The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.
We intend to adopt one or more stock-based benefit plans following the conversion and offering. These plans may be funded either through open market purchases of our common stock or from the issuance of authorized but unissued shares of common stock. Our ability to repurchase shares of our common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the stock-based benefit plans through open market purchases, stockholders would experience dilution in ownership interest if newly issued shares of our common stock are used to fund stock options and shares of restricted common stock in amounts equal to regulatory limitations of 10% and 4%, respectively, of the shares of common stock sold in the offering, and all such stock options are exercised. Such dilution would also reduce earnings per share. If we adopt the plans more than 12 months following the conversion, the stock-based benefit plans would not be subject to these regulatory limitations and stockholders could experience greater dilution.
Although the implementation of stock-based benefit plans would be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.
We have not determined when we will adopt one or more stock-based benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the conversion may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.
If we adopt stock-based benefit plans more than 12 months following the completion of the conversion, then grants of shares of common stock or stock options under our proposed stock-based benefit plans may exceed 4% and 10%, respectively, of shares of common stock sold in the stock offering. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “— Our stock-based benefit plans will increase our expenses and reduce our net income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in “— The implementation of stock-based benefit plans may dilute your ownership interest.” Historically, stockholders have approved these stock-based benefit plans. Although the implementation of stock-based benefit plans would be subject to stockholder approval, the timing of the implementation of such plans will be at the discretion of our board of directors.
Our return on equity will be low following the stock offering. This could negatively affect the trading price of our shares of common stock.
Net income divided by average stockholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity is low and will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt, and may be negatively affected by higher minimum regulatory
 
26

 
capital requirements. Until we can increase our net interest income and non-interest income, we expect our return on equity to be low, which may reduce the market price of our shares of common stock.
We will incur increased costs as a result of operating as a fully public company and our management will be required to devote substantial time to new compliance initiatives.
Upon completion of the conversion and offering, we will incur significant legal, accounting and other expenses associated with being a fully public company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives, which could divert their attention from our core operations, and we may also need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Various factors may make takeover attempts more difficult to achieve.
Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of William Penn Bancorporation without our board of directors’ approval. Under regulations applicable to the conversion, for a period of three years following completion of the conversion, no person may offer to acquire or acquire beneficial ownership of more than 10% of our common stock without the prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must obtain the approval of the Federal Reserve Board before acquiring control of a bank holding company. Moreover, there also are provisions in our articles of incorporation and bylaws that we may use to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of William Penn Bancorporation without the consent of our board of directors. Taken as a whole, these statutory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock. For additional information, see “Restrictions on Acquisition of William Penn Bancorporation.”
You may not revoke your decision to purchase William Penn Bancorporation common stock in the subscription or community offerings after you send us your order.
Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering, including any extension of the expiration date and consummation of a syndicated offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, among other factors, there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond [•], or the number of shares to be sold in the offering is increased to more than 12,650,000 shares or decreased to fewer than 9,350,000 shares.
The distribution of subscription rights could have adverse income tax consequences.
If the subscription rights granted to certain current or former depositors and borrowers of William Penn Bank are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received a letter from RP Financial which states its belief, without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service, that as an ascertainable factual matter the subscription rights will have no market value; however, such letter is not binding on the Internal Revenue Service.
 
27

 
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include, but are not limited to:

statements of our beliefs, goals, intentions and expectations;

statements regarding our business plans, prospectus, growth and operating strategies;

statements regarding the quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

general economic conditions, either nationally or in our market area, that are worse than expected;

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;

increased competitive pressures among financial services companies;

changes in consumer spending, borrowing and savings habits;

changes in the quality and composition of our loan or investment portfolios;

changes in real estate market values in our market area;

decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area

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;

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;

technological changes that may be more difficult or expensive than expected;

success or consummation of new business initiatives may be more difficult or expensive than expected;

the inability to successfully integrate acquired businesses and financial institutions into our business operations;

adverse changes in the securities markets;

the inability of third party service providers to perform; and

changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.
Any of the forward-looking statements that we make in this prospectus and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
Further information on other factors that could affect us are included in the section captioned “Risk Factors.”
 
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information as of June 30, 2020 and 2019 and for the years then ended is derived in part from the audited consolidated financial statements that appear in this prospectus. The information at June 30, 2018, 2017 and 2016, and for the years then ended, is derived in part from our audited financial statements that do not appear in this prospectus. The information presented below reflects William Penn Bancorp on a consolidated basis and does not include the financial condition, results of operations or other data of William Penn, MHC.
As described elsewhere in this prospectus, we have consummated three acquisitions in recent fiscal periods. In July 2018, we acquired Audubon Savings Bank, a New Jersey-chartered mutual savings association headquartered in Audubon, New Jersey. Additionally, in May 2020, we acquired both Fidelity Savings and Loan Association of Bucks County, a Pennsylvania-chartered mutual savings bank headquartered in Bristol, Pennsylvania, and Washington Savings Bank, a Pennsylvania-chartered mutual savings bank headquartered in Philadelphia, Pennsylvania. The results of operation and other financial data of the acquired companies are not included in the table below for the periods prior to their respective acquisition dates and, therefore, the results of operations and other financial data for these prior periods are not comparable in all respects and may not be predictive of future results.
For additional information about Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, you should read the consolidated financial statements of those entities, as well as the unaudited pro forma condensed consolidated information, included in Annex A through Annex C to this prospectus.
At June 30,
(Dollars in thousands, except per share amounts)20202019201820172016
Financial Condition Data:
Total assets$736,452$415,829$301,109$315,997$314,074
Total cash and cash equivalents82,91526,16816,12813,25211,234
Interest-bearing time deposits2,3008,48632,42245,40045,645
Investment securities available-for-sale89,99820,6601,8162,9104,076
Investment securities held-to-maturity1,9063,1474,2264,938
Loans receivable, net508,605326,017233,389234,865231,911
Deposits559,848281,206180,657182,199177,300
Federal Home Loan Bank advances64,89250,00051,50065,50070,500
Stockholders’ equity96,36576,63061,89561,60459,903
Operating Data:
Interest and dividend income$19,817$17,821$12,175$11,950$12,435
Interest expense5,0183,5913,1823,4483,524
Net interest income14,79914,2308,9938,5028,911
Provision (credit) for loan losses62688(120)155
Net interest income after provision for loan losses14,17314,1429,1138,4878,906
Non-interest income2,1601,127641511493
Non-interest expense15,39210,4536,2835,1095,722
Income before income taxes9414,8163,4713,8893,677
Income tax (benefit) expense(387)1,0602,0071,3251,246
Net income$1,328$3,756$1,464$2,564$2,431
 
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At June 30,
(Dollars in thousands, except per share amounts)20202019201820172016
Average common shares outstanding – basic4,065,0193,978,7373,464,2573,461,6333,482,653
Average common shares outstanding – diluted4,065,0193,978,7373,464,2573,461,6333,482,653
Earnings per share – basic$0.33$0.94$0.42$0.74$0.70
Earnings per share – diluted$0.33$0.94$0.42$0.74$0.70
Dividends per share$0.50$0.32$0.31$0.28$0.27
At or For the Year Ended June 30,
20202019201820172016
Performance Ratios:
Return on average assets0.27%0.92%0.48%0.81%0.77%
Return on average assets (excluding merger charges and gain
on bargain purchase)(1)
0.791.110.600.810.77
Return on average equity1.645.012.394.224.08
Return on average equity (excluding merger charges and gain on bargain purchase)(2)
4.786.083.004.224.08
Interest rate spread(3)
3.103.572.842.622.72
Net interest margin(4)
3.303.763.082.852.95
Non-interest expense to average assets3.132.552.051.621.81
Efficiency ratio(5)
90.7668.0765.2256.6860.85
Efficiency ratio (excluding merger charges and gain on bargain purchase)(6)
74.6262.8861.3256.6860.85
Average interest-earning assets to average interest-bearing liabilities117.92120.23121.88120.36120.33
Average equity to average assets16.5218.3119.9519.2818.81
Capital Ratios(7):
Total capital (to risk-weighted assets)N/A25.82%33.69%30.76%30.70%
Tier 1 capital (to risk-weighted assets)N/A24.6832.4929.5029.45
Common equity Tier 1 capital (to risk-weighted assets)N/A24.6832.4929.5029.45
Tier 1 leverage capital (to adjusted total assets)13.6716.9420.0018.7218.18
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans0.68%0.96%1.29%1.35%1.33%
Allowance for loan losses as a percent of non-performing loans107.88161.1875.7658.3381.61
Net charge-offs (recoveries) to average outstanding loans during the period0.090.010.02(0.02)0.15
Non-performing loans as a percent of total loans(8)
0.640.601.752.381.69
Non-performing assets as a percent of total assets(8)
0.460.481.421.811.51
Other Data:
Number of full-service branch offices126333
(1)
Return on average assets (excluding merger charges and gain on bargain purchase) represents our adjusted net income divided by average assets. Management believes that the presentation of this non-GAAP measure assists investors in understanding the impact of non-recurring items on our return on
 
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average assets ratio. The following table provides a reconciliation of our return on average assets ratio (excluding merger charges and gain on bargain purchase) for each of the periods presented in the table above:
For the Year Ended June 30,
20202019201820172016
Net income$1,328$3,756$1,464$2,564$2,431
Less adjustments:
Merger charges3,294796375
Gain on bargain purchase(746)
Adjusted net income$3,876$4,552$1,839$2,564$2,431
Average assets$490,981$409,142$307,132$315,036$316,681
Return on average assets (excluding merger charges and gain on bargain purchase)0.79%1.11%0.60%0.81%0.77%
(2)
Return on average equity (excluding merger charges and gain on bargain purchase) represents our adjusted net income divided by average equity. Management believes that the presentation of this non-GAAP measure assists investors in understanding the impact of non-recurring items on our return on average equity ratio. The following table provides a reconciliation of our return on average equity ratio (excluding merger charges and gain on bargain purchase) for each of the periods presented in the table above:
For the Year Ended June 30,
20202019201820172016
Net income$1,328$3,756$1,464$2,564$2,431
Less adjustments:
Merger charges3,294796375
Gain on bargain purchase(746)
Adjusted net income$3,876$4,552$1,839$2,564$2,431
Average equity$81,122$74,912$61,269$60,754$59,576
Return on average equity (excluding merger charges and gain on bargain purchase)4.78%6.08%3.00%4.22%4.08%
(3)
Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.
(4)
Represents net interest income as a percent of average interest-earning assets.
(5)
Represents non-interest expense divided by the sum of net interest income and non-interest income.
(6)
Efficiency ratio (excluding merger charges and gain on bargain purchase) represents our adjusted non-interest expense divided by the sum of net interest income and adjusted non-interest expense. Management believes that the presentation of this non-GAAP measure assists investors in understanding the impact of non-recurring items on our efficiency ratio. The following table provides a reconciliation of our efficiency ratio (excluding merger charges and gain on bargain purchase) for each of the periods presented in the table above:
 
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For the Year Ended June 30,
20202019201820172016
Non-interest expense$15,392$10,453$6,283$5,109$5,722
Less adjustments:
Merger charges3,294796375
Adjusted non-interest expense.$12,098$9,657$5,908$5,109$5,722
Net interest income$14,799$14,230$8,993$8,502$8,911
Non-interest income$2,160$1,127$641$511$493
Less adjustments:
Gain on bargain purchase746
Adjusted non-interest income$1,414$1,127$641$511$493
Efficiency ratio (excluding merger charges and gain on bargain purchase)74.62%62.88%61.32%56.68%60.85%
(7)
Ratios are for William Penn Bank. During the fiscal year ended June 30, 2020, William Penn Bank elected the “community bank leverage ratio” alternative reporting framework.
(8)
Non-performing loans and assets include loans on non-accrual, accruing loans past due 90 days or more and other real estate owned.
 
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USE OF PROCEEDS
Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $91.3 million and $123.9 million. See the section of this prospectus entitled “Pro Forma Data” for the assumptions used to arrive at these amounts.
We intend to distribute the net proceeds as follows:
Minimum of
Offering Range
Midpoint of
Offering Range
Maximum of
Offering Range
9,350,000
Shares at
$10.00 per
Share
Percent of
Net
Proceeds
11,000,000
Shares at
$10.00 per
Share
Percent of
Net
Proceeds
12,650,000
Shares at
$10.00 per
Share
Percent of
Net
Proceeds
(Dollars in thousands)
Offering proceeds$93,500$110,000$126,500
Less: offering expenses2,2472,3992,551
Net offering proceeds91,253100.0%107,601100.0%123,949100.0%
Less:
Proceeds contributed to William Penn Bank45,62650.053,80150.061,97550.0
Proceeds used for loan to employee stock ownership plan7,4808.28,8008.210,1208.2
Proceeds remaining for William Penn Bancorporation$38,14741.8%$45,00041.8%$51,85441.8%
Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of William Penn Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if all shares were not sold in the subscription and community offerings and a portion of the shares were sold in a syndicated offering.
We initially intend to invest the proceeds retained from the offering at William Penn Bancorporation in short-term investments, such as U.S. treasury and government agency securities and cash and cash equivalents. The actual amounts to be invested in different instruments will depend on the interest rate environment and William Penn Bancorporation’s liquidity requirements. In the future, William Penn Bancorporation may liquidate its investments and use those funds:

to pay dividends to stockholders;

to repurchase shares of its common stock, subject to regulatory restrictions;

to finance the possible acquisition of financial institutions or other businesses that are related to banking as opportunities arise, primarily in or adjacent to our existing market areas; and

for other general corporate purposes, including contributing additional capital to William Penn Bank.
See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the conversion. Under current federal regulations, we are not permitted to repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund the granting of restricted stock awards (which would require notification to the Federal Reserve Board) or tax-qualified employee stock benefit plans.
 
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William Penn Bank may use the net proceeds it receives from the offering:

to fund new loans;

to enhance existing products and services, support growth and the development of new products and services;

to invest in securities;

for the possible future expansion of our branch office network by establishing or acquiring additional branch offices; and

for other general corporate purposes.
We may need regulatory approvals to engage in some of the activities listed above.
We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval to establish new branches or acquire other financial institutions.
We expect our return on equity to be low until we are able to reinvest effectively the additional capital raised in the offering. Until we can increase our net interest income and non-interest income, we expect our return on equity to be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors — Risks Related to the Offering — Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”
 
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OUR DIVIDEND POLICY
William Penn Bancorp has historically paid an annual cash dividend to all stockholders and, for the year ended June 30, 2020, declared an annual cash dividend of $0.42 per share.
After the completion of the conversion and offering, we intend to pay cash dividends on a quarterly basis but have not determined the timing of our first quarterly dividend following the completion of the conversion and offering. In determining the amount of any dividends, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements and alternative uses for capital, the number of shares issued in the offering, industry standards and economic conditions.
We also intend to seek regulatory approval, subsequent to the completion of the conversion and offering, to pay a one-time, special dividend of up to $0.50 per share to all stockholders of William Penn Bancorporation. However, there can be no assurance that we will obtain such approval or when such approval may be obtained.
There can be no assurance that we will pay dividends in the future, or that any such dividends will not be reduced or eliminated in the future.
William Penn Bancorporation will not be permitted to pay dividends on its common stock if its stockholders’ equity would be reduced below the amount of the liquidation account established by William Penn Bancorporation in connection with the conversion. The source of dividends will depend on the net proceeds retained by William Penn Bancorporation and earnings thereon, and dividends from William Penn Bank. In addition, William Penn Bancorporation will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Maryland law generally limits dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the dividend or if the corporation’s total assets would be less than the corporation’s total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.
Pennsylvania law provides that dividends may be declared and paid by William Penn Bank only out of accumulated net earnings and may be paid in cash or property other than its own shares. Dividends may not be declared or paid unless stockholders’ equity is at least equal to contributed capital. In addition, any payment of dividends by William Penn Bank to William Penn Bancorporation that would be deemed to be drawn out of William Penn Bank’s tax bad debt reserves would require the payment of federal income taxes by William Penn Bank at the then current income tax rate on the amount deemed distributed. William Penn Bancorporation does not contemplate any distribution by William Penn Bank that would result in this type of tax liability.
Pursuant to Federal Reserve Board regulations, William Penn Bancorporation may not make a distribution that would constitute a return of capital during the three years following the completion of the conversion and offering.
 
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MARKET FOR THE COMMON STOCK
William Penn Bancorp’s common stock is currently quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group under the symbol “WMPN.” Upon completion of the conversion, the shares of common stock of William Penn Bancorporation will be exchanged for the existing shares of William Penn Bancorp and are expected to be listed on the Nasdaq Capital Market under the symbol “WMPN.”
As of the close of business on [•], there were 4,489,345 shares of William Penn Bancorp common stock outstanding, including 778,231 publicly held shares (shares held by stockholders other than William Penn, MHC), and on that date William Penn Bancorp had approximately [•] stockholders of record.
As of [•], William Penn Bancorp had approximately [•] registered market makers in its common stock. Piper Sandler & Co. has advised us that it intends to make a market in our common stock following the offering, but is under no obligation to do so.
On September 15, 2020, the business day immediately preceding the public announcement of the conversion, and on [•], the date of this prospectus, the closing prices of William Penn Bancorp common stock as reported on the OTC Pink Marketplace were $32.25 per share and $[•] per share, respectively. On the effective date of the conversion, all publicly held shares of William Penn Bancorp common stock, including shares of common stock held by our officers and directors, will be converted automatically into and become the right to receive a number of shares of William Penn Bancorp common stock determined pursuant to the exchange ratio. See “The Conversion and Offering — Share Exchange Ratio for Current Stockholders.”
Persons purchasing the common stock may not be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should recognize that there are risks involved in their investment.
 
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CAPITALIZATION
The following table presents the historical consolidated capitalization of William Penn Bancorp at June 30, 2020 and the pro forma consolidated capitalization of William Penn Bancorporation after giving effect to the conversion and offering based upon the assumptions set forth in the “Pro Forma Data” section.
At
June 30,
2020
Minimum of
Offering
Range
9,350,000
Shares at
$10.00 per
Share
Midpoint of
Offering
Range
11,000,000
Shares at
$10.00 per
Share
Maximum of
Offering
Range
12,650,000
Shares at
$10.00 per
Share
(Dollars in thousands)
Deposits(1)$559,848$559,848$559,848$559,848
Borrowed funds��64,89264,89264,89264,892
Total deposits and borrowed funds$624,740$624,740$624,740$624,740
Stockholders’ equity:
Preferred Stock:
50,000,000 shares, $0.01 par value per share authorized;
none issued or outstanding
$$$$
Common stock:
150,000,000 shares, $0.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding(2)
467112132152
Additional paid-in capital42,932130,830147,158163,486
William Penn, MHC capital consolidation3,9033,9033,903
Retained earnings(3)
56,60056,60056,60056,600
Accumulated other comprehensive income76767676
Less:
Treasury stock(3,710)
Common stock to be acquired by employee stock ownership plan(4)
(7,480)(8,800)(10,120)
Common stock to be acquired by new equity incentive plan(5)
(3,740)(4,400)(5,060)
Total stockholders’ equity$96,365$180,301$194,669$209,037
Total stockholders’ equity as a percentage of total
assets
13.09%21.98%23.32%24.62%
Tangible equity as a percentage of tangible assets12.37%21.40%22.76%24.08%
(1)
Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits by the amounts of the withdrawals.
(2)
As of June 30, 2020, William Penn Bancorp had 4,489,345 shares of common stock outstanding. On a pro forma basis, William Penn Bancorporation will have total issued and outstanding shares of 11,241,151, 13,224,884 and 15,208,616 at the minimum, midpoint and maximum of the offering range, respectively.
(3)
Retained earnings are restricted by applicable regulatory capital requirements.
(4)
Assumes that 8% of the common stock sold in the offering will be acquired by the employee stock ownership plan with funds borrowed from William Penn Bancorporation. Under U.S. generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership
 
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plan represents unearned compensation and, accordingly, is reflected as a reduction of capital. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur. Since the funds are borrowed from William Penn Bancorporation, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the financial statements of William Penn Bancorporation. See “Our Management — Tax-Qualified Retirement Plans — William Penn Bank Employee Stock Ownership Plan.”
(5)
Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed new equity incentive plan, of a number of shares equal to 4.0% of the shares of common stock sold in the offering. The shares are reflected as a reduction of stockholders’ equity. The new equity incentive plan will be submitted to stockholders for approval at a meeting of stockholders held no earlier than six months following the offering. See “Risk Factors — Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management — Future Equity Incentive Plan.”
 
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REGULATORY CAPITAL COMPLIANCE
At June 30, 2020, William Penn Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The following table presents William Penn Bank’s capital position relative to its regulatory capital requirements at June 30, 2020, on a historical and a pro forma basis. The table reflects receipt by William Penn Bank of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan has been deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Federal Deposit Insurance Corporation. During the fiscal year ended June 30, 2020, William Penn Bank elected the “community bank leverage ratio” alternative capital reporting framework. For a discussion of the capital standards applicable to William Penn Bank, see “Regulation and Supervision — Banking Regulation — Regulatory Capital Requirements.”
William Penn Bank
Historical at
June 30, 2020
Pro Forma at June 30, 2020,
Based Upon the Sale in the Offering of
9,350,000 Shares11,000,000 Shares12,650,000 Shares
Amount
Percent of
Assets
Amount
Percent of
Assets
Amount
Percent of
Assets
Amount
Percent of
Assets
(Dollars in thousands)
Equity$93,40112.68%$127,80716.34%$134,00216.95%$140,19617.55%
Tier 1 leverage capital(1)(2)
$86,82213.67%$121,22817.81%127,42318.50%$133,61719.17%
Tier 1 leverage requirement31,7465.0034,0275.0034,4365.0034,8455.00
Excess$55,0768.67%$87,20112.81%$92,98713.50%$98,77214.17%
Tier 1 risk-based capital(1)(2)
$86,82219.19%$121,22826.26%$127,42327.51%$133,61728.74%
Tier 1 risk-based requirement36,1978.0036,2978.0037,0588.0037,1898.00
Excess$50,62511.19%$84,30118.26%$90,36519.51%$96,42820.74%
Total risk-based capital(1)(2)
$90,34119.97%$124,74727.03%$130,94228.27%$137,13629.50%
Total risk-based requirement45,24710.0046,15910.0046,32310.0046,48610.00
Excess$45,0949.97%$78,58817.03%$84,61918.27%$90,65019.50%
Common equity tier 1 risk-based capital(1)(2)
$86,82219.19%$121,22826.26%$127,42327.51%$133,61728.74%
Common equity tier 1 risk-based requirement29,4106.5030,0036.5030,1106.5030,2166.50
Excess$57,41212.69%$91,22519.76%$97,31321.01%$103,40122.24%
Reconciliation of capital infused into William Penn Bank:
Net proceeds$45,626$53,801$61,975
Less: Common stock acquired by new equity incentive plan(3,740)(4,400)(5,060)
Less: Common stock acquired by employee stock ownership plan(7,480)(8,800)(10,120)
Pro forma increase$34,406$40,601$46,795
(1)
Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(2)
Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.
 
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PRO FORMA DATA
The following table illustrates the pro forma impact of the conversion and offering on our net income and stockholders’ equity based on the sale of common stock at the minimum, the midpoint and the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions, although actual expenses may vary from these estimates:

all of the shares of common stock will be sold in the subscription and community offerings and no shares will be sold in the syndicated offering;

our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering with a loan from William Penn Bancorporation that will be repaid in equal installments over 25 years;

we will pay Piper Sandler & Co. a fee equal to 1.00% of the aggregate amount of common stock sold in the subscription offering, except that no fee will be paid with respect to shares purchased by our employee stock ownership plan and by our officers, directors and employees or members of their immediate families; and

total expenses of the offering, excluding selling agent commissions and expenses, will be approximately $1.4 million.
We calculated pro forma consolidated net income for the year ended June 30, 2020, as if the estimated net investable proceeds had been invested at an assumed interest rate of 0.29% (0.22% on an after-tax basis using an assumed tax rate of 22.5%). This represents the yield on the five-year United States Treasury Note at June 30, 2020 which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by federal banking regulators.
We calculated historical and pro forma per share amounts by dividing historical and pro forma consolidated net income and stockholders’ equity by the indicated number of shares of common stock. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of a new stock-based benefit plan. We have assumed that the stock-based benefit plan will acquire for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the stock offering at the same price for which they were sold in the stock offering. We have assumed that awards of common stock granted under such plan will vest over a five-year period.
We also have assumed that options will be granted under stock-based benefit plan to acquire shares of common stock equal to 10% of the shares of common stock sold in the stock offering. In preparing the table below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.99 for each option.
We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the stock offering and that vest more rapidly than over a five-year period if the stock-based benefit plans are adopted more than one year following the completion of the conversion and offering.
As discussed under “Use of Proceeds,” we intend to contribute 50% of the net offering proceeds to William Penn Bank, and we will retain the remainder of the net proceeds from the stock offering. We will use a portion of the proceeds we retain to fund a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.
 
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The pro forma table does not give effect to:

withdrawals from deposit accounts to purchase shares of common stock in the offering;

our results of operations after the offering; or

changes in the market price of the shares of common stock after the offering.
The following pro forma information may not be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of William Penn Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering — Liquidation Rights.”
At or for the Year Ended June 30, 2020
Based upon the Sale at $10.00 Per Share of
9,350,000
Shares
11,000,000
Shares
12,650,000
Shares
(Dollars in thousands, except per share amounts)
Gross proceeds of offering$93,500$110,000$126,500
Expenses2,2472,3992,551
Estimated net proceeds91,253107,601123,949
Common stock purchased by employee stock ownership plan(7,480)(8,800)(10,120)
Common stock purchased by stock-based benefit plans(3,740)(4,400)(5,060)
Estimated net proceeds, as adjusted$80,033$94,401$108,769
For the Year Ended June 30, 2020
Consolidated net earnings:
Historical$1,328$1,328$1,328
Income on adjusted net proceeds180212245
Income on mutual holding company asset contribution999
Employee stock ownership plan(1)
(232)(273)(314)
Stock awards(2)
(580)(682)(784)
Stock options(3)
(528)(621)(714)
Pro forma net income$177$(26)(230)
Earnings per share(4):
Historical$0.13$0.11$0.09
Income on adjusted net proceeds0.020.020.02
Employee stock ownership plan(1)
(0.02)(0.02)(0.02)
Stock awards(2)
(0.06)(0.06)(0.06)
Stock options(3)
(0.05)(0.05)(0.05)
Pro forma earnings per share(4)
$0.02$$(0.02)
Offering price to pro forma net earnings per share500.00xNMNM
Number of shares used in earnings per share calculations10,523,07112,380,08414,237,096
 
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At or for the Year Ended June 30, 2020
Based upon the Sale at $10.00 Per Share of
9,350,000
Shares
11,000,000
Shares
12,650,000
Shares
(Dollars in thousands, except per share amounts)
At June 30, 2020
Stockholders’ equity:
Historical$96,365$96,365$96,365
Estimated net proceeds91,253107,601123,949
Mutual holding company capital contribution3,9033,9033,903
Common stock acquired by employee stock ownership plan(1)
(7,480)(8,800)(10,120)
Stock awards(2)
(3,740)(4,400)(5,060)
Pro forma stockholders’ equity$180,301$194,669$209,037
Intangible assets(6,050)(6,050)(6,050)
Pro forma tangible stockholders’ equity$174,251$188,619$202,987
Stockholders’ equity per share:
Historical$8.57$7.28$6.33
Estimated net proceeds8.128.148.15
Equity increase from the mutual holding company0.350.300.26
Common stock acquired by employee stock ownership plan(1)
(0.67)(0.67)(0.67)
Common stock acquired by stock-based benefit plans(2)
(0.33)(0.33)(0.33)
Pro forma stockholders’ equity per share(5)
$16.04$14.72$13.74
Intangible assets(0.54)(0.46)(0.40)
Pro forma tangible stockholders’ equity per share(5)
$15.50$14.26$13.34
Pro forma price to book value62.34%67.93%72.78%
Pro forma price to tangible book value64.52%70.13%74.96%
Number of shares outstanding for pro forma book value per share calculations11,241,15113,224,88415,208,616
(1)
Assumes that 8% of the shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from William Penn Bancorporation. William Penn Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. William Penn Bank’s total annual payments on the employee stock ownership plan debt are based upon 25 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation — Stock Compensation — Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by William Penn Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 22.5%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that shares were committed to be released over 25 equal annual
 
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installments during the year at the minimum, midpoint and maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for net income per share calculations.
(2)
Assumes that a new stock-based benefit plan purchases an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Stockholder approval of the plan and purchases by the plan may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from William Penn Bancorporation or through open market purchases. Shares in the stock-based benefit plan are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by William Penn Bancorporation. The table assumes that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the plan is amortized as an expense during the year ended June 30, 2020, and (iii) the plan expense reflects an effective tax rate of 22.5%. Assuming stockholder approval of the stock-based benefit plan and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 3.2%.
(3)
Assumes that options are granted under a new stock-based benefit plan to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering. Stockholder approval of the plan may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.99 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25.0% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 22.5%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will result in no additional shares under the treasury stock method for calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 7.7%.
(4)
Per share figures include publicly held shares of William Penn Bancorp common stock that will be exchanged for shares of William Penn Bancorporation common stock in the conversion. See “The Conversion and Offering — Share Exchange Ratio for Current Stockholders.” Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and the number of new shares assumed to be issued in exchange for publicly held shares of William Penn Bancorp and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares that have not been committed for release during the year. See note (1) above. The number of shares of common stock actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.
(5)
Per share figures include publicly held shares of William Penn Bancorp common stock that will be exchanged for shares of William Penn Bancorporation common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares of William Penn Bancorp at the minimum, midpoint and maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 2.4301, 2.8589 and 3.2877 at the minimum, midpoint and maximum of the offering range, respectively. The number of shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.
 
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OUR BUSINESS
General
William Penn Bancorporation is a Maryland corporation that was organized in July 2020. Upon completion of the conversion, William Penn Bancorporation will become the holding company of William Penn Bank, a Pennsylvania-chartered savings bank, and will succeed to all of the business and operations of William Penn Bancorp and each of William Penn Bancorp and William Penn, MHC will cease to exist.
William Penn Bancorp was incorporated under the laws of the United States on April 15, 2008 for the purpose of serving as the savings and loan holding company of William Penn Bank, as part of William Penn Bank’s conversion from the mutual to stock form of organization. William Penn, MHC was incorporated under the laws of the United States on April 15, 2008 for the purpose of serving as the mutual holding company parent of William Penn Bank as part of the mutual holding company reorganization.
In April 2008, in connection with William Penn Bank’s reorganization into the mutual holding company structure, William Penn Bancorp completed its initial public offering in which it (i) sold 1,025,283 shares of its outstanding common stock to the public, (ii) issued 2,548,713 shares of its common stock to William Penn, MHC and (iii) contributed 67,022 shares of its outstanding common stock to The William Penn Community Foundation. William Penn, MHC’s sole business activity is the ownership of 3,711,114 shares of common stock of William Penn Bancorp, or 82.7% of the common stock outstanding as of the date of this prospectus. William Penn, MHC engages in no other business activities and has no stockholders.
Effective May 1, 2020, in connection with William Penn Bank’s acquisition of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, William Penn Bancorp and William Penn, MHC each converted from a federally-chartered savings and loan holding company to a Pennsylvania-chartered bank holding company. After completion of the conversion and offering, William Penn Bancorp and William Penn, MHC will cease to exist.
William Penn Bank’s principal business consists of originating one- to four-family residential real estate mortgage loans and home equity lines of credit, and to a lesser extent, non-residential real estate, multi-family and construction loans. We also offer commercial loans and other consumer loans. We offer a variety of retail deposits to the general public in the areas surrounding our main office and our branch offices. We offer our customers a variety of deposit products with interest rates that are competitive with those of similar products offered by other financial institutions operating in our market area. We also utilize borrowings as a source of funds. Our revenues are derived primarily from interest on loans and, to a lesser extent, interest on investment securities and mortgage-backed securities. We also generate revenues from other income including deposit fees and service charges, realized gains on sales of securities, realized gains on sales of loans associated with loan production and realized gains on sales of other real estate owned.
Recent Acquisition History
On July 1, 2018, we acquired Audubon Savings Bank, a New Jersey-chartered mutual savings association headquartered in Audubon, New Jersey and with two additional branch offices located in Mount Laurel and Pine Hill, New Jersey. The acquisition of Audubon Savings Bank enhanced our market share in Burlington and Camden Counties in New Jersey, and provided William Penn Bank with a physical presence in Southern New Jersey. In connection with the acquisition of Audubon Savings Bank, William Penn Bancorp issued 517,095 shares of common stock to William Penn, MHC.
On May 1, 2020, we acquired both (i) Fidelity Savings and Loan Association of Bucks County, a Pennsylvania-chartered mutual savings bank headquartered in Bristol, Pennsylvania and with a branch office located in Bristol Pennsylvania, and (ii) Washington Savings Bank, a Pennsylvania-chartered mutual savings bank headquartered in Philadelphia, Pennsylvania and with three additional branch offices located in Philadelphia, Pennsylvania. The acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank further increased our market presence in our existing market area. In connection with the acquisition of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, William Penn Bancorp issued an aggregate of 509,191 shares of common stock to William Penn, MHC.
 
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Market Area
We are headquartered in Bristol, Pennsylvania and currently operate twelve full-service branch offices in Bucks and Philadelphia Counties in Pennsylvania and in Burlington and Camden Counties in New Jersey. We periodically evaluate our network of banking offices to optimize the penetration in our market area. Our business strategy currently includes opening new branches in and around our market area, which may include neighboring counties.
We consider our primary market area to be the Philadelphia suburbs of lower Bucks County and Northeast Philadelphia in Pennsylvania, and the Philadelphia suburbs located in Southern New Jersey. This area has historically benefitted from having a large number of corporate headquarters located within it. The area benefits from having a well-educated employment base and the diversity provided by a large number of industrial, service, retail and high technology businesses. Other employment is provided by a variety of wholesale trade, manufacturing, federal, state and local governments, hospitals and utilities.
According to the U.S. Census Bureau, as of July 1, 2019, (i) Bucks County had an estimated population of 628,270, representing a 0.5% increase from April 1, 2010, and a median household income of $86,055 and (ii) Philadelphia County had an estimated population of 1.6 million, representing a 3.8% increase from April 1, 2010, and a median household income of $43,744. In addition, (i) Burlington County had an estimated population of 445,349, representing a 0.8% decrease from April 1, 2010, and a median household income of $84,992, (ii) Camden County had an estimated population of 506,471, representing a 1.4% decrease from April 1, 2010, and a median household income of $67,118, (iii) Gloucester County had an estimated population of 291,636, representing a 1.0% increase from April 1, 2010, and a median household income of $85,160 and (iv) Mercer County had an estimated population of 367,430, remaining relatively unchanged from April 1, 2010, and a median household income of $79,990. At that same date, the median household income in the United States was $65,084.
As of June 2020, the unemployment rate in Bucks and Philadelphia Counties totaled 12.7% and 17.7%, respectively, and the unemployment rate in Burlington, Camden, Gloucester and Mercer Counties totaled 13.7%, 16.3%, 15.4% and 10.9%, respectively, as compared to a national unemployment rate of 11.2% for June 2020.
Competition
We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits and loans has historically come from the numerous national, regional and local community financial institutions operating in our market area, including a number of independent banks and credit unions, in addition to other financial service companies, such as brokerage firms, mortgage companies and mortgage brokers. In addition, we face competition for investors’ funds from money market funds and other corporate and government securities. Competition for loans also comes from the increasing number of non-depository financial service companies entering the mortgage and consumer credit market, such as financial technology companies, securities companies and specialty finance companies. We believe that our long-standing presence in Bucks County, our recent expansion into Southern New Jersey and Northeast Philadelphia, and our personal service philosophy enhance our ability to compete favorably in attracting and retaining individual and business customers. We actively solicit deposit-related customers and compete for deposits by offering customers personal attention, professional service and competitive interest rates.
Lending Activities
Our loan portfolio consists primarily of one- to four-family residential mortgage loans. To a lesser extent, our loan portfolio includes non-residential real estate loans, multi-family residential loans, commercial real estate, commercial business and consumer loans. Substantially all of our loans are secured by properties located within our local markets.
One- to Four-Family Residential Loans.    Our primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes in our market area. Such loans totaled $345.9 million, or 66.9% of our total loan portfolio, at June 30, 2020.
 
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We offer fixed-rate and adjustable-rate mortgage loans with terms up to 30 years. Borrower demand for adjustable-rate loans rather than fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, the difference between the interest rates and loan fees offered for fixed-rate mortgage loans and the initial period interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate mortgage loans (as opposed to adjustable interest rates) and adjustable-rate mortgage loans that can be originated or purchased at any time is largely determined by the demand for each in a competitive environment and the effect each has on our interest rate risk. The loan fees charged, interest rates, and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.
We offer fixed-rate loans with terms of either 10, 15, 20 or up to 30 years. Our adjustable-rate mortgage loans are also based on a 10, 15, 20 or up to 30 year amortization schedule. Interest rates and payments on our adjustable-rate mortgage loans adjust every three, five, seven or ten years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate that is based on the respective three, five, seven or ten year monthly Constant Maturity U.S. Treasury indices.
Due to historically low interest rate levels, borrowers generally have preferred fixed-rate loans in recent years. While we anticipate that our adjustable-rate loans will better offset the adverse effects on our net interest income of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loans in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest rate sensitivity is limited by the annual and lifetime interest rate adjustment limits.
While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.
We also regularly make loans secured by non-owner occupied one- to four-family residential properties. Loans secured by non-owner occupied properties generally expose a lender to greater risk of non-payment and loss than loans secured by owner occupied properties because repayment of such loans depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. In reaching a decision on whether to originate a non-owner occupied one- to four-family residential real estate loan, we consider the net operating income of the property, the borrower’s credit history and profitability, and the value of the underlying property. At June 30, 2020, loans secured by non-owner occupied one- to four-family properties totaled $114.1 million, or 27.9% of our total residential loan portfolio, which includes home equity loans and lines of credit and residential construction loans.
We do not make conventional loans with loan-to-value ratios exceeding 95% and generally limit loan-to-value ratios on our conventional loans to 80%. Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance, a government guarantee or additional collateral. We require all properties securing mortgage loans to be appraised by licensed independent appraisers from appraisal management companies approved by our board of directors. We require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance and/or flood insurance for loans on property located in a flood zone, before closing the loan.
Our largest one- to four-family residential loan at June 30, 2020 was a non-owner-occupied one- to four-family residential loan for $2.4 million secured by a single-family residence located on the Eastern Shore of Maryland, all of which is outstanding. This loan is performing in accordance with its terms and is currently on deferral in accordance with the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
 
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Non-Residential Real Estate and Multi-Family Loans.    We offer fixed rate and adjustable-rate mortgage loans secured by commercial real estate, multi-family residential real estate and land. Our non-residential and multi-family real estate loans are generally secured by office buildings, retail and mixed-use properties, condominiums, apartment buildings, single-family subdivisions and owner-occupied properties used for businesses. At June 30, 2020, our commercial and multi-family real estate loan portfolio totaled $91.7 million, or 17.7% of our total loan portfolio.
We originate multi-family and non-residential real estate loans with terms generally up to 25 years. Interest rates and payments on adjustable-rate loans adjust every one, three, five and ten years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate typically equal to the interest rate used for one-to four-family loan products, plus a spread based on credit-worthiness and risk. Loan amounts generally do not exceed 80% of the appraised value for well-qualified borrowers.
Our largest non-residential real estate loan at June 30, 2020 was for $6.2 million, of which $6.1 million is outstanding. This loan is secured by a shopping center and church located in Gloucester County and is performing in accordance with its terms.
Loans secured by multi-family residential and non-residential real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family residential and non-residential real estate lending is the borrower’s credit-worthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income producing properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. In reaching a decision on whether to make a multi-family residential or non-residential real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property.
Home Equity Loans and Lines of Credit.    We offer home equity loans and lines of credit, which have adjustable rates of interest that are indexed to the prime rate as published in The Wall Street Journal for terms of up to 20 years. These loans are originated with maximum loan-to-value ratios of 80% of the appraised value of the property, and we require that we have a second lien position on the property. We also offer secured and unsecured lines of credit for well-qualified individuals and small businesses. Management includes these loans based on the collateral supporting the line of credit in either the non-residential, multi-family, commercial or one-to-four family categories for the purposes of monitoring and evaluating the portfolio. At June 30, 2020, such loans totaled $47.1 million, or 9.1% of our total loan portfolio.
Residential and Commercial Construction Loans and Land Loans.    We originate (i) residential construction loans to individuals and purchase loans that finance the construction of owner-occupied residential dwellings for personal use, which we classify within our residential real estate loan portfolio, (ii) commercial construction loans for the development of projects including non-owner occupied residential dwellings, condominiums, apartment buildings, single-family subdivisions, single-family investor loans, as well as owner-occupied properties used for business, which we classify within our commercial real estate loan portfolio and (iii) commercial land loans for the purchase and development of raw land.
Our residential construction loans generally provide for the payment of interest only during the construction phase, which can be up to 18 months. At the end of the construction phase, substantially all of our loans automatically convert to permanent mortgage loans. Construction loans generally can be made with a maximum loan to value ratio of 80% of the appraised value with maximum terms of 30 years. Our residential construction loans totaled $15.8 million, or 3.1% of our total loan portfolio, at June 30, 2020. At June 30, 2020, our largest outstanding residential construction loan was for $2.2 million, all of which was disbursed and outstanding, and related to the development of a residential subdivision in Horsham Township, Pennsylvania. This loan is performing in accordance with its terms. We also require periodic inspections of the property during the term of the construction.
Our commercial construction loans provide for payment of interest only during the construction phase and may, in the case of an apartment or commercial building, convert to a permanent mortgage loan upon the completion of construction. In the case of a single-family subdivision or construction or builder loan, as individual lots are sold, the principal balance is reduced by agreed upon release prices at the outset of the
 
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loan sufficient to liquidate the loan prior to the final sale. In the case of a commercial construction loan, the construction period may be from nine months to two years. Loans are generally made to a maximum of 75% of the lower of the cost or the appraised market value as determined by an independent licensed appraiser. We also require periodic inspections of the property during the term of the construction loan.
We do not currently offer land loans, but have historically offered land loans to individuals on approved residential building lots for personal use. The land loans in our loan portfolio have terms of up to 15 years and to a maximum loan to value ratio of 80% of the appraised value. In addition, the land loans in our portfolio are adjustable-rate loans with adjustments occurring every three and five years, based on the original contract. Interest rate adjustments are based on the Constant Maturity U.S. Treasury indices plus a spread. Our adjustable-rate land loans in generally have an interest rate floor.
Our commercial construction and land loans totaled $6.7 million, or 1.3% of our total loan portfolio, at June 30, 2020 and was comprised of $3.8 million in commercial construction loans and $2.9 million in land loans at that date. At June 30, 2020, our largest outstanding commercial construction and land loan was a commercial land loan for $3.0 million, of which $2.9 million was disbursed and outstanding, for a commercial development project outside Wildwood, New Jersey. This loan is performing in accordance with its terms.
Commercial Business Loans.    These loans consist of operating lines of credit secured by general business assets and equipment. The operating lines of credit are generally short term in nature with interest rates tied to short-term rates and adjustments occurring daily, monthly, or quarterly based on the original contract. For adjustable loans, there is also an interest rate floor. The equipment loans are typically made with maturities of less than five years and are priced with a fixed interest rate. Longer repayments of up to 15 years can be made depending on the useful life of the equipment being financed. Generally, rates are fixed for not longer than five years and will reset, generally based on the Constant Maturity U.S. Treasury indices plus a spread, if the amortization or maturity of the loan is longer. At June 30, 2020, such loans totaled $6.4 million, or 1.2% of our total loan portfolio.
Consumer Loans.    In the past, we have offered a variety of consumer loans, which include automobile and personal secured and unsecured loans to our customer base. However, we no longer offer these loans to customers.
Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws may limit the amount which can be recovered on such loans.
Loan Origination, Purchases and Sales.    Loan originations come from a number of sources. The primary source of loan originations are our in-house loan originators, and to a lesser extent, advertising and referrals from customers and local realtors. Historically, we have primarily originated our own loans and retained them in our portfolio. However, we also occasionally purchase loans or participation interests in loans. As of June 30, 2020, we had an aggregate of $5.1 million in purchased loan participations outstanding. The largest outstanding loan participation as of June 30, 2020 was a commercial non-residential real estate loan for $702,000. This loan is performing in accordance with its terms.
We also occasionally sell some of the longer-term fixed-rate one-to-four family mortgage loans that we originate in the secondary market based on prevailing market interest rate conditions, an analysis of the composition and risk of the loan portfolio, liquidity needs and interest rate risk management goals. Generally, loans are sold with recourse and with servicing retained. We did not sell any loans during the year ended June 30, 2020 and sold $592,000 of loans during the year ended June 30, 2019. We occasionally sell participation interests in loans and may sell loan participations in the future.
Loan Approval Procedures and Authority.    Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management.
 
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With respect to residential mortgage loans, loans with a total loan commitment of less than $250,000 may be approved by the loan’s residential underwriter, as well as one of the following individuals: our Chief Executive Officer, Chief Commercial Officer, Director of Residential Lending or Loan Servicing Manager. Loans with a total loan commitment of between $250,000 to $750,000 must be approved by (i) the loan’s residential underwriter, (ii) either our Director of Residential Lending or Loan Servicing Manager and (iii) either our Chief Executive Officer or Chief Commercial Officer. Loans with a total loan commitment of between $750,000 and $2.0 million must be approved by our Officers’ Loan Committee, which consists of our Chief Executive Officer, Chief Operating Officer, Chief Commercial Officer, Director of Commercial Lending, Director of Residential Lending and Loan Servicing Manager. Loans with a total loan commitment in excess of $2.0 million, and up to our legal lending limit, must be approved by our Directors’ Loan Committee, which consists of our entire board of directors.
With respect to commercial loans, loans with a total loan commitment of up to $500,000 (and unsecured lines or letters of credit with total loan commitments of up to $250,000) may be approved by the originating loan officer as well as either our Chief Commercial Officer or Director of Commercial Lending. Loans with a total loan commitment of between $500,000 and $2.0 million (and unsecured lines or letters of credit with total loan commitments of between $250,000 and $1.0 million) must generally be approved by our Officers’ Loan Committee, and loans with a total loan commitment in excess of $2.0 million (or $1.0 million for unsecured lines or letters of credit) must be approved by our Directors’ Loan Committee.
Loans to One Borrower.    The maximum amount that we may lend to one borrower and the borrower’s related entities is limited by statute to generally 15% of our stated capital and reserves. At June 30, 2020, our regulatory lending maximum was $14.5 million.
Loan Commitments.    We issue commitments for fixed-rate and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers and generally expire in 30 days.
Delinquencies.    When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. We generally make initial contact with the borrower when the loan becomes ten to fifteen days past due. If payment is not received by the 45th day of delinquency, additional letters are sent and phone calls generally are made to the customer. When the loan becomes 120 days past due, we generally commence foreclosure proceedings against any real property that secures the loan or attempt to repossess any personal property that secures a consumer loan. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. We may consider loan workout arrangements with certain borrowers under certain circumstances. Management informs the board of directors on a monthly basis of the amount of loans delinquent more than 30 days, all loans in foreclosure and all foreclosed and repossessed property that we own.
During the quarter ended June 30, 2020, we provided $2.4 million in Paycheck Protection Program (PPP) loans for 56 new and existing customers. We also granted eligible loan modifications in the form of payment deferral of principal and interest for $49.8 million of existing loans under the CARES Act. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on a substantial portion of the loans on deferral and, as of August 31, 2020, $6.0 million of loans remain on deferral under the CARES Act.
Investment Activities
We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities and preferred shares, subordinated debt and certificates of deposit of federally insured institutions. At June 30, 2020, our investment portfolio consisted primarily of municipal securities with maturities of five to more than ten years, corporate bonds, and residential mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae with stated final maturities of 40 years or less.
Our investment objectives are to provide and maintain liquidity, to maintain a balance of high quality, diversified investments to minimize risk, to provide collateral for pledging requirements, to establish an
 
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acceptable level of interest rate risk, to provide an alternate source of low-risk investments when demand for loans is weak and to generate a favorable return. Our board of directors has the overall responsibility for our investment portfolio, including approval of our investment policy. Our Chief Operating Officer is the designated investment officer and is responsible for the daily investment activities and is authorized to make investment decisions consistent with our investment policy.
Deposit Activities and Other Sources of Funds
General.    Deposits and loan repayments are the major sources of our funds for lending and other investment activities. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposit Accounts.    The vast majority of our depositors are residents of Southeastern Pennsylvania and Southern New Jersey. Deposits are raised primarily from within our primary market area through the offering of a broad selection of deposit instruments, including checking accounts, money market accounts, regular savings accounts, club savings accounts, certificate accounts and various retirement accounts. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit, and the interest rate among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our current strategy is to offer competitive rates, but not be the market leader in every type and maturity.
Borrowings.    If necessary, we borrow from the Federal Home Loan Bank of Pittsburgh to supplement our supply of lendable funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank 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 that are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s credit-worthiness. Under its current credit policies, the Federal Home Loan Bank generally limits advances to 25% of a member’s assets, and short-term borrowings of less than one year may not exceed 10% of the institution’s assets. The Federal Home Loan Bank determines specific lines of credit for each member institution. There were approximately $64.9 million of Federal Home Loan Bank advances outstanding at June 30, 2020. At June 30, 2020, we had the ability to borrow an additional $223.0 million from the Federal Home Loan Bank of Pittsburgh. In addition, as of June 30, 2020, we had $10.0 million of available credit from Atlantic Community Bank to purchase federal funds.
Personnel
At June 30, 2020, we had 104 full-time employees and three part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.
Subsidiaries
William Penn Bancorp’s only direct subsidiary is William Penn Bank. William Penn Bank maintains the following subsidiaries:
WPSLA Investment Corporation is a Delaware corporation organized in April 2000 to hold certain investment securities and loans for William Penn Bank. At June 30, 2020, WPSLA Investment Corporation held $60.0 million of William Penn Bank’s $90.0 million securities portfolio and $31.1 million of William Penn Bank’s $517.5 million total loan portfolio.
Fidelity Asset Recovery Specialists, LLC is a Pennsylvania limited liability company organized in March 2015 that William Penn Bank acquired in connection with its acquisition of Fidelity Savings and Loan Association of Bucks County in May 2020. This subsidiary, which is currently inactive and in the
 
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process of dissolution, was formerly utilized by Fidelity Savings and Loan Association of Bucks County to manage and hold other real estate owned properties located in Pennsylvania until disposition.
Washington Service Corporation is a Pennsylvania corporation organized in October 2000 that William Penn Bank acquired in connection with its acquisition of Washington Savings Bank in May 2020. This subsidiary holds commercial real estate, including a branch office, located in Philadelphia, Pennsylvania that was previously owned by Washington Savings Bank.
Legal Proceedings
We are involved in routine legal proceedings in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to our financial condition, results of operations and cash flows.
Properties
At June 30, 2020, we conducted business through our administrative headquarters located in Bristol, Pennsylvania and our twelve branch offices located in Bucks and Philadelphia Counties in Pennsylvania and Burlington and Camden Counties in New Jersey. We own ten of our branch office locations, lease building space at one of our branch office locations and lease the land at one of our branch office locations. We also lease our administrative headquarters located in Bristol, Pennsylvania and own two additional administrative offices located in Bucks County, Pennsylvania and one additional administrative office located in Camden County, New Jersey. However, we do not currently conduct any significant business operations from any of these three additional administrative offices. At June 30, 2020, the total net book value of our land, buildings, furniture, fixtures and equipment was $16.7 million.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements of William Penn Bancorp that appear beginning on page F-1 of this prospectus. You should read the information in this section in conjunction with the business and financial information regarding William Penn Bancorp and the financial statements provided in this prospectus.
Overview
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of money market accounts, statement savings accounts, individual retirement accounts, certificates of deposit and Federal Home Loan Bank advances. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees, service charges, earnings on bank-owned life insurance and gains on the sale of loans and investment securities. Noninterest expense currently consists primarily of salaries and employee benefits, occupancy and equipment, data processing, merger-related expenses and professional fees. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies, and actions of regulatory authorities.
Business Strategy
Since our acquisition of Audubon Savings Bank in July 2018, and continuing with our acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank in May 2020, we have focused on serving the financial needs of consumers and businesses in our primary markets of Southeastern Pennsylvania and Southern New Jersey. Through our wholly owned bank subsidiary, William Penn Bank, we deliver a comprehensive range of traditional depository and lending products, online banking services, and cash management tools for small businesses. Our business strategy is to continue to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:
Continuing our transformation to a relationship-based banking business model.
Following our acquisition of Audubon Savings Bank in July 2018, our primary strategic objective has been to transform William Penn Bank from a price-driven, transaction-based savings institution to a service-driven, relationship-based bank that emphasizes securing relationships rather than amassing accounts. We have taken an active approach toward accomplishing this transformation, a key component of which is to opportunistically hire talented individuals, or existing teams of individuals, with relationships in retail, commercial, and small business banking in furtherance of our efforts to increase our commercial lending activities. Since March 2019, we have hired nine top producers from regional competitors.
We believe that customer satisfaction is a key to sustainable growth and profitability. While continually striving to ensure that our products and services meet our customers’ needs, we also encourage our employees to focus on providing personal service and attentiveness to our customers in a proactive manner. We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and we intend to continue to focus our operating strategy on taking advantage of these opportunities.
Maintaining our emphasis on residential portfolio lending while also increasing our commercial lending activities.
Our primary lending focus historically has been the origination of one- to four-family mortgage loans. At June 30, 2020, $345.9 million, or 66.9%, of our loan portfolio was secured by one- to four-family real estate loans and we intend to continue to emphasize this type of lending after the offering. We believe there
 
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are opportunities to increase our residential mortgage lending in our market area, and we intend to take advantage of these opportunities through the additional lending staff we have welcomed as a result of our recent acquisitions of Audubon Savings Bank, Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, as well as by increasing our existing residential mortgage origination channels.
In addition to continuing our emphasis on one- to four-family mortgage loans, we also intend to increase our commercial lending activities, particularly with respect to commercial real estate, multi-family residential and commercial business loans, following the completion of the offering. We believe the expansion of our multi-family residential and commercial real estate lending activities will further diversify our balance sheet, help to control our interest rate risk exposure and increase our presence in our market area. After the offering, we will continue to look for additional experienced commercial lending personnel and will continue to enhance our infrastructure in order to implement this component of our business strategy.
We believe that strong asset quality is a key to long-term financial success, and we have sought to maintain a high level of asset quality and mitigate credit risk by using conservative underwriting standards for all of our residential and commercial lending products, combined with diligent monitoring and collection efforts. Following the completion of the offering, we will continue to seek residential and commercial lending opportunities in our market area that will further our business strategy and that are also consistent with our conservative underwriting standards. As a result of the continued economic uncertainty due to the COVID-19 pandemic, and the significant business and operational disruptions (including business closures, supply chain disruptions, and mass layoffs and furloughs) that have resulted from the pandemic, we will continue to carefully scrutinize residential and commercial lending opportunities following the completion of the offering. If significant lending opportunities that meet our conservative underwriting standards do not arise as a result of the pandemic, we will not compromise our underwriting criteria and will strategically slow down our plans to increase our lending activities until economic conditions improve.
Recruiting and retaining top talent and personnel.
Our entire executive management leadership team, and a large majority of the next tier of management, joined William Penn Bank in the Audubon Savings Bank merger or have been recruited since our acquisition of Audubon Savings Bank in July 2018. We have also hired teams of relationship bankers from regional competitors and intend to continue to opportunistically hire talented individuals, or existing teams of individuals, with relationships in retail, commercial, and small business banking. As a result of William Penn Bank’s strong capital levels (which will be further strengthened by the offering) and expansion strategy, we believe we have the ability to continue hiring and developing top performers for the foreseeable future.
Continuing to invest in our facilities and expand our branch network through de novo branching.
In addition to our investment in people, we have been enhancing and optimizing both our facilities and branch network in recent years. We have consolidated most of our non-branch operations into one location located in Bristol, Pennsylvania that opened in November 2019 and expect to consolidate our loan origination and servicing administration operations into one location located in Philadelphia, Pennsylvania that we acquired in connection with our recent acquisition of Washington Savings Bank.
We have also improved the infrastructure of our branch footprint and intend to continue our strategy to broaden our existing branch network by expanding into new markets and broadening our geographic footprint. In June 2020, we opened a new branch office in Collingswood, New Jersey, the first de novo branch applying our strategy of entering walkable towns and suburbs with vibrant commercial corridors and main streets. We also plan to open new branches in desirable locations in attractive growth markets. New branches will feature modern design elements and will include open, collaborative spaces with room for private meetings.
Executing a multi-faceted expansion plan that involves branch acquisitions and the possible acquisition of other financial institutions and/or financial services companies.
Our expansion strategies complement our overall strategic vision. We intend to expand our franchise and reinvest our excess capital by continuing to hire talented relationship managers, opening de novo branches, and making opportunistic whole bank or branch acquisitions, with an emphasis on expanding our presence in Bucks County, Pennsylvania and Southern New Jersey, as well as entering the Montgomery
 
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County, Pennsylvania, and Central New Jersey markets. We believe significant opportunities exist, and will continue to exist, for additional expansion through acquisitions both in our current market and in other adjacent markets within the greater Delaware Valley area. Our acquisition strategy includes traditional whole bank acquisitions and complementary acquisitions of select branch banking offices.
We have completed three whole bank acquisitions since 2018, which serve as the platform for our ability to successfully integrate financial institutions, and our executive management team has a history of running and integrating highly efficient banking institutions while focusing on building a culture of expense control. As a result of these three whole bank acquisitions and our focus on continued expense control, we have increased our core deposits (consisting of checking accounts, money market accounts and savings and club accounts) from $96.8 million to $365.4 million, or 277.3%, from June 30, 2018 to June 30, 2020.
We believe that maintaining strong relationships with our regulators is an important component of our long-term strategy. We maintain an active dialogue with our regulators and we view our relationships with our regulators a long-term partnership, and we will continue to follow this philosophy as we implement our plans for future growth.
Improving our technology platform.
We are committed to building a technology platform that enables us to deliver best-in-class products and services to our customers and is also scalable to accommodate our long-term growth plans. To accomplish this objective, we have made and are continuing to make substantial investments in our information technology infrastructure, including data backup, security, accessibility, integration, business continuity, website development, online and mobile banking technologies, cash management technology and internal/external ease of use. We continue to develop new strategies for streamlining internal and external practices using technology such as online account opening, an online education center, and remote appointments.
Employing a stockholder-focused management of capital.
Maintaining a strong capital base is critical to support our long-range business plan; however, we recognize that we will have a high level of capital following completion of the offering. Consequently, we intend to manage our capital position through the growth of assets, as well as the utilization of appropriate capital management tools, consistent with applicable regulations and policies, and subject to market conditions. Under current federal regulations, subject to limited exceptions, we may not repurchase shares of our common stock during the first year following the completion of the offering.
William Penn Bancorp has historically paid an annual cash dividend to stockholders and, for the year ended June 30, 2020, declared an annual cash dividend of $0.42 per share. After the completion of the conversion and offering, we intend to pay cash dividends on a quarterly basis but have not determined the timing of our first quarterly dividend following the completion of the conversion and offering. In determining the amount of any dividends, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements and alternative uses for capital, the number of shares issued in the offering, industry standards and economic conditions. We also intend to seek regulatory approval, subsequent to the completion of the conversion and offering, to pay a one-time, special dividend of up to $0.50 per share to all stockholders of William Penn Bancorporation. However, there can be no assurance that we will obtain such approval or when such approval may be obtained.
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
 
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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.
The allowance for loan and lease losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, 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. For example, a change in the estimate resulting in a 10% to 20% difference in the allowance would have resulted in an additional provision for loan losses of $352,000 to $704,000 for the year ended June 30, 2020. We also have approximately $3.4 million in non-performing assets consisting of non-performing loans and other real estate owned. Most of these assets are collateral dependent loans where we have incurred credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the realizability 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 on these non-performing loans which may be material. For example, a 10% decrease in the collateral value supporting the non-performing loans could result in additional credit losses of $326,000. 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 uncertaintues and the COVID-19 pandemic, the ultimate amount of loss could vary from that estimate.
In June 2016, the FASB issued ASU 2016-13: Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are expected to be effective for us on July 1, 2023. We are in the process of evaluating the impact of this guidance but expect that the impact will likely be material to our consolidated financial statements.
Goodwill
The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed, and consideration paid at their estimated fair values as of the acquisition date. The excess
 
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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 June 30, 2020 and 2019. 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 year ended June 30, 2020, management included considerations of the current economic environment caused by COVID-19 in its evaluation and determined based on the totality of its qualitative assessment and a quantitative assessment performed by a third-party valuation specialist that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment exists during the year ended June 30, 2020.
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 tax authorities and newly 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 June 30, 2020, we had net deferred tax assets totaling $4.8 million. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a 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 asset of $4.8 million was 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.
Balance Sheet Analysis
Comparison of Financial Condition at June 30, 2020 and June 30, 2019
Total assets increased $320.7 million, or 77.1%, to $736.5 million at June 30, 2020, from $415.8 million at June 30, 2019. The increase in total assets was primarily attributable to a $244.9 million increase in total
 
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assets resulting from the acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank.
Cash and cash equivalents increased $56.7 million, or 216.9%, to $82.9 million at June 30, 2020, from $26.2 million at June 30, 2019. The increase in cash and cash equivalents was primarily driven by cash acquired as part of the acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, combined with organic deposit growth, partially offset by purchases of investment securities.
Premises and equipment, regulatory stock, deferred income taxes, and bank-owned life insurance all increased year over year due primarily to the acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank completed in May 2020.
Accrued interest receivable and other assets increased $4.0 million to $6.1 million from $2.1 million as a result of the acquisitions of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, as well as the recognition of a right-to-use asset of $1.7 million related to the addition of three new operating leases.
Investments
Our investment portfolio consists primarily of corporate bonds with maturities of one to ten years, municipal securities with maturities of five to more than ten years and residential mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae with stated final maturities of 40 years or less. Investments increased $67.4 million, or 298.8%, to $90.0 million at June 30, 2020, compared to $22.6 million at June 30, 2019. We focus 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.
The following table sets forth the amortized cost and fair value of investment securities at June 30, 2020, 2019 and 2018. At June 30, 2020, we reclassified all of our securities portfolio as available-for-sale securities.
At June 30,
202020192018
(Dollars in thousands)
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Securities available-for-sale:
Mortgage-backed securities$51,570$51,738$3,609$3,678$$
U.S. agency collateralized mortgage obligations3,2153,2155,6345,767
U.S. government agency securities6,2266,15510,86510,912
U.S. treasury securities1,0001,000
Private label collateralized mortgage obligations2643031,5391,816
Municipal bonds10,48510,508
Corporate bonds17,39917,382
Total securities available-for-sale89,89589,99820,37220,6601,5391,816
Securities held-to-maturity:
Mortgage-backed securities1,5001,5222,3362,305
U.S. agency collateralized mortgage obligations206214611634
Municipal bonds100100100100
Corporate bonds100101100102
Total securities held-to-maturity1,9061,9373,1473,141
Total investment securities$89,895$89,998$22,278$22,597$4,686$4,957
 
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The following table sets forth the stated maturities and weighted average yields of investment securities at June 30, 2020. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. The table presents contractual maturities for mortgage-backed securities and does not reflect repricing or the effect of prepayments.