William Penn Bancorporation [WMPN] Filings

10-Q 1 wmpn-20230930x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

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

EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-40255

WILLIAM PENN BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)


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

(267) 540-8500

(Registrant’s telephone number, including area code)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WMPN	The Nasdaq Stock Market LLC

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the issuer’s common stock, as of November 2, 2023: 10,068,641 shares.

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WILLIAM PENN BANCORPORATION

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		Page

Part I	Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition as of September 30, 2023 and June 30, 2023	3

	Consolidated Statements of Income for the Three Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2023 and 2022	5

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2023 and 2022	6

	Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2023 and 2022	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4.	Controls and Procedures	43

Part II	Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	45



Signatures

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PART I —FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

As of September 30, 2023 and June 30, 2023 (unaudited)


	September 30,		June 30,
	2023		2023

ASSETS
Cash and due from banks	$	7,236	$	7,652
Interest bearing deposits with other banks		10,492		11,561
Federal funds sold		239		1,580
Total cash and cash equivalents		17,967		20,793
Interest-bearing time deposits		100		600
Securities available for sale, at fair value		156,097		165,127
Securities held to maturity, net of allowance for credit losses of $0 as of September 30, 2023 (fair value of $76,853 and $82,313, as of September 30, 2023 and June 30, 2023, respectively)		97,544		99,690
Equity securities		1,702		1,629
Loans receivable, net of allowance for credit losses of $3,587 and $3,313 as of September 30, 2023 and June 30, 2023, respectively		472,052		477,543
Premises and equipment, net		7,668		9,054
Regulatory stock, at cost		3,286		2,577
Deferred income taxes		11,104		9,485
Bank-owned life insurance		40,869		40,575
Goodwill		4,858		4,858
Intangible assets		478		519
Operating lease right-of-use assets		8,775		8,931
Accrued interest receivable and other assets		7,487		6,198
TOTAL ASSETS	$	829,987	$	847,579

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	626,507	$	635,260
Advances from Federal Home Loan Bank		51,000		34,000
Advances from borrowers for taxes and insurance		1,707		3,227
Operating lease liabilities		8,972		9,107
Accrued interest payable and other liabilities		5,407		5,240
TOTAL LIABILITIES		693,593		686,834
Commitments and contingencies (note 12)		—		—
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized; 10,828,903 shares issued and outstanding at September 30, 2023 and 12,452,921 shares issued and outstanding at June 30, 2023		108		125
Additional paid-in capital		114,934		134,387
Unearned common stock held by employee stock ownership plan		(9,093)		(9,194)
Retained earnings		58,410		58,805
Accumulated other comprehensive loss		(27,965)		(23,378)
TOTAL STOCKHOLDERS' EQUITY		136,394		160,745
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	829,987	$	847,579

See accompanying notes to consolidated financial statements

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WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

For the Three Months Ended September 30, 2023 and 2022 (unaudited)


	Three Months Ended September 30,
	2023		2022

INTEREST INCOME
Loans receivable, including fees	$	6,139	$	5,297
Securities		1,711		1,657
Other		161		129
Total interest income		8,011		7,083
INTEREST EXPENSE
Deposits		2,730		509
Borrowings		537		333
Total interest expense		3,267		842

Net interest income		4,744		6,241

Provision for credit losses		5		—

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		4,739		6,241
OTHER INCOME
Service fees		215		211
Earnings on bank-owned life insurance		294		273
Unrealized gain (loss) on equity securities		73		(273)
Other		68		71
Total other income		650		282
OTHER EXPENSES
Salaries and employee benefits		2,935		3,241
Occupancy and equipment		760		788
Data processing		494		431
Professional fees		210		263
Amortization of intangible assets		41		48
Other		785		792
Total other expense		5,225		5,563

Income before income taxes		164		960

Income tax benefit		(15)		(67)
NET INCOME	$	179	$	1,027

Basic and diluted earnings per share	$	0.02	$	0.08

See accompanying notes to consolidated financial statements

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WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Dollars in thousands)

For the Three Months Ended September 30, 2023 and 2022 (unaudited)


	Three Months Ended September 30,
	2023		2022

Net income	$	179	$	1,027

Other comprehensive loss:
Changes in net unrealized loss on securities available for sale		(5,957)		(10,066)
Tax effect		1,370		2,316
Other comprehensive loss, net of tax		(4,587)		(7,750)
Comprehensive loss	$	(4,408)	$	(6,723)

See accompanying notes to consolidated financial statements

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WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands, except share amounts)

For the Three Months Ended September 30, 2023 and 2022 (unaudited)


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


						Unearned				Accumulated
						Common				Other		Total
	Number	Common Stock		Additional		Stock		Retained		Comprehensive		Stockholders'
	of Shares, net	Stock		Paid-in capital		held by ESOP		Earnings		Loss		Equity
Balance, June 30, 2022	14,896,590	$	149	$	159,546	$	(9,599)	$	57,587	$	(15,357)	$	192,326
Net income	—		—		—		—		1,027		—		1,027
Other comprehensive loss	—		—		—		—		—		(7,750)		(7,750)
Restricted stock expense	—		—		289		—		—		—		289
Stock option expense	—		—		201		—		—		—		201
Stock purchased and retired	(397,352)		(4)		(4,578)		—		—		—		(4,582)
ESOP shares committed to be released	—		—		—		102		—		—		102
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(419)		—		(419)
Balance, September 30, 2022	14,499,238	$	145	$	155,458	$	(9,497)	$	58,195	$	(23,107)	$	181,194

See accompanying notes to consolidated financial statements

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WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

For the Three Months Ended September 30, 2023 and 2022 (unaudited)


	Three Months Ended
	September 30,
	2023		2022

Cash flows from operating activities
Net income	$	179	$	1,027
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		5		—
Depreciation expense		197		265
Other accretion, net		(136)		(133)
Amortization of core deposit intangibles		41		48
Amortization of ESOP		102		102
Unrealized (gain) loss on equity securities		(73)		273
Earnings on bank-owned life insurance		(294)		(273)
Stock based compensation expense		477		490
Other, net		(96)		800
Net cash provided by operating activities		402		2,599
Cash flows from investing activities
Securities available for sale:
Purchases		—		(1,923)
Maturities, calls and principal paydowns		3,000		3,637
Securities held to maturity:
Purchases		—		(4,484)
Maturities, calls and principal paydowns		2,153		2,243
Net decrease in loans receivable		5,405		3,181
Interest bearing time deposits:
Maturities and principal paydowns		500		—
Regulatory stock purchases		(2,109)		(1,487)
Regulatory stock redemptions		1,400		1,915
Purchases of premises and equipment, net		(48)		(122)
Proceeds from the sale of premises and equipment		—		123
Net cash provided by investing activities		10,301		3,083
Cash flows from financing activities
Net decrease in deposits		(8,713)		(6,373)
Net increase (repayment) of short-term borrowed funds		17,000		(10,000)
Repurchase of common stock		(19,948)		(4,582)
Decrease in advances from borrowers for taxes and insurance		(1,520)		(1,355)
Cash dividends		(348)		(419)
Net cash used in financing activities		(13,529)		(22,729)
Net decrease in cash and cash equivalents		(2,826)		(17,047)
Cash and cash equivalents - beginning		20,793		36,170
Cash and cash equivalents - ending	$	17,967	$	19,123
Supplementary cash flows information
Interest paid	$	3,221	$	877
Income tax payments (refunds)		205		(467)
Premises transferred to held for sale		1,237		—

See accompanying notes to consolidated financial statements

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Notes to the Consolidated Financial Statements

Note 1 - Nature of Operations

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

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

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

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, the Bank, as well as the Bank’s wholly owned subsidiary, WPSLA Investment Corporation (“WPSLA”). WPSLA is a Delaware corporation organized in April 2000 to hold certain investment securities for the Bank. At September 30, 2023, WPSLA held $245.8 million of the Bank’s $255.3 million investment securities portfolio. All significant intercompany accounts and transactions have been eliminated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis.

Use of Estimates in the Preparation of Financial Statements

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

The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year or any other period. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

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Presentation of Cash Flows

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

Revenue Recognition

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

Segment Reporting

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

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the impairment model for most financial assets. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this guidance using the modified retrospective approach for all financial assets measured at amortized cost, including loans, held to maturity debt securities and unfunded commitments, as well as available for sale securities. On July 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $187 thousand, net of tax, related to loans and $39 thousand, net of tax, related to unfunded commitments. The Company determined that there was no impact to retained earnings related to available for sale or held to maturity debt securities as a result of adopting this guidance. The results reported for periods beginning on or after July 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

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


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

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

Recent Accounting Pronouncements Not Yet Adopted

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

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

Allowance for Credit Losses on Loans

The Company maintains its allowance for credit losses (“ACL”) at a level that management believes to be appropriate to absorb estimated credit losses as of the date of the Consolidated Statement of Financial Condition. The Company established its allowance in

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

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

The Company has elected to exclude $1.9 million of accrued interest receivable as of September 30, 2023 from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Accrued interest on loans is reported in the accrued interest receivable and other assets line on the consolidated statements of financial condition.

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

Allowance for Credit Losses on Unfunded Loan Commitments

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

Allowance for Credit Losses on Held to Maturity Securities

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

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

Accrued interest receivable on held to maturity debt securities totaled $142 thousand as of September 30, 2023 and is included within accrued interest receivable and other assets on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, held to maturity debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

Allowance for Credit Losses on Available for Sale Securities

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

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

Accrued interest receivable on available for sale debt securities totaled $806 thousand as of September 30, 2023 and is included within accrued interest receivable and other assets on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, available for sale debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

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Note 3 - Earnings Per Share

The following table presents a calculation of basic and diluted earnings per share for the three months ended September 30, 2023 and 2022. Earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated ESOP shares and unvested restricted stock shares. There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of $179 thousand and $1.0 million for the three months ended September 30, 2023 and 2022, respectively, were used as the numerators. See Note 11 to these consolidated financial statements for further discussion of stock grants.

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


	Three Months Ended
	September 30,
(Dollars in thousands, except share and per share amounts)	2023		2022
Basic and diluted earnings per share:
Net income	$	179	$	1,027

Basic average common shares outstanding		10,600,522		13,435,273
Effect of dilutive securities		20,081		17,629
Dilutive average shares outstanding		10,620,603		13,452,902
Earnings per share:
Basic	$	0.02	$	0.08
Diluted	$	0.02	$	0.08

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented. There were 1,197,640 and 1,232,400 stock options that were anti-dilutive for the three months ended September 30, 2023 and 2022, respectively.

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

The following tables present the changes in the balances of each component of accumulated other comprehensive loss (“AOCL”) for the three months ended September 30, 2023 and 2022.


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

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

There were no reclassifications out of AOCL during the three months ended September 30, 2023 and 2022.

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Note 5 – Investment Securities

Debt Securities

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

September 30, 2023

Gross

Allowance

Amortized

Unrealized

for Credit

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Available For Sale:

William Penn Bancorporation [WMPN] Filings
10-Q	[2023-11-02]
10-K	[2023-09-07]
10-Q	[2023-05-04]
10-Q	[2023-02-02]
10-Q	[2022-11-03]
10-K	[2022-09-08]
10-Q	[2022-05-05]
10-Q	[2022-02-03]
10-Q	[2021-11-04]
10-K	[2021-09-15]
10-Q	[2021-05-06]
10-Q	[2021-03-01]
S-1	[2020-10-15]