10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2009

OR

o 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. 0-53172

WILLIAM PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

United States	37-1562563
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

8150 Route 13, Levittown, Pennsylvania	19057
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, including area code (215) 945-1200

Securities Registered Pursuant to Section 12(b) of the Act: None

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

Common Stock, $.10 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYES x NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYES x NO

Indicate by check mark whether the registrant: (l) 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. x YES o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $13.6 million as of December 31, 2008 based on the last sale ($13.60 per share) reported on the OTC Bulletin Board^SM as of that date. Solely for purposes of this calculation, the term “affiliate” refers to all directors and executive officers of the registrant, the registrant’s stock benefit plan trusts and all shareholders beneficially owning more than 10% of the registrant’s common stock.

As of September 25, 2009, there were issued and outstanding 3,641,018 shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

1.	Portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended June 30, 2009 (Parts I & II)
2.	Portions of the Registrant’s definitive Proxy Statement for the 2009 Annual Meeting of Shareholders. (Part III)

WILLIAM PENN BANCORP, INC.

ANNUAL REPORT ON FORM 10-K

for the fiscal year ended June 30, 2009

INDEX

PART I
		Page
Item 1.	Business	2
Item 1A.	Risk Factors	33
Item 1B.	Unresolved Staff Comments	33
Item 2.	Properties	33
Item 3.	Legal Proceedings	33
Item 4.	Submission of Matters to a Vote of Security Holders	34
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	34
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A(T).	Controls and Procedures	35
Item 9B.	Other Information	35
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director       Independence	36
Item 14.	Principal Accounting Fees and Services	36
PART IV
Item 15.	Exhibits, Financial Statement Schedules	37
SIGNATURES

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PART I

Forward Looking Statements

When used in this discussion and elsewhere in this Annual Report, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intend” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, unfavorable judicial decisions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected.

We do not undertake and specifically disclaim any obligations to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Item 1. Business

The Company. On April 15, 2008, William Penn Bank, FSB (the “Bank”) completed a reorganization from the mutual to the mutual holding company structure and became a wholly-owned subsidiary of William Penn Bancorp, Inc. (the “Company”), a federally chartered corporation. As part of the transaction, the Company sold 1,025,283 shares of its common stock, $.10 par value, to the public at $10.00 per share (including 87,384 shares purchased by the Bank’s Employee Stock Ownership Plan with funds borrowed from the Company) and issued 2,548,713 shares to William Penn, MHC. In addition, the Company contributed 67,022 shares to the William Penn Bank Community Foundation. Prior to consummation of the reorganization, the Company had no assets or liabilities. Accordingly, the Company's financial statements consist of those of the Bank for periods prior to April 15, 2008.

Our executive offices are located at 8150 Route 13, Levittown, Pennsylvania 19057 and our main telephone number is (215) 945-1200.

The Bank. Originally founded in 1870, the Bank is a federally chartered savings bank. The Bank’s primary business consists of the taking of deposits and granting of mortgage loans to customers generally in the Bucks County, Pennsylvania area. The Bank is supervised and regulated by the Office of Thrift Supervision and its deposits are insured to applicable limits by the Federal Deposit Insurance Corporation. The Bank is also a member of the Federal Home Loan Bank of Pittsburgh.

William Penn Bank, FSB conducts a traditional community bank operation, offering retail banking services, owner-occupied and non-owner-occupied one- to four-family mortgage loans, multi-family and non-residential real estate mortgage loans, construction and land loans, deposit loans, home equity and second mortgage loans, home-equity lines of credit and other consumer loans. William Penn Bank, FSB operates from its main office in Levittown, Pennsylvania and branch offices in Morrisville and Richboro, Pennsylvania. William Penn Bank, FSB maintains a website at www.willpenn.com.

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Market Area

Our business of attracting deposits and making loans is primarily conducted within our market area of Bucks County, Pennsylvania and the surrounding counties. We focus on the 90-mile radius surrounding our offices. Bucks County was historically dependent on the steel industry. The local economy has changed and is now diverse, without any particular concentration of industry. Much of the areas in which we conduct business can be characterized as outlying commuter suburbs for the Philadelphia as well as the greater New York City area job markets.

As part of our business planning, we have examined the specific demographic conditions of the areas immediately surrounding each of our three offices. This examination showed that our Levittown market has lower levels of education, a lower percentage of white-collar workers, lower average household income and fewer overall households than average Bucks County levels. The Levittown market has approximately 4,200 households and is projected to experience a modest decline in households and population through 2011. The predominant age bracket for this market area is 45 to 54 years old. Examination of our Morrisville market revealed higher levels of education and white-collar workers but lower average household income and fewer overall households than average Bucks County levels. The Morrisville market has approximately 5,800 households and is projected to experience a modest decline in households and population through 2011. The predominant age bracket for this market area is 35 to 44 years old. Our Richboro market was determined to have higher levels of education, white-collar workers, household income as well as more overall households than average Bucks County levels. The Richboro market has approximately 4,200 households and is projected to experience slight growth in households and population through 2011. The predominant age bracket for this market area is 45 to 54 years old. The Levittown and Morrisville market areas are believed to have small potential as retail deposit and loan markets with below average propensities for most deposit and loan products while the Richboro market area is believed to have average potential as a retail deposit and loan market with above average propensities for most deposit and loan products. Each of the three market areas has a higher number of businesses per square mile than the Bucks County average, with the different concentrations in Levittown, Morrisville and Richboro being construction, personal services and the health industry, respectively.

Lending Activities

General. Our loan portfolio is primarily comprised of one- to four-family residential real estate loans. We are a reputation lender and feel we have built a niche in our market area for providing financing on what we believe are high quality credits that are, for various reasons, ineligible for resale in the secondary market. For example, we originate a significant amount of mortgages on non-owner-occupied properties (which are generally referred to as “investor loans”). At June 30, 2009, we had approximately $65.7 million of loans on non-owner-occupied, one- to four-family residences (“investor loans”), representing approximately 29.6% of Total loans. This $65.7 million of one- to four-family investor loans includes $61.1 million of first mortgages, $734,000 of second mortgages and $3.9 million of construction loans. Loans on one- to four-family residences are generally considered to have less credit risk than other types of real estate lending, but a non-owner-occupied property puts the loan on that property into the category of “investor loans” and these loans are generally considered to involve a higher degree of credit risk than the financing of owner-occupied properties since repayment may depend on the rental income from such properties.

A part of our management of interest rate risk we generally seek to avoid originating fixed-rate, 30-year loans unless we have a commitment for the resale of such loans in the secondary market. Competitive conditions have limited our resale ability and thus we continue at present to be predominantly a portfolio lender focusing on adjustable-rate loans and fixed-rate loans with terms of 20

3

years or less.

We have in the past intentionally reduced mortgage lending because of the yield curve’s impact on the pricing of short-term assets relative to long-term assets. We now anticipate embarking on a proactive growth strategy. We anticipate, however, that we will continue to limit our origination of fixed-rate, 30-year loans unless we have a commitment for the resale of such loans in the secondary market because that strategy remains a component of our management of interest rate risk. We expect therefore to continue to focus on the origination of adjustable-rate loans and fixed-rate loans with terms of 20 years or less. The mix of adjustable-rate loans to fixed-rate loans will be dependent on what is in demand by customers, and we plan to continue to retain loans with terms of 20 years or less regardless of whether the loans are fixed or adjustable rate. We intend to increase our origination of multi-family and nonresidential mortgage loans going forward as we grow the overall loan portfolio. Our multi-family and nonresidential real estate lending consists primarily of mortgage loans for the acquisition or refinance of small apartment buildings, service/retail and mixed-use properties, churches and non-profit properties, professional facilities and other commercial real estate. We do not anticipate changing the type of multi-family and nonresidential lending that we have done in the past; our intention is do a greater volume of the same type of lending. We do not at the present time originate non-real estate commercial loans or lines of credit to businesses and we have no current intention of expanding our lending activities into that type of commercial lending.

The majority of our loans are to borrowers who reside in Bucks County and could be expected to be similarly affected by economic conditions there.

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Loan Portfolio Composition.The following table analyzes the composition of the Bank’s portfolio by loan category at the dates indicated.

	At June 30,
	2009				2008						2007				2006					2005
	Amount		Percent		Amount			Percent			Amount		Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate mortgage
One- to four-family	$	142,499	62.36	%	$	129,709		62.04	%	$	117,338		61.82	%	$	117,335		62.41	%	$	122,821			63.92	%
Home equity and second mortgage		7,276	3.18			8,394		4.02			8,791		4.63			9,022		4.80			6,216			3.24
Multi-family		10,268	4.49			12,229		5.85			10,829		5.70			11,137		5.92			8,385			4.36
Nonresidential		35,366	15.48			30,262		14.48			27,397		14.43			25,298		13.46			26,943			14.02
Land		3,999	1.75			4,041		1.93			4,010		2.11			4,254		2.28			4,508			2.35
Construction		14,205	6.22			15,466		7.40			11,111		5.85			9,822		5.22			10,831			5.64
Consumer		2,347	1.03			2,450		1.17			2,762		1.46			3,613		1.92			5,383			2.80
Home equity lines of credit		12,142	5.31			6,161		2.95			7,162		3.77			7,096		3.77			6,591			3.43
Savings account loans		420	0.18			336		0.16			428		0.23			422		0.22			457			0.24
Total loans		228,522	100.00	%		209,048		100.00	%		189,828		100.00	%		187,999		100.00	%		192,135			100.00	%
Less:
Loans in process		(5,562)				(9,144	)				(6,668	)				(4,081	)				(6,206	)
Unearned loan origination fees, net		(841)				(969	)				(1,116	)				(1,231	)				(1,465	)
Allowance for loan losses		(2,180)				(1,910	)				(1,840	)				(1,675	)				(1,500	)
Total loans, net	$	219,939			$	197,025				$	180,204				$	181,012				$	182,964

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Loan Maturity Schedule. The following table sets forth the maturity of the Company’s loan portfolio at June 30, 2009. Demand loans, loans having no stated maturity, and overdrafts are shown as due in one year or less. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.

	At June 30, 2009
	One to Four Family		Construction and Land		Non- Residential and Multi- Family		Home Equity and Second Mortgage		Home Equity Lines of Credit		Consumer Loans and Savings Account Loans		Total
	(In Thousands)
Amounts Due:
Within 1 Year	$	15	$	16,845	$	13	$	89	$	87	$	1,010	$	18,059
After 1 year
1 to 3 years		1,274		858		140		476		-		590		3,339
3 to 5 years		5,587		-		1,213		957		108		1,016		8,881
5 to 10 years		21,992		-		7,995		1,778		438		85		32,288
10 to 15 years		32,880		501		14,077		2,790		11,509		-		61,757
Over 15 years		80,751		-		22,196		1,186		-		66		104,199
Total due after one year		142,484		1,359		45,621		7,187		12,055		1,757		210,463
Total	$	142,499	$	18,204	$	45,634	$	7,276	$	12,142	$	2,767	$	228,522

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The following table sets forth the dollar amount of all loans at June 30, 2009 due after June 30, 2010 which have fixed interest rates and floating or adjustable interest rates.

	Fixed Rates		Floating or Adjustable Rates		Total
	(In thousands)
Real estate mortgage
One- to four-family	$	79,250	$	63,234	$	142,484
Home equity and second mortgage		6,860		327		7,187
Nonresidential and multi-family		24,833		20,788		45,621
Construction and Land		1,359		-		1,359
Home equity lines of credit		-		12,055		12,055
Consumer loans and savings account loans		186		1,571		1,757
Total	$	112,488	$	97,975	$	210,463

Residential Lending. Currently, our main lending activity consists of the origination of residential real estate loans, including single-family homes and residences housing up to four families. Our primary lending territory is Bucks County and surrounding counties. All mortgage loans in excess of 80% loan-to-value must have private mortgage insurance that covers us for any loss on the amount of the loan in excess of 80% in the event of foreclosure.

Our underwriting policies permit the origination of one-to four-family first mortgage loans, for primary residence or vacation home, with a loan-to-value of up to 95%. We also offer an affordable housing/first time home buyer program, which uses the 95% loan-to-value limit but permits the borrower to have equity in the real estate of as little as 3%. This program also provides that in low- to moderate-income census tracts of our Community Reinvestment Act lending area we can permit a 100% loan-to-value. We originate leasehold mortgages with a loan-to-value of up to 70%. We offer mortgage loans on non-owner-occupied, one- to four-family properties (investor loans) with up to a 80% loan-to-value ratio and no more than a 20-year term if the rate is fixed.

We offer fixed-rate mortgages with terms of 10, 15, 20 or 30 years. We originate adjustable-rate mortgages, or ARMs, at rates based upon the constant maturity yield of one year U.S. Treasury securities with up to 30-year terms. We currently offer either one, three, five and seven year ARMs with rates resetting on an annual basis, beginning either after the first, third, fifth or seventh year as the case may be. These loans have a two percentage point cap on annual rate adjustments. The maximum rate adjustment over the life of the 3/5 and 7 year ARMs is six percentage points. The maximum rate adjustment over the life of the one-year ARMs is seven percentage points.

Property appraisals on real estate securing one- to four-family residential loans are made by state certified or licensed independent appraisers. Substantially all of our residential mortgages include “due on sale” clauses, which give us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party.

Home Equity Lending. We offer home equity loans and home equity lines of credit with loan-to-value amounts up to 80% for first liens and for second liens and 70% for properties with two or more intervening liens. Fixed-rate home equity loans have a maximum term of 20 years. We offer an interest-only home equity loan with an 18-month term. Our home equity line of credit has a five-year draw period during which the borrower may obtain advances on the line of credit, followed by a ten-year repayment

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period. The minimum periodic payment on the home equity line of credit during the draw period may be interest only. Lines of credit have a rate floor of the lower of the initial rate or 4.75% and an adjustment cap of 18% over the life of the loan but no annual adjustment cap. Adjustable rates on our home equity loans and lines of credit adjust monthly and are based on the prime rate.

The Automated Valuation Models (AVM) is used for home equity loans and lines of credit in amounts of $100,000 or less or with loan-to-values of less than 70%. Should the AVM not provide sufficient value to support the request, a full appraisal may be requested by the borrower at the borrower’s

expense.

Construction and Land Loans. We originate construction loans, land acquisition loans and land development loans. Construction loans may be for residential or nonresidential projects. Land loans are originated with a 70% loan-to-value limit, land development loans have a 75% limit and construction loans have an 80% limit on the appraised value of the completed project. The construction phase may be no longer than 18 months. A land loan may have a 24-month, interest-only term or may be a three-year balloon loan with a 15-year amortization schedule. Financing is available for owner-occupied residences, and we also provide financing to builders and real estate developers. Approximately 90% of our construction and land loan portfolio represents loans to builders and developers. We occasionally make loans to builders for the construction of residences for which they do not yet have buyers.

Construction and land acquisition and development loans are generally considered to involve a higher degree of credit risk than residential mortgage lending. If the initial estimate of construction cost proves to be inaccurate, we may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover all of the unpaid portion of the loan. Moreover, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. In addition, these loans may result in larger balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts.

Multi-Family and Nonresidential (Commercial) Mortgages. Our nonresidential real estate lending consists primarily of mortgage loans for the acquisition or refinance of service/retail and mixed-use properties, churches and non-profit properties, professional facilities and other commercial real estate. The maximum loan-to-value ratio on all multi-family properties or on office/professional properties under $200,000 is 80%. All other nonresidential properties have a 75% limit. The maximum term on a fixed- rate loan is 20 years. We offer a 30-year term on an adjustable-rate loan.

We will provide multi-family and nonresidential financing for both owner-occupied properties and for investor properties. We do not at the present time originate non- real estate commercial loans or lines of credit to businesses.

Unlike single-family, owner-occupied residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, multi-family and nonresidential real estate loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business or rental income produced by the property. As a result, the availability of funds for the repayment of these loans may be substantially dependent on the success of the business or rental property itself and the general economic environment. These loans, therefore, have greater credit risk than one to four family residential mortgages or consumer loans. In

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addition, these loans generally result in larger balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts.

Consumer and Personal Lending. Our consumer lending products include loans for new and used autos, savings account loans as well as secured and unsecured personal loans and lines of credit.

Savings account loans have a rate equal to the account rate plus 2% and there is no term limit on these loans. Secured personal loans may have terms up to seven years, and unsecured personal loans may be up to three years. We accept securities as collateral for secured personal loans.

Consumer lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. The security if any for consumer loans often consists of rapidly depreciating personal property like automobiles. Consumer loan repayment is dependent on the borrower’s continuing financial stability and can be adversely affected by job loss, divorce, illness or personal bankruptcy. The application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default.

Loans to One Borrower. Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount equal to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus. Accordingly, based on our financial condition as of June 30, 2009, our loans to one borrower regulatory lending limit was approximately $6.7 million. Our largest borrower at that date had 3 loans outstanding with an aggregate balance of $5.7 million, representing mortgages secured by liens on commercial real estate. The Board of Directors evaluates the creditworthiness of large borrowers on a case-by-case basis, and the Board is willing to lend up to the regulatory limit for what it determines to be quality loans.

Loan Originations, Purchases and Sales. Our customary sources of loan applications include repeat customers, referrals from realtors and other professionals, and “walk-in” customers. Historically, we have primarily originated our own loans and retained them in our portfolio. We also obtain loan customers through local mortgage brokers. All such loans are underwritten in accordance with our normal underwriting standards prior to origination. From time to time, we also purchase participations in loans originated by other financial institutions.

Loan Commitments. We give written commitments to prospective borrowers on all residential and non-residential mortgage loans. The total amount of commitments to extend credit for mortgage and consumer loans as of June 30, 2009, was approximately $5.2 million, excluding undisbursed portions of construction loans totaling $5.6 million. We also had $15.0 million of unfunded commitments on lines of credit as of that date.

Loan Approval Procedures and Authority. Lending policies and loan approval limits are approved and adopted by the Board of Directors. Lending authority is vested primarily in the Board of Directors and, to a lesser extent, a loan committee comprised of senior officers may approve loans up to $500,000 if the loan is substantially in compliance with the applicable lending policy. Prior Board approval is required for all loans in excess of $500,000 and the Board generally ratifies all loans at its twice-monthly meetings.

Asset Quality

Loan Delinquencies and Collection Procedures. When a loan is 90 days delinquent, the Board may determine to refer it to an attorney for repossession or foreclosure. Reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify

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the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency.

With respect to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated selling costs. The initial writedown of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the property that result from subsequent declines in value are charged to operations in the period in which the declines occur.

Loans are generally placed on non-accrual status when they are 90 days delinquent or more, however loans may be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan.

Non-Performing Assets. The following table provides information regarding loans past due 90 days or more, all of which were accounted for on a non-accrual basis.

	At June 30,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
One- to four-family mortgage loans	$	1,280		$	1,180		$	867		$	402		$	574
Multi-family mortgage loans		203			—			—			—			—
Nonresidential loans		-			1,122			841			—			—
Construction loans		-			649			245			—			145
Consumer loans		-			—			—			—			34
Home equity lines of credit		-			38			111			—			138
Total non-performing loans	$	1,483		$	2,989		$	2,064		$	402		$	891
Real estate owned	$	206			—			—			—			—
Total non-performing assets	$	1,689		$	2,989		$	2,064		$	402		$	891
Total non-performing loans to total loans		0.67	%		1.50	%		1.13	%		0.21	%		0.48	%
Total non-performing loans to total assets		0.48	%		1.06	%		0.77	%		0.15	%		0.34	%
Total non-performing assets to total assets		0.55	%		1.06	%		0.77	%		0.15	%		0.34	%

We had no real estate owned or other repossessed assets as of any of the dates shown in the table above except $206,000 as of June 30, 2009. We did not have any troubled debt restructurings (wherein the borrower is granted a concession that we would not otherwise consider under current market conditions) as of the dates shown in the above table.

As of June 30, 2009, there were no loans not reflected in the above table as to which known information about possible credit problems of borrowers caused management to have serious doubts

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about the ability of such borrowers to comply with present loan repayment terms and which may result in such loans being disclosed as non-performing in the future.

During the year ended June 30, 2009, gross interest income of less than $117,000 would have been recorded on loans accounted for on a non-accrual basis if those loans had been current, and $52,000 in interest on such loans was included in income for the year ended June 30, 2009.

Classified Assets. Management, in compliance with federal guidelines, has instituted an internal loan review program, whereby weaker credits are classified as special mention, substandard, doubtful or loss. It is our policy to review the loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as substandard or doubtful, management is required to evaluate the loan for impairment. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is required to be established or the loan is to be charged-off.

The following is a summary of information pertaining to impaired loans:

	Year Ended June 30,
	2009		2008
Impaired loans without a valuation of allowance	$	1,713	$	—
Impaired loans with a valuation allowance		4,155		4,123
Total impaired lans	$	5,868	$	4,123
Valuation allowance related to impaired loans	$	561	$	888

An asset that does not currently expose the Bank to a sufficient degree of risk to warrant an adverse classification, but which possesses credit deficiencies or potential weaknesses that deserve management’s close attention is classified as “special mention.”

An asset classified as “substandard” is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets so classified have well-defined weaknesses and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

An asset classified as “doubtful” has all the weaknesses inherent in a “substandard” asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of a loss on a doubtful asset is high. That portion of an asset classified as “loss” is considered uncollectible and of such little value that its continuance as an asset, without establishment of a specific valuation or charge-off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future.

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As of June 30, 2009, 2008 and 2007 our classified loans were as follows.

	At June 30,
	2009		2008		2007
	(In thousands)
Special Mention	$	6,533	$	3,001	$	3,001
Substandard		1,689		2,989		2,516
Doubtful		—		—		—
Loss		—		—		—
Total	$	8,222	$	5,990	$	5,517

Special mention loans at June 30, 2009, 2008 and 2007 were comprised of one $3.0 million loan secured by a tract of land in Wildwood, New Jersey and 3 construction participation loans for the year ended June 30, 2009.

Allowance for Loan Losses. The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level by management which represents the evaluation of known and inherent losses in the loan portfolio at the consolidated balance sheet date that are both probable and reasonable to estimate. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The Bank’s loan loss experience in recent periods has been low. Over the last five fiscal years, the Bank had loan charge offs totaling $279,000 and recoveries totaling $16,000. Provisions to the allowance in recent periods have been more influenced by current economic conditions than by the Bank’s recent loss experience. The allowance has also been affected by management’s decision to raise the Bank’s reserve on a land loan secured by a tract of land in Wildwood, New Jersey due to the ongoing concerns about the financial condition of the borrower on this loan. Monthly payments were current as of June 30, 2009, however payments are being received not from the borrower but from the borrower’s business partner, who could cease payment at any time as he is not a party to the loan agreement and has no legal obligation to make payments on this loan. The most recent appraisal the Bank has on this property was prepared in 2004, and although that “as is” appraisal for this undeveloped site was greater than the outstanding balance of the loan, the Bank has designated the loan as special mention in light of the uncertainty related to the development of the property. The issues that could impede the development include zoning, wetlands preservation, site improvements and environmental cleanup.

The allowance consists of specific and general components. The specific component related to loans that are classified as either doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors.

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A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Although specific and general loan loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of our borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses, which would be a charge to income during the period the provision is made, resulting in a reduction to our earnings. A change in economic conditions could also adversely affect the value of the properties collateralizing our real estate loans, resulting in increased charge-offs against the allowance and reduced recoveries, and thus a need to make increased provisions to the allowance for loan losses. Furthermore, a change in the composition of our loan portfolio or growth of our loan portfolio could result in the need for additional provisions.

In addition, as an integral part of its regulatory examination process, the Office of Thrift Supervision periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The Office of Thrift Supervision may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on their review of information available at the time of the examination, which would negatively affect our earnings.

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The following table sets forth information with respect to activity in the Bank’s allowance for loan losses for the periods indicated.

	For the Year Ended June 30,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Allowance balance (at beginning of period)	$	1,910		$	1,840		$	1,675		$	1,500		$	1,350
Provision for loan losses		531			70			156			186			149
Charge-offs:
One- to four-family mortgage loans		—			—			—			—			—
Construction loans		100			—			—			—			—
Commercial		156			—			—			—			—
Consumer loans		5			—			—			13			4
Total charge-offs		261			—			—			13			4
Recoveries:
One- to four-family mortgage loans		—			—			—			—			—
Construction loans		—			—			—			—			—
Commercial		—			—			—			—			—
Consumer loans		—			—			9			2			5
Total recoveries		—			—			9			2			5
Net (charge-offs) recoveries		(261)			—			9			(11	)		1
Allowance balance (at end of period)	$	2,180		$	1,910		$	1,840		$	1,675		$	1,500
Total loans outstanding	$	222,960		$	199,904		$	183,160		$	183,918		$	185,929
Average loans outstanding(1)	$	216,095		$	186,244		$	182,672		$	185,954		$	184,451
Allowance for loan losses as a percent of total loans outstanding		0.98	%		0.96	%		1.00	%		0.91	%		0.81	%
Allowance for loan losses to non-performing loans		147.00	%		63.90	%		89.15	%		416.67	%		168.35	%
Net charge-offs to average loans		0.12	%		0.00	%		0.00	%		0.00	%		0.00	%

_______________

(1) Average balances are derived from month end balances. Management does not believe that the use of month end balances rather than daily balances has caused any material differences in the information presented.

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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.

	At June 30,
	2009				2008				2007				2006				2005
	Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans
	(Dollars in thousands)
At end of period allocated to:
Real estate mortgage
One- to four-family	$	918	62.36	%	$	273	62.04	%	$	279	61.82	%	$	264	62.41	%	$	275	63.92	%
Home equity and second mortgages		26	3.18			20	4.02			18	4.63			18	4.80			12	3.24
Multi-family		90	4.49			30	5.85			162	5.70			166	5.92			125	4.36
Nonresidential		422	15.48			575	14.48			503	14.43			376	13.46			385	14.02
Land		451	1.75			618	1.93			489	2.11			498	2.28			366	2.35
Construction		169	6.22			170	7.40			67	5.85			71	5.22			48	5.64
Consumer		23	1.03			45	1.17			89	1.46			108	1.92			268	2.80
Home equity lines of credit		44	5.31			15	2.95			20	3.77			14	3.77			20	3.43
Loans on savings accounts		—	0.18			—	0.16			—	0.23			—	0.22			—	0.24
Unallocated		37				164	0.00			213	0.00			160	0.00			1	0.00
Total allowance	$	2,180	100.00	%	$	1,910	100.00	%	$	1,840	100.00	%	$	1,675	100.00	%	$	1,500	100.00	%

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Securities Portfolio

Our investment policy is designed to foster earnings and manage cash flows within prudent interest rate risk and credit risk guidelines. Generally, our investment policy is to invest funds in various categories of securities and maturities based upon our liquidity needs, asset/liability management policies, pledging requirements, investment quality, marketability and performance objectives.

All of our securities carry market risk insofar as increases in market rates of interest may cause a decrease in their market value. Prior to investing, consideration is given to the interest rate environment, tax considerations, market volatility, yield, settlement date and maturity of the security, our liquidity position, and anticipated cash needs and sources. The effect that the proposed security would have on our credit and interest rate risk and risk-based capital is also considered.

Federally chartered savings banks have the authority to invest in various types of liquid assets. The investments authorized under the Bank’s investment policy include U.S. government and government agency securities, municipal securities (consisting of bond obligations of state and local governments), mortgage-backed securities, collateralized mortgage obligations and corporate bonds. On a short-term basis, our investment policy authorizes investment in federal funds, certificates of deposit and money market investments with insured institutions and with brokerage firms.

Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that securities be categorized as “held to maturity,” “trading securities” or “available-for-sale,” based on management’s intent as to the ultimate disposition of each security. Statement No. 115 allows debt securities to be classified as “held to maturity” and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security’s prepayment risk, increases in loan demand, or other similar factors cannot be classified as “held to maturity.”

We do not currently use or maintain a trading account. Securities not classified as “held to maturity” are classified as “available-for-sale.” These securities are reported at fair value, and unrealized gains and losses on the securities are excluded from earnings and reported, net of deferred taxes, as a separate component of stockholders’ equity.

We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments, however, we may in the future utilize such instruments if we believe it would be beneficial for managing our interest rate risk. Further, we do not purchase securities which are not rated investment grade.

Actual maturities of the securities held by us may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. Callable securities pose reinvestment risk because we may not be able to reinvest the proceeds from called securities at an equivalent or higher interest rate.

Mortgage-Backed Securities and Collateralized Mortgage Obligations. Mortgage-related securities represent a participation interest in a pool of one-to-four-family or multi-family mortgages. We primarily invest in mortgage-backed securities secured by one-to-four-family mortgages. Our mortgage-related securities portfolio includes mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies or government-sponsored entities, such as Freddie Mac, Ginnie Mae, and Fannie Mae or issued by private, non-government, corporate issuers.

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The mortgage originators use intermediaries (generally government agencies and government-sponsored enterprises, but also a variety of private corporate issuers) to pool and repackage the participation interests in the form of securities, with investors such as us receiving the principal and interest payments on the mortgages. Securities issued or sponsored by U.S. government agencies and government-sponsored entities are guaranteed as to the payment of principal and interest to investors. Privately issued non-government, corporate issuers’ securities typically offer rates above those paid on government agency issued or sponsored securities, but present higher risk than government agency issued or sponsored securities because they lack the guaranty of those agencies and are generally less liquid investments.

Mortgage-backed securities are pass-through securities typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a specific range and have varying maturities. The life of a mortgage-backed security thus approximates the life of the underlying mortgages. Mortgage-backed securities generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates.

Collateralized mortgage obligations are mortgage-derivative products that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules as well as a residual interest with each class having different risk characteristics. The cash flows from the underlying collateral are usually divided into “tranches” or classes whereby tranches have descending priorities with respect to the distribution of principal and interest repayment of the underlying mortgages and mortgage-backed securities as opposed to pass through mortgage-backed securities where cash flows are distributed pro rata to all security holders. Unlike mortgage-backed securities from which cash flow is received and risk is shared pro rata by all securities holders, cash flows from the mortgages and mortgage-backed securities underlying collateralized mortgage obligations are paid in accordance with a predetermined priority to investors holding various tranches of the securities or obligations. William Penn Bank’s investment in non-government agency collateralized mortgage obligations has increased in the last two years. The balance of its investments in these securities was $13.4 million as of June 30, 2009, $6.1 million as of June 30, 2008 and $0 as of June 30, 2007.

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Securities Portfolio Composition. The following table sets forth the carrying value of our securities portfolio at the dates indicated. Securities that are held-to-maturity are shown at our amortized cost, and securities that are available-for-sale are shown at their fair value.

	At June 30,
	2009		2008		2007
	(In thousands)
Securities Available for Sale:
Mutual funds	$	10	$	5	$	25
Securities Held to Maturity:
U.S. Government corporations and agencies securities	$	32,371	$	48,005	$	53,718
Mortgage-backed securities		6,908		10,631		7,919
Collateralized Mortgage Obligations		19,236		4,377		—
Corporate debt securities		201		—		—
Municipal bonds		299		—		—
Total Held to Maturity	$	59,015	$	63,013	$	61,637

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The following tables set forth certain information regarding the carrying values, weighted average yields and maturities of our investment and mortgage-backed securities portfolio at June 30, 2009. These tables show contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.

	At June 30, 2009
	One Year or Less				One to Five Years				Five to Ten Years				More Than Ten Years				Total Securities
	Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield			Fair Value
	(Dollars in thousands)
Mutual funds	$	10	1.50	%	$	—	—	%	$	—	—	%	$	—	—	%	$	10	1.50	%	$	10
U.S. Government corporations and agencies securities		4,000	4.33			11,899	5.26			5,571	5.80			10,901	5.63			32,371	5.36			32,958
Mortgage-backed securities		30	5.13			—	—			160	5.55			6,718	5.15			6,908	5.16			7,128
Collateralized Mortgage Obligations		—	—			2,202	4.00			3,619	5.00			13,415	3.89			19,236	4.11			19,016
Corporate Bonds		100	4.30			101	6.75			—	—			—	—			201	5.53			202
Municipal Bonds		—	—			—	—			199	3.25			100	4.00			299	3.50			299
Total	$	4,140	4.22	%	$	14,202	5.03	%	$	9,549	5.37	%	$	31,134	4.76	%	$	59,025	4.88	%	$	59,613

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Sources of Funds

General. Deposits are our major source of funds for lending and other investment purposes. We also have the ability to borrow funds from the Federal Home Loan Bank to supplement deposits as a source of funds.

In addition, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds from the maturity and call of investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by pricing strategies and money market conditions.

Deposits. Our current deposit products include checking and savings accounts, certificates of deposit and fixed or variable rate individual retirement accounts (IRAs). Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time, if any, that the funds must remain on deposit and the applicable interest rate. The determination of deposit and certificate interest rates is based upon a number of factors, including: (1) need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of competitors’ rates for similar products; (3) economic conditions; and (4) business plan projections.

We traditionally have preferred to obtain deposits from within our market area and have discouraged non-local deposits. We do not at this time utilize the services of deposit brokers.

The following table sets forth the average balance and the weighted average interest rates for each category of deposits for the last three fiscal years.

	Year Ended June 30,
	2009					2008						2007
	Average Balance			Weighted Average Rate		Average Balance			Weighted Average Rate			Average Balance			Weighted Average Rate
	(Dollars in thousands)
Noninterest-bearing demand accounts	$	1,496	—		%	$	1,522	—		%	$		1,487	—		%
NOW accounts		13,240	0.83				12,597	1.36					12,930	1.45
Money market accounts		38,456	1.94				37,989	3.49					34,579	4.08
Savings and club accounts		13,214	1.30				14,026	2.40					13,728	2.78
Certificates of deposit		94,687	3.49				93,766	4.52					93,261	4.52
Total deposits	$	161,093				$	159,900				$		155,985

The inflow of certificates of deposit and the retention of such deposits upon maturity are significantly influenced by general interest rates and money market conditions, making certificates of deposit traditionally a more volatile source of funding than core deposits. Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period of time were not renewed. To the extent that such deposits do not remain with us, they may need to be replaced with borrowings, which could increase our cost of funds and negatively impact our net interest rate spread and our financial condition.

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The following table shows the amount of our certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 2009.

	At June 30, 2009
	(In thousands)
Maturity Period
Within three months	$	11,375
Three through six months		8,878
Six through twelve months		5,904
Over twelve months		9,740
	$	35,897

Borrowings. We periodically borrow funds from the Federal Home Loan Bank of Pittsburgh to supplement deposits as a source of funds. As of June 30, 2009, our borrowings totaled $89 million and had a weighted average cost of 4.37%. As a strategy to lock in rates on funding beginning in the late 1990s we took long term advances to protect against rising rates. Rates, however, fell to historic lows instead of rising. These borrowings had been a drain on our profitability and we determined in early December 2007 to undertake a refinancing of these advances, as we expected the improvement in our net interest margin resulting from the refinancing would make it worth incurring a significant penalty for the pre-payment of the advances. The penalty was a $1.5 million charge to earnings during the quarter ended December 31, 2007. We pre-paid $25.0 million of advances with a weighted average rate of 5.87% and took replacement advances totaling $30.0 million with a weighted average rate of 3.84%.

The following table sets forth certain information regarding our borrowed funds.

	At or For the Year Ended June 30,
	2009			2008			2007
	(Dollars in thousands)
Federal Home Loan Bank Advances:
Average balance outstanding	$	85,385		$	70,000		$	68,692
Maximum amount outstanding at any month-end during the period		89,000			72,000			71,000
Balance outstanding at end of period		89,000			72,000			71,000
Weighted average interest rate during the period		4.46	%		5.19	%		5.69	%
Weighted average interest rate at end of period		4.37	%		4.53	%		5.61	%

Additional information regarding our borrowings is included in Note 10 to the Consolidated Financial Statements incorporated by reference herein.

Subsidiaries

The Company’s only subsidiary is the Bank. The Bank has one subsidiary: WPSLA Investment Corporation, incorporated under Delaware law in 2000 to hold securities. At June 30, 2009, this subsidiary held securities with a carrying value of approximately $29.2 million, representing about half of our total securities portfolio of $59.0 million at that date.

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Personnel

As of June 30, 2009, we had 32 full-time employees and 5 part-time employees. Our employees are not represented by a collective bargaining unit. We believe our relationship with our employees is good.

Competition

We operate in a market area with a high concentration of banking and financial institutions, and we face substantial competition in attracting deposits and in originating loans, from both regional and large institutions as well as other smaller institutions like ourselves. Our larger competitors have the advantage of significantly greater financial and managerial resources and lending limits, but we feel we compete well on the level of personal attention we provide to customers.

Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking and finance companies for real estate loans, and we face competition for funds from investment products such as mutual funds, short-term money funds and corporate and government securities.

REGULATION

We operate in a highly regulated industry. This regulation establishes a comprehensive framework of activities in which a savings and loan holding company and federal savings bank may engage and is intended primarily for the protection of the deposit insurance fund and consumers. Set forth below is a brief description of certain laws that relate to the regulation of William Penn Bank and William Penn Bancorp. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution and its holding company, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing mutual holding companies, could have a material adverse impact on William Penn Bancorp, William Penn Bank, and their operations. The adoption of regulations or the enactment of laws that restrict the operations of William Penn Bank and/or William Penn Bancorp or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of William Penn Bank’s franchise, resulting in negative effects on the trading price of William Penn Bancorp common stock.

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Regulation of William Penn Bank

General. As a federally chartered savings bank with deposits insured by the Federal Deposit Insurance Corporation, William Penn Bank is subject to extensive regulation by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance for loan losses. The activities of federal savings banks are subject to extensive regulation, including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity, transactions with affiliates and community reinvestment. Federal savings banks are also subject to reserve requirements imposed by the Board of Governors of the Federal Reserve System. A federal savings bank’s relationship with its depositors and borrowers is regulated by both state and federal law, especially in such matters as the ownership of savings accounts and the form and content of the bank’s mortgage documents.

William Penn Bank must file reports with the Office of Thrift Supervision concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with or acquisitions of other financial institutions. The Office of Thrift Supervision regularly examines William Penn Bank and prepares reports to the Bank’s Board of Directors on deficiencies, if any, found in its operations. The Office of Thrift Supervision has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements. In addition, the Federal Deposit Insurance Corporation has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular federal savings bank and, if action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances.

Deposit Insurance. The Bank’s deposits are insured to applicable limits by the Federal Deposit Insurance Corporation. The maximum deposit insurance amount has been increased from $100,000 to $250,000 until December 31, 2013. On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program under which the FDIC will fully guarantee all non-interest-bearing transaction accounts until December 31, 2009 (the “Transaction Account Guarantee Program”) and all senior unsecured debt of insured depository institutions or their qualified holding companies issued between October 14, 2008 and October 31, 2009 that matures prior to December 31, 2012 (the “Debt Guarantee Program”). Senior unsecured debt would include federal funds purchased and certificates of deposit standing to the credit of the bank. After November 12, 2008, institutions that did not opt out of the Programs by December 5, 2008 are assessed at the rate of ten basis points for transaction account balances in excess of $250,000 and at a rate between 50 and 100 basis points of the amount of debt issued. Participating holding companies that have not issued FDIC-guaranteed debt prior to April 1, 2009 must apply to remain in the Debt Guarantee Program. Participating institutions will be subject to surcharges for debt issued after that date.The Transaction Account Guarantee Program has been extended until June 30, 2010 but after January 1, 2010, participating institutions will be assessed at a rate between 15 and 25 basis points on transaction account balances in excess of $250,000. Institutions currently participating in the Transaction Account Guarantee Program will be able to opt of the extended program until November 2, 2009.The Company and the MHC have not opted out of the Debt Guarantee Program. The Bank did not opt out of either part of the Temporary Liquidity Guarantee Program.

Pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), the FDIC is authorized to set the reserve ratio for the Deposit Insurance Fund annually at between 1.15% and 1.5% of estimated insured deposits. If the Deposit Insurance Fund’s reserves exceed the designated reserve ratio,

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the FDIC is required to pay out all or, if the reserve ratio is less than 1.5%, a portion of the excess as a dividend to insured depository institutions based on the percentage of insured deposits held on December 31, 1996 adjusted for subsequently paid premiums. Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the predecessor to the Deposit Insurance Fund.

The FDIC has set the designated reserve ratio at 1.25% of estimated insured deposits. The FDIC has also adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. Well-capitalized institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and have been assessed for deposit insurance at an annual rate of between five and seven basis points with the assessment rate for an individual institution determined according to a formula based on a weighted average of the institution’s individual CAMELS component ratings plus either five financial ratios or the average ratings of its long-term debt. Institutions in Risk Categories II, III and IV have been assessed at annual rates of 10, 28 and 43 basis points, respectively. The Bank used its special assessment credit to offset the cost of its deposit insurance premium until the third calendar quarter of 2008 when the credit was exhausted.

Due to recent bank failures, the FDIC has determined that the reserve ratio was 1.01% as of June 30, 2008. In accordance with the Reform Act, the FDIC must establish and implement a plan within 90 days to restore the reserve ratio to 1.15% within five years (subject to extension due to extraordinary circumstances). For the quarter beginning January 1, 2009, the FDIC raised the base annual assessment rate for institutions in Risk Category I to between 12 and 14 basis points while the base annual assessment rates for institutions in Risk Categories II, III and IV were increased to 17, 35 and 50 basis points, respectively. For the quarter beginning April 1, 2009 the FDIC has set the base annual assessment rate for institutions in Risk Category I to between 12 and 16 basis points and the base annual assessment rates for institutions in Risk Categories II, III and IV at 22, 32 and 45 basis points, respectively. An institution’s assessment rate could be lowered by as much as five basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions based on the ratio of certain amounts of Tier 1 capital to deposits. The assessment rate would be adjusted for Risk Category I institutions that have a high level of brokered deposits and have experienced higher levels of asset growth (other than through acquisitions) and could be increased by as much as ten basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10% of assets. Reciprocal deposit arrangements like CDARS® would be treated as brokered deposits for Risk Category II, III and IV institutions but not for institutions in Risk Category I. An institution’s base assessment rate would also be increased if an institution’s ratio of secured liabilities (including FHLB advances and repurchase agreements) to deposits exceeds 25%. The maximum adjustment for secured liabilities for institutions in Risk Categories I, II, III and IV would be 8, 11, 16 and 22.5 basis points, respectively, provided that the adjustment may not increase an institution’s base assessment rate by more than 50%. The FDIC has further imposed a special assessment equal to five basis points of assets less Tier 1 capital as of June 30, 2009 payable on September 30, 2009 and may impose additional special assessments.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment, which is determined quarterly, was $17,871 in fiscal year ended June 30, 2009. These assessments will continue until the FICO bonds mature in 2017.

Regulatory Capital Requirements. Office of Thrift Supervision capital regulations require savings institutions to meet three minimum capital standards: (1) tangible capital equal to 1.5% of total

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adjusted assets, (2) “Tier 1” or “core” capital equal to at least 4% (3% if the institution has received the highest possible rating on its most recent examination) of total adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted assets. In assessing an institution’s capital adequacy, the Office of Thrift Supervision takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.

At June 30, 2009, William Penn Bank was in compliance with the minimum capital standards and qualified as “well capitalized.”

The Office of Thrift Supervision may require any savings institution that has a risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total adjusted assets of less than 4% (3% if the institution has received the highest rating on its most recent examination) to take certain action to increase its capital ratios. If the savings institution’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the institution’s activities may be restricted.

For purposes of the capital regulations, tangible capital is defined as core capital less all intangible assets except for certain mortgage servicing rights. Tier 1 or core capital is defined as common stockholders’ equity, non-cumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, and certain non-withdrawable accounts and pledged deposits of mutual savings banks. William Penn Bank does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core capital are reduced by an institution’s intangible assets, with limited exceptions for certain mortgage and non-mortgage servicing rights and purchased credit card relationships. Both core and tangible capital are further reduced by an amount equal to the savings institution’s debt and equity investments in “non-includable” subsidiaries engaged in activities not permissible for national banks other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies.

The risk-based capital standard for savings institutions requires the maintenance of total capital of 8% of risk-weighted assets. Total capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, the portion of the allowance for loan losses not designated for specific loan losses and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. For purposes of determining total capital, a savings institution’s assets are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and by the amount of the institution’s equity investments (other than those deducted from core and tangible capital).

A savings institution’s risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. These risk weights range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and certain other assets.

Dividend and Other Capital Distribution Limitations. A savings institution, like William Penn Bank, that is a subsidiary of a savings and loan holding company must file an application or a notice with the Office of Thrift Supervision at least thirty days before making a capital distribution, such as paying a dividend to William Penn Bancorp. The Office of Thrift Supervision imposes various restrictions or

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requirements on the ability of savings institutions to make capital distributions, including cash dividends. A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited treatment under the applications processing rules of the Office of Thrift Supervision; (ii) the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings institution’s net income for that year to date plus the institution’s retained net income for the preceding two years; (iii) it would not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with the Office of Thrift Supervision or applicable regulations. If an application is not required, then a notice must be filed. The Office of Thrift Supervision may disapprove a notice or deny an application for a capital distribution if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

Capital distributions by William Penn Bancorp, as a savings and loan holding company, are not subject to the Office of Thrift Supervision capital distribution rules. Because William Penn Bancorp retained 50% of the net proceeds of the stock offering, the possibility that William Penn Bank would need to file an application rather than a notice for capital distributions in the immediate future is not expected to affect the payment of cash dividends by William Penn Bancorp to its stockholders or the amount of such dividends.

Safety and Soundness Standards. As required by statute, the federal banking agencies have adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The guidelines require, among other things, the implementation of appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. If it is determined that a savings institution has failed to meet any standard prescribed by the guidelines, the institution may be required to submit an acceptable plan to achieve compliance with the standard.

Qualified Thrift Lender Test. Savings institutions must meet a qualified thrift lender test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a qualified thrift lender, a savings institution must either (i) be deemed a “domestic building and loan association” under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory qualified thrift lender test set forth in the Home Owners’ Loan Act by maintaining at least 65% of its portfolio assets in qualified thrift investments (generally defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans). For purposes of the statutory qualified thrift lender test, portfolio assets are defined as total assets minus goodwill and other intangible assets, the value of property used by the institution in conducting its business, and specified liquid assets up to 20% of total assets. A savings institution must maintain its status as a qualified thrift lender on a monthly basis in at least nine out of every twelve months. William Penn Bank met the qualified thrift lender test as of June 30, 2009 and in each of the last twelve months and, therefore, qualifies as a qualified thrift lender.

A savings bank that fails the qualified thrift lender test and does not convert to a bank charter generally will be prohibited from: (1) engaging in any new activity not permissible for a national bank; (2) paying dividends not permissible under national bank regulations; and (3) establishing any new branch office in a location not permissible for a national bank in the institution’s home state. In addition, if the institution does not requalify under the qualified thrift lender test within three years after failing the test, the institution would be prohibited from engaging in any activity not permissible for a national bank and

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would have to repay any outstanding advances from the Federal Home Loan Bank as promptly as possible.

Community Reinvestment Act. Under the Community Reinvestment Act, every insured depository institution, including William Penn Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the depository institution’s record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by William Penn Bank. An unsatisfactory Community Reinvestment Act examination rating may be used as the basis for the denial of an application. William Penn Bank received an “outstanding” rating in its most recent Community Reinvestment Act examination.

Federal Home Loan Bank System. William Penn Bank is a member of the Federal Home Loan Bank of Pittsburgh, which is one of twelve regional federal home loan banks. Each federal home loan bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members pursuant to policies and procedures established by its board of directors. As a member, William Penn Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Pittsburgh.

The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid and could continue to do so in the future. Dividends of $60,000 were received from FHLB in 12 months ended June 30, 2009. $200,000 were received in 12 months ended June 30, 2008. In addition, these requirements could result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members.

The USA Patriot Act. William Penn Bank is subject to regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act. The USA Patriot Act gave the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act took measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.

Among other requirements, Title III of the USA Patriot Act and the related regulations imposed the following requirements with respect to financial institutions:

• Establishment of anti-money laundering programs that included, at minimum: (i) internal policies, procedures, and controls; (ii) specific designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program.

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• Establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time.

• Establishment of appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering.

• Prohibitions on establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and compliance with certain record keeping obligations with respect to correspondent accounts of foreign banks.

Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on applications under the Federal Reserve Act and the Bank Merger Act.

Prompt Corrective Regulatory Action. The Office of Thrift Supervision is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the Office of Thrift Supervision is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings institution is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company in the amount of up to the lessor of 5% of the savings association’s total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital requirements. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

Transactions with Related Parties. The Bank’s authority to engage in transactions with “affiliates” (e.g., any entity that controls or is under common control with an institution, including the Company and its non-savings institution subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must generally be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no

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savings institution may purchase the securities of any affiliate other than a subsidiary.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors. However, the law contains a specific exception for loans by a bank to its executive officers and directors in compliance with federal banking laws. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain Board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees.

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over savings institutions and has authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Regulation of William Penn Bancorp

General. William Penn Bancorp is a savings and loan holding company within the meaning of Section 10 of the Home Owners’ Loan Act. It is required to file reports with the Office of Thrift Supervision and is subject to regulation and examination by the Office of Thrift Supervision. William Penn Bancorp will need to obtain regulatory approval from the Office of Thrift Supervision before engaging in certain transactions, such as mergers with or acquisitions of other financial institutions. In addition, the Office of Thrift Supervision will have enforcement authority over William Penn Bancorp and any non-savings institution subsidiaries. This permits the Office of Thrift Supervision to restrict or prohibit activities that it determines to be a serious risk to William Penn Bank. This regulation is intended primarily for the protection of the depositors in William Penn Bank and not for the benefit of stockholders of William Penn Bancorp.

Activities Restrictions. As a savings and loan holding company and a subsidiary holding company of a mutual holding company, William Penn Bancorp is subject to statutory and regulatory restrictions on its business activities. The non-banking activities of William Penn Bancorp and its non-savings institution subsidiaries is restricted to certain activities specified by Office of Thrift Supervision regulation, which include performing services for and holding properties used by a savings institution subsidiary, activities authorized for multiple savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 or authorized for financial holding companies pursuant to the Gramm-Leach-Bliley Act. Before engaging in any non-banking activity or acquiring a company engaged in any such activities, William Penn Bancorp must obtain prior Office of Thrift Supervision approval of such planned activity or acquisition.

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Mergers and Acquisitions. William Penn Bancorp is required to obtain approval from the Office of Thrift Supervision before acquiring, directly or indirectly, more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. Federal law also prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those authorized for savings and loan holding companies by federal law or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating an application for William Penn Bancorp to acquire control of a savings institution, the Office of Thrift Supervision would consider the financial and managerial resources and future prospects of William Penn Bancorp and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors.

Waivers of Dividends by William Penn, MHC. William Penn, MHC is required to provide prior notice to the Office of Thrift Supervision of any proposed waiver of its receipt of dividends from William Penn Bancorp. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the waiver would not be detrimental to the safe and sound operations of the subsidiary savings association and (ii) the mutual holding company’s board of directors determines that such waiver is consistent with such directors’ fiduciary duties to the mutual holding company’s members. Neither the payment of a dividend by William Penn Bancorp nor the intension to waive by William Penn, MHC has been determined at this point.

Conversion of William Penn, MHC to Stock Form. Office of Thrift Supervision regulations permit William Penn, MHC to convert from the mutual form of organization to the capital stock form of organization, commonly referred to as a second-step conversion. In a second step conversion, a new holding company would be formed as the successor to William Penn Bancorp, William Penn, MHC’s corporate existence would end, and certain depositors of William Penn Bank would receive the right to subscribe for shares of the new holding company. In a second-step conversion, each share of common stock held by stockholders other than William Penn, MHC would be automatically converted into shares of common stock of the new holding company. The Board of Directors has no current plans for a second-step conversion and there are no assurances that such a transaction will occur.

Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings association. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.

Proposed Financial Regulatory Reform Legislation. The U.S. Treasury Department recently released a legislative proposal that would implement sweeping changes to the current federal bank regulatory structure. The proposal would merge our current primary federal regulator, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency (the primary federal regulator for national banks) into a new federal banking regulator, the National Bank Supervisor. The proposal would also eliminate the federal thrift charter and require all federal savings associations, such as William Penn Bank, to elect, within six months of the effective date of the legislation, to convert to either a national bank, state bank or state savings association. A federal savings association that does not make the election would, by operation of law, be converted into a national bank within one year of the effective date of the legislation.

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If William Penn Bank is required to convert to a bank charter, William Penn, MHC and William Penn Bancorp would be required to become bank holding companies subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), which differs from that of the Office of Thrift Supervision in certain important respects, particularly with respect to mutual holding companies. While Office of Thrift Supervision regulations permit mutual holding companies to waive the receipt of dividends, subject to notice to and non-objection by the Office of Thrift Supervision, the Federal Reserve’s current policy is to prohibit mutual holding companies from waiving the receipt of dividends so long as the subsidiary savings bank is well capitalized. Moreover, Office of Thrift Supervision regulations provide that waived dividends will not be taken into account in determining an appropriate exchange ratio for minority shares in the event of the conversion of a mutual holding company to stock form. If the Office of Thrift Supervision is eliminated, the Federal Reserve becomes the exclusive regulator of mutual holding companies, and the Federal Reserve retains its current policy regarding dividend waivers by mutual holding companies, William Penn, MHC would not be permitted to waive the receipt of dividends declared by William Penn Bancorp. This would have an adverse impact on our ability to pay dividends.

Emergency Economic Stabilization Act of 2008

In response to recent unprecedented market turmoil, the Emergency Economic Stabilization Act (“EESA”) was enacted on October 3, 2008. EESA authorizes the Secretary of the Treasury to purchase up to $700 billion in troubled assets from financial institutions under the Troubled Asset Relief Program or TARP. Troubled assets include residential or commercial mortgages and related instruments originated prior to March 14, 2008 and any other financial instrument that the Secretary determines, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, the purchase of which is necessary to promote financial stability. If the Secretary exercises his authority under TARP, EESA directs the Secretary of Treasury to establish a program to guarantee troubled assets originated or issued prior to March 14, 2008. The Secretary is authorized to purchase up to $250 billion in troubled assets immediately and up to $350 billion upon certification by the President that such authority is needed. The Secretary’s authority will be increased to $700 billion if the President submits a written report to Congress detailing the Secretary’s plans to use such authority unless Congress passes a joint resolution disapproving such amount within 15 days after receipt of the report. The Secretary’s authority under TARP expires on December 31, 2009 unless the Secretary certifies to Congress that extension is necessary provided that his authority may not be extended beyond October 3, 2010.

Institutions selling assets under TARP will be required to issue warrants for common or preferred stock or senior debt to the Secretary. If the Secretary purchases troubled assets directly from an institution without a bidding process and acquires a meaningful equity or debt position in the institution as a result or acquires more than $300 million in troubled assets from an institution regardless of method, the institution will be required to meet certain standards for executive compensation and corporate governance, including a prohibition against incentives to take unnecessary and excessive risks, recovery of bonuses paid to senior executives based on materially inaccurate earnings or other statements and a prohibition against agreements for the payment of golden parachutes. Institutions that sell more than $300 million in assets under TARP auctions will not be entitled to a tax deduction for compensation in excess of $500,000 paid to its chief executive or chief financial official or any of its other three most highly compensated officers. In addition, any severance paid to such officers for involuntary termination or termination in connection with a bankruptcy or receivership will be subject to the golden parachute rules under the Internal Revenue Code.

EESA increases the maximum deposit insurance amount up to $250,000 until December 31, 2009 and removes the statutory limits on the FDIC’s ability to borrow from the Treasury during this period.

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The FDIC may not take the temporary increase in deposit insurance coverage into account when setting assessments. EESA allows financial institutions to treat any loss on the preferred stock of the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation as an ordinary loss for tax purposes. This provision was effective October 3, 2008.

Pursuant to his authority under EESA, the Secretary of the Treasury has created the TARP Capital Purchase Plan under which the Treasury Department will invest up to $250 billion in senior preferred stock of U.S. banks and savings associations or their holding companies. Qualifying financial institutions may issue senior preferred stock with a value equal to not less than 1% of risk-weighted assets and not more than the lesser of $25 billion or 3% of risk-weighted assets. The senior preferred stock will pay dividends at the rate of 5% per annum until the fifth anniversary of the investment and thereafter at the rate of 9% per annum. No dividends may be paid on common stock unless dividends have been paid on the senior preferred stock. Until the third anniversary of the issuance of the senior preferred, the consent of the U.S. Treasury will be required for any increase in the dividends on the common stock or for any stock repurchases unless the senior preferred has been redeemed in its entirety or the Treasury has transferred the senior preferred to third parties. The senior preferred will not have voting rights other than the right to vote as a class on the issuance of any preferred stock ranking senior, any change in its terms or any merger, exchange or similar transaction that would adversely affect its rights. The senior preferred will also have the right to elect two directors if dividends have not been paid for six periods. The senior preferred will be freely transferable and participating institutions will be required to file a shelf registration statement covering the senior preferred. The issuing institution must grant the Treasury piggyback registration rights. Prior to issuance, the financial institution and its senior executive officers must modify or terminate all benefit plans and arrangements to comply with EESA. Senior executives must also waive any claims against the Department of Treasury.

In connection with the issuance of the senior preferred, participating publicly traded institutions must issue to the Secretary immediately exercisable 10-year warrants to purchase common stock with an aggregate market price equal to 15% of the amount of senior preferred. The exercise price of the warrants will equal the market price of the common stock on the date of the investment. The Secretary may only exercise or transfer one-half of the warrants prior to the earlier of December 31, 2009 or the date the issuing financial institution has received proceeds equal to the senior preferred investment from one or more offerings of common or preferred stock qualifying as Tier 1 capital. The Secretary will not exercise voting rights with respect to any shares of common stock acquired through exercise of the warrants. The financial institution must file a shelf registration statement covering the warrants and underlying common stock as soon as practicable after issuance and grant piggyback registration rights. The number of warrants will be reduced by one-half if the financial institution raises capital equal to the amount of the senior preferred through one or more offerings of common stock or preferred stock qualifying a Tier 1 capital. If the financial institution does not have sufficient authorized shares of common stock available to satisfy the warrants or their issuance otherwise requires shareholder approval, the financial institution must call a meeting of shareholders for that purpose as soon as practicable after the date of investment. The exercise price of the warrants will be reduced by 15% for each six months that lapse before shareholder approval subject to a maximum reduction of 45%.

The recently enacted American Recovery and Reinvestment Act of 2009 (“ARRA”) has imposed additional compensation restrictions on companies participating in the TARP Capital Purchase Program. ARRA directs the Secretary of the Treasury to adopt standards for executive compensation that include limits on compensation that exclude incentives to take unnecessary and excessive risks that threaten the value of the participant while any assistance remains outstanding and provision for recovery by the participant of any bonus, retention award or incentive compensation paid to any senior executive office and up to 20 next mostly highly compensated employees of the participant based on statements of earnings, revenues, gains or other criteria that are later found to be materially inaccurate. The board of

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directors of any TARP participant must adopt policies on excessive or luxury expenditures, as identified by the Secretary. TARP participants will be required to annually allow shareholders to have a separate non-binding vote on executive compensation while a TARP investment is outstanding.

Due to its strong capital position the Company did not participate in the Treasury’s Capital Purchase Plan.

Item 1A. Risk Factors

Not applicable.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

As of June 30, 2009, our investment in premises and equipment, net of depreciation and amortization, totaled $2.0 million. We currently have three full-service offices, as shown in the table below.

Office Location	Year Facility Opened	Leased or Owned	Net Book Value at June 30, 2009
			(In thousands)
Levittown	1967	Owned	$	41
Morrisville	1973	Owned	$	100
Richboro	1984	Owned	$	215

We also own a five-acre tract of land in Levittown, Pennsylvania with a net book value as of June 30, 2009 of approximately $479,000. There are presently two buildings on this property. Our loan servicing department occupies part of one building with the other part of that building leased to a physicians group surgical center. The second building is vacant at present but is being renovated to become a bank operations center. We are in the process of receiving the necessary approvals to construct a new building on the vacant land on this site to serve as a new full-service office location.

We also own two adjacent single-family residential properties in Furlong, Pennsylvania (within Bucks County) with a book value as of June 30, 2009 of approximately $279,000. We are currently holding these properties as a potential future office site.

Item 3. Legal Proceedings

William Penn Bank, from time to time, is a party to routine litigation which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which it holds security interests, claims involving the making and servicing of real property loans, and other issues incident to its business. There were no lawsuits pending or known to be contemplated against William Penn Bancorp or William Penn Bank as of June 30, 2009 that were expected to have a material effect on operations or income.

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Item 4. Submission of Matters to a Vote of Security-Holders

There were no matters submitted to a vote of the security holders during the fourth quarter of fiscal year 2009.

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)        Market Information. The information contained under the section captioned “Stock Market Information” in the Company’s Annual Report to Shareholders for the fiscal year ended June 30, 2009 (the “Annual Report”) filed as Exhibit 13 to this Annual Report on Form 10-K is incorporated herein by reference.

(b) Use of Proceeds. Not applicable.

(c) Issuer Purchases of Equity Securities. Not applicable.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report is incorporated herein by reference.

Item 7A. Quantative and Qualitative Disclosures About Market Risk

Not applicable.

34

Item 8. Financial Statements and Supplementary Data

The Company’s consolidated financial statements are incorporated herein by reference from the Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

The information contained in the section captioned “Change in Auditors” in the Annual Report is incorporated herein by reference.

Item 9A(T). Controls and Procedures.

(a)        Disclosure Controls and Procedures. The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)       Internal Control Over Financial Reporting. Management’s Report on Internal Control Over Financial Reporting is furnished herein by reference from the Annual Report. Such report is not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. This annual report does not include an attestation of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained under the sections captioned “Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Proposal I -- Election of Directors” in the Company’s definitive Proxy Statement for the 2009 Annual Meeting of Shareholders is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Company’s Code of Ethics will be provided to any person without charge upon

35

written request to Charles Corcoran, Chief Financial Officer, William Penn Bancorp, Inc., 8150 Route 13, Levittown, Pennsylvania 19057.

Item 11. Executive Compensation

The information contained under the section captioned “Proposal I -- Election of Directors - Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a) Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the Section captioned “Principal Holders of the Common Stock” of the Proxy Statement.

(b) Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned “Proposal I -- Election of Directors” of the Proxy Statement.

(c) Changes in Control

Management knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

Not applicable.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to the section captioned “Related Party Transactions” and “Corporate Governance” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information set forth under the caption “Proposal II – Ratification of Independent Auditors” in the Proxy Statement is incorporated herein by reference.

36

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1)        The consolidated balance sheet of William Penn Bancorp, Inc. as of June 30, 2009 and 2008 (as restated) and the related consolidated statements of income, changes in stockholders’ equity (as restated) and cash flows for each of the two years in the period ended June 30, 2009, together with the related notes and the independent auditors’ report of S. R. Snodgrass, A.C., independent registered accounting firm, at and for the years ended June 30, 2009 and 2008.

(2) Schedules omitted as they are not applicable.

(3)       The following exhibits are either filed as part of this Annual Report on Form 10-K or incorporated herein by reference:

Number	Description
3(i)	Charter of William Penn Bancorp, Inc. *
3(ii)	Bylaws of William Penn Bancorp, Inc. **
4.1	Specimen Stock Certificate of William Penn Bancorp, Inc. *
10.1 †	Directors Consultation and Retirement Plan ***
10.2 †	Deferred Compensation Plan for Directors ***
10.3 †	Restated Deferred Compensation Plan ***
13	Annual Report to Stockholders for fiscal year ended June 30, 2009
16	Letter of Concurrence from Beard Miller Company LLP to the SEC Regarding Change in Certifying Accountants ****
21	Subsidiaries of the Registrant
23.1	Consent of S. R. Snodgrass, A.C.
31	Rule 13a-14(a)/15d-14(a) Certification
32	Section 1350 Certification

_______________

† Management contract or compensatory plan or arrangement.

* Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (File No. 333-148219)

** Incorporated by reference from the identically numbered exhibit to the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2009.

*** Incorporated by reference from the identically numbered exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008.

**** Incorporated by reference from the exhibit to Registrant’s Current Report on Form 8-K/A filed on June 30, 2008.

37

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
	WILLIAM PENN BANCORP, INC.
Date: September 28, 2009			/s/ Charles Corcoran
	By:		Charles Corcoran President (Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on September 28, 2009.
/s/ Charles Corcoran		/s/ Aswini Hiremath
Charles Corcoran President and Director (Principal Executive and Financial Officer)		Aswini Hiremath Chief Accounting Officer (Principal Accounting Officer)
/s/ William J. Feeney		/s/ Craig Burton
William J. Feeney Chairman of the Board of Directors		Craig Burton Director
/s/ Glenn Davis		/s/ William B.K. Parry, Jr.
Glenn Davis Director		William B.K. Parry, Jr. Director

EX-13

William Penn

Bancorp, Inc.

2009ANNUAL REPORT

WILLIAM PENN BANCORP, INC.

2009 ANNUAL REPORT

TABLE OF CONTENTS

Page

Letter to Shareholders 1

Corporate Profile 2

Stock Market Information 2

Selected Consolidated Financial Data 3

Management’s Discussion and Analysis of Financial Condition and Results of Operations 4

Management’s Report on Internal Control Over Financial Reporting F-1

Report of Independent Registered Public Accounting Firm F-2

Consolidated Financial Statements F-3

Notes to Consolidated Financial Statements F-7

Corporate Information Inside Back Cover

William Penn Bancorp, Inc.

8150 Route 13

Levittown, PA 74056

To Our Shareholders,

I am in the unenviable position of being a managing officer of a financial institution in the year 2009 trying to compose an encouraging letter to his stockholders. However, given what I know about the state of the banking industry these days, I must tell you that I am thankful for the financial condition of our corporation.

I don’t ever expect to use the word satisfied when talking about operating results. We will always strive to improve them. It is noteworthy that the 5.80% return on average equity that we achieved for the fiscal year ended June 30, 2009 is more than thirty times the recent market yield on six-month treasury securities. Throughout the year, our operating results have been significantly better than peer averages according to data supplied by our regulator. I received data from a major national firm showing the August 14, 2009 status of 35 Mutual Holding Companies listed on the Over-the-Counter Bulletin Board (OTCBB) or Pink Sheets. We were the only company on that list that had converted in the past five years whose current stock price was greater than its offering price. In fact, our stock price was 35% greater than its price in the IPO that occurred in April 2008.

We have not experienced severe losses on our assets to date. We believe that our allowance for loan losses provides adequate coverage for our problematic assets. What we do not know is how sustained or severe the country’s horrific economic situation will get. If it gets bad enough, I believe that we, like most other financial institutions, will be challenged. I don’t remember a time when capital was so greatly needed by our industry while it was so difficult to get. The standard for what constitutes adequate capitalization has been changed. Consultants inform us that they believe that our high capital ratios will serve us well should we encounter challenges or wish to avail ourselves of business opportunities in the future. The number of banks closed by the FDIC so far in 2009 is quickly approaching 100. I have read the prognostication of professionals who say that number may exceed 1000 within the next three years. In contrast, we are happy about our financial strength, and feel we have positioned ourselves well to survive this current economic and regulatory climate.

On behalf of the Board of Directors and Management, I thank you for your continued trust in our company and wish you health and success in the coming year.

Sincerely,

/s/ Charles Corcoran

Charles Corcoran

President

1

CORPORATE PROFILE

William Penn Bancorp, Inc. was organized by William Penn Bank, FSB to become its mid-tier holding company upon completion of its reorganization from the mutual to the mutual holding company structure. As part of the reorganization, the Company sold 1,025,283 shares of its common stock, $.10 par value, to the public at $10.00 per share (including 87,384 shares purchased by the Bank’s Employee Stock Ownership Plan with funds borrowed from the Company) and issued 2,548,713 shares to William Penn, MHC. In addition, the Company contributed 67,022 shares to the William Penn Bank Community Foundation.

William Penn Bank, FSB conducts a traditional community bank operation, offering retail banking services, one- to four-family mortgage loans, multi-family, commercial and other real estate mortgage loans, construction loans, automobile loans, second mortgage loans and other consumer loans. William Penn Bank, FSB operates from its main office in Levittown, Pennsylvania and branch offices in Morrisville and Richboro, Pennsylvania. William Penn Bank, FSB maintains a website at www.willpenn.com.

Our executive offices are located at 8150 Route 13, Levittown, Pennsylvania 19057 and our main telephone number is (215) 945-1200.

STOCK MARKET INFORMATION

The Company’s common stock commenced trading on the OTC Bulletin Board under the symbol “WMPN” on April 16, 2008. The following table reflects the high and low bid prices for William Penn Bancorp, Inc. as reported on the OTC Bulletin Board since the commencement of trading. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. The Company has not paid any dividends on the common stock. The Company’s ability to pay dividends to stockholders is, to some extent, dependent upon the dividends it receives from the Bank which is subject to certain regulatory restrictions on the payment of dividends.

Quarter Ended	High		Low
June 30, 2009	$	13.50	$	12.00
March 31, 2009		13.50		13.00
December 31, 2008		13.60		13.50
September 30, 2008		14.00		13.75
June 30, 2008	$	14.30	$	14.00

At June 30, 2009, there were 3,641,018 shares of the Company’s common stock outstanding, including 2,548,713 shares held by William Penn, MHC and 67,022 shares held by William Penn Bank Community Foundation, and approximately 323stockholders of record. This number does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms.

2

SELECTED CONSOLIDATED FINANCIAL DATA

	At or For the Year
	Ended June 30,
	2009			2008			2007
							(as restated)
	(Dollars in thousands except per share data)
Balance Sheet Data:
Assets	$	308,234		$	282,133		$	268,830
Loans receivable, net		219,939			197,025			180,204
Cash and amounts due from banks and interest- bearing time deposits		18,379			12,370			17,647
Securities available for sale		10			5			25
Securities held to maturity		59,015			63,013			61,637
Deposits		167,092			161,094			158,940
FHLB advances		89,000			72,000			71,000
Stockholders’ Equity		46,907			44,147			34,415
Summary of Operations:
Interest income	$	16,552		$	15,912		$	15,352
Interest expense		8,143			9,670			10,113
Net interest income		8,409			6,242			5,239
Provision for loan losses		531			70			156
Net interest income after provision for loan losses		7,878			6,172			5,083
Noninterest income		269			259			267
Noninterest expense		4,187			6,080			3,042
Income before income taxes		3,960			351			2,308
Provision for income taxes		1,317			78			748
Net income	$	2,643		$	273		$	1,560
Basic and diluted earnings (loss) per share*	$	0.74		$	(0.02	)	$	N/A
Performance Ratios:
Return on average assets		0.89	%		0.10	%		0.60	%
Return on average equity		5.80			0.78			4.67
Net interest rate spread		2.34			1.74			2.11
Net interest margin		2.88			2.35			2.51
Average interest-earning assets to average interest-bearing liabilities		119.24			116.54			116.13
Efficiency ratio		48.25			93.52			55.25
Noninterest expense to average assets		1.41			2.24			1.16
Asset Quality Ratios:
Non-performing loans to total loans		0.67			1.50			1.13
Non-performing assets to total assets		0.55			1.06			0.77
Net charge-offs (recoveries) to average loans outstanding		0.12			0.000			(0.005	)
Allowance for loan losses to total loans		0.98			0.96			1.00
Allowance for loan losses to non-performing loans		147.00			63.90			89.15
Capital Ratios:
Average equity to average assets		15.36			12.97			12.75
Equity to assets at period end		15.22			15.65			12.80

____________________

* Loss per share for the year ended June 30, 2008 based on earnings during the period from April 15, 2008 to June 30, 2008.

3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion of the consolidated financial condition and results of operations of the Company should be read in conjunction with the accompanying Consolidated Financial Statements.

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words “believes,” “anticipates,” “contemplates,” “expects,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the ability to control costs, expenses, and general economic conditions. We undertake no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview and Business Strategy

On April 15, 2008, William Penn Bank, FSB completed its reorganization from the mutual to the mutual holding company structure and William Penn Bancorp, Inc. became its mid-tier stock holding company. As part of the reorganization, the Company sold 1,025,283 shares of its common stock, $.10 par value, to the public at $10.00 per share (including 87,384 shares purchased by the Bank’s Employee Stock Ownership Plan with funds borrowed from the Company) raising approximately $8.6 million in new capital. The Company contributed approximately 50% of the net proceeds to William Penn Bank, FSB and retained the remainder of the net proceeds for general corporate purposes. The Company expects to use the additional capital from its offering to support additional growth. In connection with the reorganization, the Company contributed 67,022 shares of common stock and $150,000 in cash to the William Penn Bank Community Foundation, which was formed to demonstrate the Bank’s continued commitment to its community.

Our primary business is attracting retail deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans, and borrowed funds, for our lending and investing activities. Our results of operations depend mainly on our net interest income, which is the difference between the interest income earned on our loan and investment portfolios and interest expense paid on our deposits and borrowed funds. Net interest income is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds.

Our net interest income has improved during the past two years, primarily as a result of the effect of very low market interest rates on our cost of deposits. Our net interest margin has been negatively impacted by the high interest expense associated with the large volume of high cost, long-term, convertible borrowings on our balance sheet. As a strategy to lock in rates on funding beginning in the late 1990s we took long term advances to protect against rising rates. However, following the implementation of this strategy interest rates, instead of rising, fell to historic lows. As a result, these borrowings have been a drain on our profitability. In early December 2007 we refinanced $25 million of advances with a weighted average rate of 5.87% and took replacement advances totaling $30 million with a weighted average rate of 3.84%. We incurred a $1.5 million prepayment penalty in connection with this refinancing. Withinthe next 13 months we will have $23 million of our FHLB advances mature, most of

4

these have very high interest rates. We believe that they can be replaced with much less costly funds if we do not elect to repay them outright. This should have a very beneficial effect on net interest income. However, the same low market interest rates that will have a beneficial effect on our cost of funds will have a deleterious effect on our interest income as our loans and investments are repriced, repaid, called, or mature. The borrowing of the FHLB advances, in an effort to lock in rates, was consistent with what has been our general operating philosophy: to avoid interest rate risk exposure.

Our profitability has also been negatively impacted by the relatively high rates we pay on deposits, the high cost of our FHLB advances, as discussed above, and our relatively low levels of noninterest income. Our strategy has been to cultivate a loyal customer base by providing personalized service, and we have generally competed on the deposit side by offering higher rates and lower fees and on the loan side by underwriting loans that we believe to be high quality, sound credits but that may not, for a variety of reasons, be eligible for re-sale in the secondary mortgage market. A significant amount of our loan originations are “investor loans” on non-owner occupied properties. As of June 30, 2009, $65.7 million of the loans within our $142.5 million portfolio of one-to-four family mortgage loans were investor loans.

We have generally sought to originate adjustable-rate loans and fixed-rate loans with terms of 20 years or less. We have avoided originating fixed-rate 30-year conventional mortgage loans because of the interest rate risk associated with such loans, and accordingly we generally originate such loans only for resale. The competitive market for loans has made it difficult to do any substantial volume of origination of 30-year fixed rate conventional rate loans for resale, but we have begun participating in the Federal Home Loan Bank of Pittsburgh Mortgage Partnership Finance Program (MPF) and we anticipate this will enable us to more profitably compete with the larger institutions that dominate the resale market. We intend also to increase our origination of multi-family and nonresidential mortgage loans and expect to continue to be predominantly a portfolio lender. We plan to hire additional staff to achieve the growth in loans, including business development officers, lenders, credit analysts and loan processors. This process has been delayed by the severe recession we have been experiencing and by our tendency not to incur excessive risk in these uncertain times. We intend to hire additional personnel and management support outside the lending department as well.

We will attempt to grow and improve our profitability by:

• diversifying our loan and deposit activities to increase our commercial business with commercial deposits and commercial real estate loans;

• increasing the origination of multi-family and nonresidential real estate loans;

• building our core banking business through internal growth as well as expanding our branch network;

• developing a sales culture by training and encouraging our branch personnel to promote our existing products and services to our customers; and

• maintaining high asset quality.

Furthermore, noninterest expense in the future will be impacted by our plan to expand our branch network; we currently intend to open a few new offices over approximately the next five years. We also expect higher compensation and benefits expenses going forward as the result of our plans to expand the size of our lending department plus hire additional branch personnel and management staff.

5

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported and our significant policies are described in Note 2 to our consolidated financial statements. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and statements of income for the periods then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation allowance for deferred tax assets and other-than-temporary impairment of securities.

Allowance for Loan Losses. The allowance for loan losses is maintained by management at a level which represents their evaluation of known and inherent losses in the loan portfolio at the consolidated balance sheet date that are both probable and reasonable to estimate. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors.

Although specific and general loan loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further provisions for loan losses may be necessary. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of our borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses, which would require us to record a charge against income during the period the provision is made, resulting in a reduction of our earnings. A change in economic conditions could also adversely affect the value of the properties collateralizing our real estate loans, resulting in increased charge-offs against the allowance and reduced recoveries of loans previously charged-off, and thus a need to make increased provisions to the allowance for loan losses. Furthermore, a change in the composition of our loan portfolio or growth of our loan portfolio could result in the need for additional provisions.

Deferred Income Taxes. 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. 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. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in

6

evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carryback declines, or if we project lower levels of future taxable income. Such a valuation allowance would be established through a charge to income tax expense which would adversely affect our operating results.

Other-than-Temporary Investment Security Impairment. Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Comparison of Financial Condition at June 30, 2009 and June 30, 2008

Our total assets increased by $26.1 million to $308.2 million at June 30, 2009 from $282.1 million at June 30, 2008 primarily due to a $22.9 million increase in loans receivable, net to $219.9 million at June 30, 2009 from $197.0 million at June 30, 2008. Loan growth was primarily attributable to an increase of $12.8 million in loans secured by single-family dwellings and a $6.0 million increase in home equity lines of credit and $5.1 million increase in non-residential loans. This increase in the loan portfolio was partially funded by a decrease in securities held to maturity by $4.0 million to $59.0 million at June 30, 2009 from $63.0 million at June 30, 2008 and a decrease in interest-bearing time deposits by $2.6 million to $2.5 million at June 30, 2009 from $5.1 million at June 30, 2008. FHLB advances increased $17.0 million to $89.0 million at June 30, 2009 from $72.0 million at June 30, 2008. The increase in advances was primarily used to fund loan growth. The weighted average rate of advances decreased 68 basis points to 4.46% for year ended June 30, 2009 as compared to 5.14% for the same period in 2008. Cash and due from Banks increased by $8.6 million to $15.9 million from $7.2 million for the year ended June 30, 2009 and 2008 respectively. This increase was mostly due to an increase in deposits by $6.0 million to $167.1 million from $161.1 million for the year ended June 30, 2009 and 2008 respectively.

Stockholder’s equity increased $2.8 million to $46.9 million at June 30, 2009, from $44.1 million at June 30, 2008 primarily as the result of net income of $2.6 million during the year.

Comparison of Operating Results for the Years Ended June 30, 2009 and 2008

General. Net income for the year ended June 30, 2009 was $2.6 million ($0.74 per share) compared to net income of $273,000 for the year ended June 30, 2008. The lower net income for 2008 period was attributable to the $814,000 charitable contribution expense related to funding of the William Penn Bank Community Foundation, a $1.5 million penalty in connection with the prepayment of FHLB advances and $214,000 in expense related to the termination of our defined benefit plan. Without these expenses the net income for the 2008 fiscal year would have been approximately $1.4 million. Fiscal year 2009 net income was also higher due to a $2.2 million or 34.7% increase in net interest income, as falling interest rates dramatically decreased cost of funds. There was decrease of 112 basis points in interest expense on deposits because of the current interest rate environment and an increase in net interest margin by 53 basis points.

7

Interest Income. Total interest income increased $640,000 to $16.5 million for the year ended June 30, 2009, from $15.9 million for the year ended June 30, 2008. This increase resulted from an increase in average interest-earning assets which more than offset a decline in yield. Average interest-earning assets increased $25.9 million to $292.1 million for the year ended June 30, 2009 compared to $266.2 million for the year ended June 30, 2008 as the Bank continued to build its loan portfolio. The average yield on interest-earning assets, however, declined 31 basis points to 5.67% for the year ended June 30, 2009 compared to 5.98% for the year ended June 30, 2008. The decline in yield reflects lower market interest rates during the 2009 fiscal year.

Interest income on loans receivable was $13.4 million for the year ended June 30, 2009 compared to $11.9 million for the year ended June 30, 2008. There was a decrease of 17 basis points in the yield on the loan portfolio which was more than offset by a $29.9 million increase in the average balance of loans receivable. Average loans receivable were $216.1 million during the year ended June 30, 2009 compared to $186.2 million during the year ended June 30, 2008. Average yield on the loan portfolio was 6.21% for the year ended June 30, 2009 compared to 6.38% for the year ended June 30, 2008. Interest income on securities was $2.9 million for the year ended June 30, 2009 compared to $3.2 million for the year ended June 30, 2008 and was primarily the result of a 47 basis point decline in the yield to 4.87% for the year ended June 30, 2009 compared to 5.34% for the year ended June 30, 2008. Interest income on other interest-earning assets declined by $554,000 to $264,000 for the year ended June 30, 2009 from $818,000 for the year ended June 30, 2008 due to a reduction in dividends paid on FHLB stock and lower interest rates on interest-bearing time deposits.

Interest Expense. Total interest expense decreased by $1.5 million to $8.1 million for the year ended June 30, 2009 compared to $9.7 million for the year ended June 30, 2008. The decrease resulted primarily from a decrease in deposit expense as the average cost of deposits declined by 112 basis points to 2.71% for the year ended June 30, 2009 compared to 3.83% for the year ended June 30, 2008, more than offsetting $1.2 million increase in the average balance of interest-bearing deposits to $159.6 million for the year ended June 30, 2009 from $158.4 million the prior year. Interest expense on borrowings increased by $212,000 as a result of an increase in the average balance of advances by $15.4 million to $85.4 million for the year ended June 30, 2009. This was partially offset by a decrease in the average cost of borrowings of 68 basis points. The weighted average cost of borrowings outstanding throughout fiscal year June 30, 2009 was 4.46% while the weighted average cost of deposits for the year was 2.71%. It has been the Bank’s practice to consistently offer deposit rates toward the high end of current market ranges.

Net Interest Income. Our net interest margin for the year ended June 30, 2009 was 2.88% compared to 2.35% for the year ended June 30, 2008. The net interest rate spread increased to 2.34% for 2009 from 1.74% for 2008. There was a 31 basis point decrease in the yield on average interest-earning assets to 5.67% for the year ended June 30, 2009, from 5.98% for the year ended June 30, 2008. The average cost of interest-bearing liabilities declined to 3.32% for the year ended June 30, 2009, from 4.23% for the year ended June 30, 2008. The decrease in interest rates on deposits and borrowings offset the increase in average interest-bearing liabilities.

Provision for Loan Losses. We charge to operations provisions for loan losses at a level required to reflect credit losses in the loan portfolio that are both probable and reasonable to estimate. Management, in determining the allowance for loan losses, considers the losses inherent in the loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a two-tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of our loan portfolio. We establish a specific loan loss allowance for an impaired loan based on delinquency status, size of loan, type of collateral and/or appraisal of the underlying collateral and financial condition of the borrower. We base general loan loss allowances upon

8

a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

There was a $531,000 provision for loan losses made during the year ended June 30, 2009 compared to $70,000 in the year ended June 30, 2008. This was due to an increase in the balance of loans classified as substandard or special mention but particularly because of one borrower who has become severely delinquent on multiple loans secured by residential rental properties located in Trenton New Jersey. The allowance as a percentage of total loans was 0.98% at June 30, 2009 as compared to 0.96% at June 30, 2008 and as a percentage of non-performing loans was 147.0% at June 30, 2009 compared to 63.9% at June 30, 2008.

Other Income. Other income was $269,000 for the year ended June 30, 2009 compared to $259,000 for year ended June 30, 2008. Traditionally, other income has not been a significant area of our operations as we have not in the past focused on fee generation. We hold the bulk of our securities portfolio as held-to-maturity so gains or losses on the sales of securities is not a large item in noninterest income. We have no plans to seek fee income generation through the offering of complementary services or acquisition of fee-producing subsidiaries such as title insurance or third-party securities sales. We do not at present hold any bank owned life insurance.

Other Expenses. Other expenses totaled $4.2 million for the year ended June 30, 2009, a $1.9 million decrease compared to $6.1 million for the year ended June 30, 2008. Other expenses for the 2008 fiscal year were significantly impacted by several non-recurring expenses including an $814,000 in expense related to the Company’s contribution to William Penn Bank Community Foundation, a $1.5 million prepayment penalty incurred in connection with the refinancing of FHLB advances, $214,000 in expenses resulting from the termination of the defined benefit plan and a $220,000 increase in expenses resulting from amendments to the Directors Retirement Plan.

The Company experienced an increase in other categories of non-interest expense. Federal deposit insurance premiums expense increased $251,000 to $269,000 for the year ended June 30, 2009 compared to $18,000 for the year ended June 30, 2008. The FDIC increased the assessment rate for the most highly rated institutions to between 12 and 14 basis points for the first calendar quarter of 2009 and set the rate between 12 and 16 basis points thereafter. Deposit insurance expense also reflected a special assessment of 5 basis points on assets less Tier 1 capital at June 30, 2009, which amounted to $190,000 for the Bank. The FDIC has also established a program under which it fully guarantees all non-interest bearing transaction accounts and senior unsecured debt of a bank or its holding company. Institutions that did not opt out of the program by December 5, 2008 will be assessed ten basis points for non-interest bearing transaction account balances in excess of $250,000 and 75 basis points of the amount of debt issued. The Company and the Bank did not opt out of either part of the program.

Professional fees increased $146,000 to $305,000 for the year ended June 30, 2009 from $159,000 for the year ended June 30, 2008 primarily due to the costs of operating as a public company. Other expenses classified as other increased $210,000 to $715,000 for the year ended June 30, 2009 compared to $505,000 for the year ended June 30, 2008 primarily due to increases in a variety of expense categories.

Provision for Income Taxes. The provision for income taxes was $1.3 million for the year ended June 30, 2009 compared to $78,000 for the year ended June 30, 2008 reflecting lower income for 2008. The effective tax rate was 33.3% and 22.2% for the years ended June 30, 2009 and 2008, respectively.

9

Average Balance Sheets. The following table sets forth certain information for the years ended June 30, 2009 and 2008. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances rather than daily balances has caused any material differences in the information presented.

	For the Year Ended June 30,
	2009						2008
	Average				Average		Average					Average
	Balance		Interest		Yield/Cost		Balance			Interest		Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Net loans receivable(1)	$	216,095	$	13,424	6.21	%	$	186,244		$	11,881	6.38	%
Securities(2)		58,794		2,864	4.87			60,223			3,213	5.34
Other interest-earning assets(3)		17,224		264	1.53			19,689			818	4.15
Total interest-earning assets		292,113		16,552	5.67			266,156			15,912	5.98
Noninterest-earning assets		4,450						4,716
Total assets	$	296,563					$	270,872
Interest-bearing liabilities:
NOW accounts	$	13,240		110	0.83	%	$	12,597			171	1.36
Money market accounts		38,456		745	1.94			37,989			1,327	3.49
Savings and club accounts		13,214		172	1.30			14,026			337	2.40
Certificates of deposit		94,687		3,304	3.49			93,766			4,235	4.52
Total deposits		159,597		4,331	2.71			158,378			6,070	3.83
Federal Home Loan Bank advances		85,385		3,812	4.46			70,000			3,600	5.14
Total interest-bearing liabilities		244,982		8,143	3.32			228,378			9,670	4.23
Noninterest-bearing demand accounts		1,496						1,522
Noninterest-bearing liabilities		4,539						5,840
Total liabilities		251,017						235,740
Stockholders’ equity		45,546						35,132
Total liabilities and stockholders’ equity	$	296,563					$	270,872
Net interest income			$	8,409						$	6,242
Interest rate spread(4)					2.34	%						1.74	%
Net interest margin (5)					2.88	%						2.35	%
Ratio of average interest-earning assets to average interest-bearing liabilities		119.24%						116.54	%

_________________

(1) Non-accruing loans have been included in loans receivable and the effect of such inclusion was not material. Allowance for loan losses has been included in noninterest-earning assets. Interest income on loans includes net amortized revenues (costs) on loans.

(2) Includes both available for sale and held to maturity securities. For available for sale securities, fair value adjustments have been included in the average balance of noninterest-earning assets.

(3) Includes interest-bearing deposits at other banks, federal funds purchased and Federal Home Loan Bank of Pittsburgh capital stock.

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

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

10

Rate/Volume Analysis. The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in prevailing interest rates during the period indicated. The table presents the: (1) changes in volume (change in volume multiplied by old rate); (2) changes in rate (change in rate multiplied by old volume); and (3) the net changes in rate/volume (change in rate multiplied by the change in volume). The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each.

	Year Ended June 30,						Year Ended June 30,
	2009 vs. 2008						2008 vs. 2007
	Increase (Decrease)						Increase (Decrease)
	Due to						Due to
	Volume		Rate		Net		Volume			Rate			Net
	(In Thousands)
Interest and dividend income:
Loans	$	1,866	$	(323)	$	1,543	$	221		$	143		$	364
Securities		(74)		(275)		(349)		(37	)		230			193
Other interest-earning assets		(91)		(463)		(554)		183			(180	)		3
Total interest-earning assets	$	1,701	$	(1,061)	$	640	$	367		$	193		$	560
Interest expense:
NOW accounts	$	-	$	(61)	$	(61)	$	(5	)	$	(11	)	$	(16	)
Money market accounts		16		(598)		(582)		131			(216	)		(85	)
Savings and club accounts		(18)		(147)		(165)		8			(53	)		(45	)
Certificates of deposit		42		(973)		(931)		15			--			15
Federal Home Loan Bank advances		727		(515)		212		73			(385	)		(312	)
Total interest-bearing liabilities	$	767	$	(2,294)	$	(1,527)	$	222		$	(665	)	$	(443	)
Change in net interest income	$	934	$	1,233	$	2,167	$	145		$	858		$	1,003

Management of Interest Rate Risk and Market Risk

Qualitative Analysis. Because the majority of our assets and liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk, or changes in interest rates.

We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.

In response to recent negative economic developments, the Federal Open Market Committee initiated a series of interest rate cuts that has reduced the targeted Federal Funds rate from 5.25% in September 2007 to its current range of 0.00% to 0.25%. The most immediate impact of these rate cuts has been a reduction in our cost of funds since our deposits are generally priced off of short-term rates. The rate cuts have also restored a positive yield curve since long-term rates have not adjusted downward to the same degree as short-term rates. This has had a positive impact on our earnings since our liabilities are more rate-sensitive than our assets.

11

Quantitative Analysis. The following tables present William Penn Bank’s net portfolio value as of June 30, 2009. The net portfolio values shown in these tables were calculated by the Office of Thrift Supervision, based on information provided by William Penn Bank.

Interest Rate Sensitivity of Net Portfolio Value (NPV)

	At June 30, 2009
	Net Portfolio Value (In Thousands)		Net Portfolio Value as % of Present Value of Assets
Changes in Rates	$ Amount	$ Change	% Change	Net Portfolio Value Ratio	Basis Point Change
-100 bp	49,874	-484	-1%	15.29%	-31 bp
- 50 bp	50,036	-322	-1%	15.41%	-19 bp
0 bp	50,358			15.60%
+50 bp	49,213	-1,145	-2%	15.37%	-23 bp
+100 bp	48,704	-1,654	-3%	15.33%	-28 bp
+200 bp	45,779	-4,579	-9%	14.68%	-92 bp
+300 bp	41,790	-8,568	-17%	13.69%	-191 bp

Risk Measure for a Given Rate Shock

	June 30, 2009	June 30, 2008
Pre-Shock NPV Ratio
NPV as % of PVA Assets	15.60%	16.48%
Post Shock NPV Ratio	14.68%	14.33%
Sensitivity Measure
Decline in NPV Ratio	92 bp	214 bp
TB 13a Level Risk	Minimal	Minimal

Future interest rates or their effect on net portfolio value or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities, such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally have features that limit changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making the calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.

Notwithstanding the discussion above, the quantitative interest rate analysis presented above indicates that a rapid increase in interest rates would adversely affect our net portfolio value and earnings.

Liquidity, Commitments, Capital Resources and Contractual Obligations

The Bank must be capable of meeting its customer obligations at all times. Potential liquidity demands include funding loan commitments, cash withdrawals from deposit accounts and other funding

12

needs as they present themselves. Accordingly, liquidity is measured by our ability to have sufficient cash reserves on hand, at a reasonable cost and/or with minimum losses.

The Asset and Liability Management Committee of the Board of Directors sets limits and controls to guide senior management’s managing of our overall liquidity position and risk. This Committee, along with senior management, is responsible for ensuring that our liquidity needs are being met on both a daily and long term basis.

Our approach to managing day-to-day liquidity is measured through our daily calculation of investable funds and/or borrowing needs to ensure adequate liquidity. In addition, we constantly evaluate our short-term and long-term liquidity risk and strategy based on current market conditions, outside investment and/or borrowing opportunities, short and long-term economic trends, and anticipated short and long-term liquidity requirements. The Bank’s loan and deposit rates may be adjusted as another means of managing short and long-term liquidity needs. We do not at present participate in derivatives or other types of hedging instruments to meet liquidity demands.

Regulatory Capital Compliance

Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of June 30, 2009, the Bank exceeded all applicable regulatory capital requirements and was well capitalized. See Note 15 to the consolidated financial statements for more information about the Bank’s regulatory capital compliance.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance-sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving William Penn Bank’s facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financing needs of our customers. At June 30, 2009, we had no significant off-balance sheet commitments other than commitments to extend credit totaling $5.2 million and unfunded commitments under lines of credit totaling $15.0 million.

A summary of the Company’s financial instruments with off-balance sheet risk is as follows: (in thousands)

	June 30,
	2009	2008
Commitments to extend credit	$ 5,220	$10,545
Unfunded commitments under lines of credit	14,964	12,732

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since a number of

13

commitments typically expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding the Bank’s outstanding lending commitments at June 30, 2009, see Note 13 to the consolidated financial statements.

Contractual Obligations

		Total		Less Than 1		1-3		4-5		Over 5
Contractual Obligations		Amount		Year		Years		Years		Years
		(In Thousands)
Total time deposits	$	95,873	$	68,903	$	16,858	$	5,560	$	4,552
Total borrowings		89,000		19,500		8,500		15,000		46,000
Total obligations	$	184,873	$	88,403	$	25,358	$	20,560	$	50,552

In addition, as part of the reorganization and stock offering, the ESOP trust borrowed funds from William Penn Bancorp, Inc., and used those funds to purchase a number of shares equal to 8% of the common stock issued in the offering.

Recent Accounting Pronouncements

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No.51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position

In May 2009, the FASB issued FAS No. 165, Subsequent Events, which requires companies to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. FAS No. 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. FAS No. 165 also requires entities to disclose the date through which subsequent events have been evaluated. FAS No. 165 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of FAS No. 165 as of June 30, 2009, as required, and adoption did not have a material impact on Company’s results of operations or financial position.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets

14

have become inactive. FSP No. FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of this FSP did not have a material effect on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. FSP No. FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of this FSP did not have a material effect on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. FSP No. FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP No. FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s financial position or results of operations.

In June 2009, the FASB issued FAS No. 168, The ‘FASB Accounting Standards Codification’ and the Hierarchy of Generally Accepted Accounting Principles. FAS No. 168 establishes the FASB Accounting Standards Codification (Codification), which was officially launched on July 1, 2009, and became the primary source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of Federal securities laws are also sources of authoritative GAAP for SEC registrants. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the Codification. FAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. As the Codification is neither expected nor intended to change GAAP, the adoption of FAS No.168 will not have a material impact on its results of operations or financial position.

Change in Auditors

On May 21, 2008, the Company’s Board of Directors approved the dismissal of Beard Miller Company LLP (“Beard Miller”) as the Company’s independent certifying accountant. Beard Miller’s reports on the Company’s consolidated financial statements for the fiscal year ended June 30, 2007, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal year ended June 30, 2007, there were no disagreements or “reportable events” of the kind described in Item 304(a)(1)(v) of Regulation S-K between the Company and Beard Miller on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Beard Miller, would have caused them to make a reference to the subject matter of the disagreements or reportable events in connection with their reports.

On May 21, 2008, the Company’s Board of Directors selected S.R. Snodgrass, A.C. as its new independent certifying accountant. During the two most recent fiscal years and the subsequent interim period to the date hereof, the Company did not consult with S.R. Snodgrass, A.C. regarding any of the matters or events set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.

15

Impact of Inflation

The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of noninterest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

16

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with the policies or procedures.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2009. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

As of June 30, 2009, based on management’s assessment, the Company’s internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financing reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

/s/ Charles Corcoran

Charles Corcoran

Chief Executive Officer and Chief Financial Officer

Date: September 25, 2009

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

William Penn Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of William Penn Bancorp, Inc. and subsidiary as of June 30, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William Penn Bancorp, Inc. and subsidiary as of June 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 16 to the consolidated financial statements, effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements.

We were not engaged to examine management’s assertion about the effectiveness of William Penn Bancorp, Inc.’s internal control over financial reporting as of June 30, 2009, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting” and, accordingly, we do not express an opinion thereon.

/s/ S.R. Snodgrass, A.C.

Wexford, PA

September 25, 2009

F-2

William Penn Bancorp, Inc.

Consolidated Balance Sheets

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

		Year Ended June 30,
		2009			2008
ASSETS
Cash and due from banks	$	734		$	540
Interest-bearing deposits with other institutions		15,121			6,693
Total cash and cash equivalents		15,855			7,233
Interest-bearing time deposits		2,524			5,137
Securities available for sale		10			5
Securities held to maturity, fair value of $59,603 and $63,646		59,015			63,013
Loans receivable, net of allowance for loan losses		219,939			197,025
$2,180 and $1,910, respectively
Premises and equipment, net		1,953			1,805
Federal Home Loan Bank stock, at cost		4,932			4,058
Deferred income taxes		2,052			2,110
Real estate owned		206			-
Accrued interest receivable and other assets		1,748			1,747
TOTAL ASSETS	$	308,234		$	282,133
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest-bearing	$	2,916		$	1,268
Interest-bearing		164,176			159,826
Total deposits		167,092			161,094
Advances from Federal Home Loan Bank		89,000			72,000
Advances from borrowers for taxes and insurance		2,157			2,081
Accrued interest payable and other liabilities		3,078			2,811
TOTAL LIABILITIES		261,327			237,986
Commitments and Contingencies		-			-
STOCKHOLDERS’ EQUITY
Preferred stock, no par value,1,000,000 shares authorized;
no shares issued		-			-
Common Stock,$.10 par value, 49,000,000 shares authorized;
3,641,018 shares issued and outstanding		364			364
Additional paid-in capital		9,781			9,751
Unallocated common stock held by the
Employee Stock Ownership Plan (“ESOP”)		(743	)		(830	)
Retained earnings		37,505			34,862
Accumulated other comprehensive income		-			-
TOTAL STOCKHOLDERS’ EQUITY		46,907			44,147
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	308,234		$	282,133

See accompanying notes to the audited consolidated financial statements.

F-3

William Penn Bancorp, Inc.

Consolidated Statements of Income

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

	Year Ended June 30,
	2009		2008
INTEREST INCOME
Loans receivable, including fees	$	13,424	$	11,881
Taxable securities		2,863		3,213
Exempt from federal income tax		1		-
Other		264		818
Total Interest Income		16,552		15,912
INTEREST EXPENSE
Deposits		4,331		6,070
Borrowings		3,812		3,600
Total Interest Expense		8,143		9,670
Net Interest Income		8,409		6,242
Provision For Loan Losses		531		70
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		7,878		6,172
OTHER INCOME
Service fees		127		126
Realized losses on sale of
available for sale securities		-		(1	)
Other		142		134
Total Other Income		269		259
OTHER EXPENSES
Salaries and employee benefits		2,268		2,430
Occupancy and equipment		630		630
FHLB prepayment penalty		-		1,524
Contribution to charitable foundation		-		814
Professional fees		305		159
FDIC premium		269		18
Other		715		505
Total Other Expenses		4,187		6,080
Income Before Income Taxes		3,960		351
Income Tax Expenses		1,317		78
NET INCOME	$	2,643	$	273
Basic and diluted earnings per share (Note 4)	$	0.74	$	(0.02	)

See accompanying notes to the audited consolidated financial statements.

F-4

William Penn Bancorp, Inc.

Consolidated Statements of Changes in Stockholders' Equity

Dollar amounts in thousands, except share and per share data)

							Unallocated
							Common						Accumulated
	Common Stock			Additional			Stock						Other				Total
	Number of			Paid-in			Held by				Retained		Comprehensive				Stockholders’				Comprehensive
	Shares	Amount		Capital			the ESOP				Earnings		Income/ Loss				Equity				Income
Balance- June 30, 2007	—	$	—		$	—		$	—		$	34,589		$	(174	)		$	34,415
Net Income	—											273							273		$	273
Change in unrecognized pension cost,
net of income taxes of $89															174				174			174
																					$	447
Comprehensive Income
Issuance of common stock for initial public
offering net of expenses of $ 725	1,025,283		102			9,426													9,528
Issuance of common stock to William Penn, MHC	2,548,713		255			(255	)												-
Initial funding of William Penn, MHC						(100	)												(100	)
Issuance of common stock to William Penn Bank
Community Foundation	67,022		7			663													670
Stock purchased for ESOP									(874	)									(874	)
Allocation of ESOP Stock						17			44										61
Balance- June 30, 2008	3,641,018		364			9,751			(830	)		34,862			-				44,147
Net income												2,643							2,643		$	2,643
Allocation of ESOP Stock						30			87										117
Balance- June 30, 2009	3,641,018	$	364		$	9,781			(743	)	$	37,505		$	-			$	46,907

See accompanying notes to the audited consolidated financial statements.

F-5

William Penn Bancorp, Inc.

Consolidated Statements of Cash Flows (In Thousands)

	Year Ended June 30,
		2009		2008
Cash Flows from Operating Activities
Net income	$	2,643		$	273
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses		531			70
Provision for depreciation		150			164
Net accretion of securities premiums and discounts		(13	)		(244	)
Compensation expense on ESOP		117			61
Contribution of common stock to William Penn Bank
Community Foundation		-			670
Deferred income taxes		58			(383	)
Origination of loans for sale		(3,680	)		(589	)
Proceeds from sale of loans		3,682			590
(Gain) loss on sale of loans		(2	)		(1	)
Realized losses on sales of securities		-			1
Increase in accrued interest receivable and other assets		(2	)		(21	)
Increase in accrued interest payable and other liabilities		267			545
Net Cash Provided by Operating Activities		3,751			1,136
Cash Flows from Investing Activities
Securities available for sale:
Purchases		(6	)		(100	)
Proceeds from sales of securities		-			120
Securities held to maturity:
Purchases		(32,906	)		(23,284	)
Maturities, calls and principal paydowns		36,917			22,152
Net increase in loans receivable		(23,650	)		(16,891	)
Interest bearing time deposits:
Purchases		(647	)		(1,719	)
Maturities and principal paydowns		3,260			-
Federal Home Loan Bank Stock:
Purchases		(955)			(220	)
Repurchases		81			-
Purchases of premises and equipment		(298	)		(32	)
Net Cash used for Investing Activities		(18,204	)		(19,974	)
Cash Flows from Financing Activities
Net increase in deposits		5,998			2,154
Proceeds from advances from Federal Home Loan Bank		17,000			36,000
Repayment of advances from Federal Home Loan Bank		-			(35,000	)
Increase in advances from borrowers for taxes and
insurance		76			134
Net proceeds from issuance of common stock		-			8,554
Net Cash Provided by Financing Activities		23,074			11,842
Net Increase (Decrease) in Cash and Cash Equivalents		8,622			(6,996	)
Cash and Cash Equivalents-Beginning		7,233			14,229
Cash and Cash Equivalents-Ending	$	15,855		$	7,233
Supplementary Cash Flows Information
Interest paid	$	8,103		$	9,737
Income taxes paid	$	1,650		$	240

See accompanying notes to the audited consolidated financial statements.

F-6

William Penn Bancorp, Inc.

Notes to the Consolidated Financial Statements

Note 1-Nature of Operations and Basis of Presentation

The consolidated financial statements include the accounts of William Penn Bancorp, Inc. (the “Company”), and its wholly owned subsidiary, William Penn Bank, FSB (the “Bank”), and the Bank’s wholly owned subsidiary, WPSLA Investment Corporation. The primary purpose of the Company is to act as the holding company for the Bank. The Company is subject to regulation and supervision by the Office of Thrift Supervision (the “OTS”). William Penn Bank, FSB (the Bank) is a federally chartered mutual savings bank. The Bank’s primary business consists of the taking of deposits and granting of mortgage loans to the customers generally in the Bucks County, Pennsylvania area. The Bank is supervised and regulated by the OTS. The investment in subsidiary on the parent company’s financial statements is carried at the parent company’s equity in the underlying net assets.

WPSLA Investment Corporation was incorporated under Delaware law in 2000 to hold securities for the Bank. At June 30, 2009, this subsidiary held $29.2 million of the Bank’s $59.0 million securities portfolio. All intercompany transactions and balances have been eliminated in consolidation.

Note 2- Summary of Significant Accounting Policies

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates relate to the determination of the allowance for loan losses and the evaluation of other-than-temporary impairment of securities.

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.

Securities

Securities classified as held to maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at

F-7

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

Securities (Continued)

cost adjusted for the amortization of premium and accretion of discount, computed by the interest method over the terms of the securities.

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are carried at fair value.

Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the term of the securities.

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent to sell the security or whether it’s more likely than not that the Company would be required to sell the security before its anticipated recovery in market value. Management determines the appropriate classification of debt securities at the time of purchase.

Federal law requires a member institution of the Federal Home Loan Bank system to hold stock of its district Federal Home Loan Bank according to a predetermined formula. This restricted stock is carried at cost.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently

F-8

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

Loans Receivable (Continued)

performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon the Company’s past loan experience, known or inherent credit risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment

F-9

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral- dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets, through an agreement to repurchase them before their maturity.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the following estimated useful lives of the related assets:

	Years
Office buildings and improvements	5 - 33
Furniture, fixtures, and equipment	5 - 10
Automobiles	4

Advertising Costs

The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the years ended June 30, 2009 and 2008, was $36,000 and $33,000, respectively.

Income Taxes

Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences

F-10

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the balance sheets when they are funded.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the stockholder’s equity section of the balance sheet, such items, along with the net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects are as follows (in thousands):

	Year Ended June 30,
	2009		2008
Unrealized holding gains (losses)
on available-for-sale securities	$	-	$	-
Reclassification adjustment for
(gains) losses included in net income		-		-
Reclassification adjustment for
unrecognized pension cost		-		49
Reclassification adjustment expense for
termination of defined benefit plan		-		214
Net Unrealized Gains	$	-	$	263
Income tax effect		-		89
Net of Tax Amount	$	-	$	174

Retirement Benefits

The pension plan was terminated in January 2008. Prior to that, substantially all employees were covered by the pension plan. The cost of the plan was based on actuarial computations of current and future benefits for employees. It was the Bank’s policy to

F-11

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

Retirement Benefits (Continued)

fund the recommended required contribution determined under the Employee Retirement Income Security Act.

Segment Report

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 and automated teller machine 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, consumer, 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.

New Accounting Standards

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No.51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position

In May 2009, the FASB issued FAS No. 165, Subsequent Events, which requires companies to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. FAS No. 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. FAS No. 165 also requires entities to disclose the date through which subsequent events have been evaluated. FAS No. 165 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of FAS No. 165 as of June 30, 2009, as required, and adoption did not have a material impact on Company’s results of operations or financial position.

F-12

William Penn Bancorp, Inc.

Note 2- Summary of Significant Accounting Policies (Continued)

New Accounting Standards (Continued)

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. FSP No. FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of this FSP did not have a material effect on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. FSP No. FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of this FSP did not have a material effect on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. FSP No. FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP No. FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s financial position or results of operations.

In June 2009, the FASB issued FAS No. 168, The ‘FASB Accounting Standards Codification’ and the Hierarchy of Generally Accepted Accounting Principles. FAS No. 168 establishes the FASB Accounting Standards Codification (Codification), which was officially launched on July 1, 2009, and became the primary source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of Federal securities laws are also sources of authoritative GAAP for SEC registrants. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the Codification. FAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. As the Codification is neither expected nor intended to change GAAP, the adoption of FAS No.168 will not have a material impact on its results of operations or financial position.

Note 3 – Conversion to Mutual Holding Company

On April 15, 2008, William Penn Bank, FSB (the “Bank”) completed a reorganization from the mutual to the mutual holding company structure and became a wholly-owned subsidiary of William Penn Bancorp, Inc (the “Company”), a federally chartered corporation. As part of the transaction, the Company sold 1,025,283 shares of its common stock, $.10 par value, to the public at $10.00 per share (including 87,384 shares

F-13

William Penn Bancorp, Inc.

Note 3 – Conversion to Mutual Holding Company (Continued)

purchased by the Bank’s Employee Stock Ownership Plan with funds borrowed from the Company) and issued 2,548,713 shares to William Penn, MHC. In addition, the Company contributed 67,022 shares to the William Penn Bank Community Foundation and $150,000 in cash. Prior to consummation of the reorganization, the Company had no assets or liabilities. Accordingly, the Company’s financial statements consist of those of the Bank for periods prior to April 15, 2008.

Note 4 - Earnings Per Share

There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of $2,643,000 for the year ended June 30, 2009 and net loss of $54,000 from April 15, 2008, to June 30, 2008, will be used as the numerator.

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

	June 30,
	2009		2008
Weighted-average common shares outstanding	3,641,018		3,641,018
Average unearned ESOP shares	(78,324	)	(84,222	)
Weighted-average common shares and common stock
equivalents used to calculate basic and diluted earnings
per share	3,562,694		3,556,796

Note 5 – Investment in Interest-Bearing Time Deposits

The interest-bearing time deposits by contractual maturity are shown below (in thousands):

	Year Ended June 30,
	2009		2008
Due in one year or less	$	2,130	$	3,562
Due after one year through five years		394		1,575
	$	2,524	$	5,137

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William Penn Bancorp, Inc.

Note 6 – Securities

The amortized cost and approximate fair value of securities are summarized as follows (in thousands):

	June 30, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available For Sale:
Mutual Funds	$	10	$	-	$	-		$	10
	$	10	$	-	$	-		$	10
Held to Maturity:
U.S. Government corporations
and agencies securities	$	32,371	$	669	$	(82	)	$	32,958
Mortgage-backed securities		6,908		220		-			7,128
Collateralized mortgage obligations		19,236		271		(491	)		19,016
Corporate bonds		201		1		-			202
Municipal bonds		299		-		-			299
Total	$	59,015	$	1,161	$	(573	)	$	59,603

	June 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available For Sale:
Mutual Funds	$	5	$	-	$	-		$	5
	$	5	$	-	$	-		$	5
Held to Maturity:
U.S. Government corporations
and agencies securities	$	49,005	$	637	$	(55	)	$	48,587
Mortgage-backed securities		10,631		67		(53	)		10,645
Collateralized mortgage obligations		4,377		65		(28	)		4,414
Total	$	63,013	$	769	$	(136	)	$	63,646

F-15

William Penn Bancorp, Inc.

Note 6 – Securities (Continued)

The amortized cost and fair value of securities, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without penalties (in thousands).

	June 30, 2009
	Held to Maturity
	Amortized		Fair
	Cost		Value
Due in one year or less	$	4,100	$	4,191
Due after one year through five years		12,000		12,307
Due after five years through ten years		5,770		5,918
Due after ten years		11,001		11,043
Mortgage-Backed securities		6,908		7,128
Collateralized mortgage obligations		19,236		19,016
	$	59,015	$	59,603

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2009
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Held to Maturity:
U.S. Government
corporations and
agencies securities	$	7,309	$	(82	)	$	-	$	-		$	7,309	$	(82	)
Collateralized Mortgage
Obligations		6,695		(313	)		2,503		(178	)		9,198		(491	)
Total Temporarily
Impaired securities	$	14,004	$	(395	)	$	2,503	$	(178	)	$	16,507	$	(573	)

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William Penn Bancorp, Inc.

Note 6 – Securities (Continued)

	June 30, 2008
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Held to Maturity:
U.S. Government
corporations and
agencies securities	$	7,469	$	(30	)	$	1,496	$	(25	)	$	8,965	$	(55	)
Mortgage-backed
securities		3,228		(53	)		-		-			3,228		(53	)
Collateralized Mortgage
Obligations		334		(1	)		1,639		(27	)		1,973		(28	)
Total Temporarily
Impaired securities	$	11,031	$	(84	)	$	3,135	$	(52	)	$	14,166	$	(136	)

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

There are 17 positions that are impaired at June 30, 2009, including 12 positions in private-label collateralized mortgage obligations. Based on its analysis, management has concluded that the securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, and credit deterioration in the U.S. mortgage markets. However, the decline is considered temporary, since the Company does not intend to sell these securities nor is it more likely than not the Company would be required to sell the security before its anticipated recovery.

F-17

William Penn Bancorp, Inc.

Note 7 – Loans Receivable

The composition of net loans receivable is as follows (in thousands):

	Year Ended June 30,
	2009			2008
Mortgage loans on real estate:
Residential 1-4 family	$	142,499		$	129,709
Residential multi-family (five or more)		10,268			12,229
Commercial-non-residential		35,366			30,262
Construction		14,205			15,466
Land		3,999			4,041
Home equity and second mortgages		7,276			8,394
Equity lines of credit		12,142			6,161
Total Mortgage Loans on Real Estate		225,755			206,262
Consumer loans		2,347			2,450
Loans on savings accounts		420			336
Total Loans		228,522			209,048
Loans in process		(5,562	)		(9,144	)
Unearned loan origination fees		(841	)		(969	)
Allowance for loan losses		(2,180	)		(1,910	)
Net Loans	$	219,939		$	197,025

At June 30, 2009 and 2008, we had approximately $65.7 million and $55.7 million of loans on non-owner-occupied, one-to-four-family residences (“investor loans”), representing approximately 29.6% and 28.0% of total loans. The $65.7 million of one- to four-family investor loans includes $61.1 million of first mortgages; $734,000 of second mortgages; and $3.8 million of construction loans. The $55.7 million of one-to-four family investor loans includes $50.3 million of first mortgages; $1.2 million of second mortgages; and $4.2 million of construction loans.

F-18

William Penn Bancorp, Inc.

Note 7 – Loans Receivable (Continued)

The following is a summary of the allowance for loan losses (in thousands):

	Year Ended June 30,
	2009			2008
Balance, beginning	$	1,910		$	1,840
Provision for loan losses		531			70
Charge-offs		(261	)		—
Recoveries		—			—
Balance, ending	$	2,180		$	1,910

The following is a summary of information pertaining to impaired and non-accrual loans (in thousands):

	Year Ended June 30,
	2009		2008
Impaired loans without a valuation of allowance	$	1,713	$	—
Impaired loans with a valuation allowance		4,155		4,123
Total Impaired Loans	$	5,868	$	4,123
Valuation allowance related to impaired loans	$	561	$	888
Total non-accrual loans		1,483		2,989
Total loans past due ninety days or more and still accruing		—		—

	Year Ended June 30,
	2009		2008
Average investment in impaired loans	$	4,172	$	4,135
Interest income recognized on impaired loans		403		365
Interest income recognized on cash basis on impaired loans		403		365

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The total amount of loans serviced for the benefit of others was approximately $5,305,000 and $2,011,000 at June 30, 2009 and 2008, respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.

F-19

William Penn Bancorp, Inc.

Note 7 – Loans Receivable (Continued)

In ordinary course of business, the Company has granted loans to principal officers and directors and their affiliates. Activity consisted of the following (in thousands):

	Year Ended June 30,
	2009			2008
Beginning Balance	$	1,669		$	1,231
New loans		233			578
Repayments		(146	)		(140	)
Ending balance	$	1,756		$	1,669

Note 8 – Premises and Equipment

The components of premises and equipment are as follows (in thousands):

	Year Ended June 30,
	2009			2008
Land	$	822		$	822
Office buildings and improvements		2,163			1,943
Furniture, fixtures, and equipment		93			184
Automobiles		27			27
	$	3,105		$	2,976
Accumulated depreciation		(1,152	)		(1,171	)
	$	1,953		$	1,805

Depreciation expenses amounted to $150,000 and $164,000 for the years ended June 30, 2009 and 2008, respectively.

Note 9 – Deposits

Deposits and their respective weighted-average interest rate consist of the following major classifications (dollars in thousands):

	Year Ended June 30,
	2009				2008
	Weighted-				Weighted-
	Average				Average
	Interest				Interest
	Rate		Amount		Rate		Amount
Non-interest bearing demand accounts	0	%	$	2,916	0	%	$	1,268
NOW accounts	0.39			14,490	1.06			13,094
Money market accounts	1.15			40,273	2.43			38,131
Savings and club accounts	0.84			13,540	1.50			13,881
Certificates of deposit	3.00			95,873	4.01			94,720
	2.11	%	$	167,092	3.12	%	$	161,094

F-20

William Penn Bancorp, Inc.

Note 9 – Deposits (Continued)

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $35,897,000 and $35,118,000 at June 30, 2009 and 2008, respectively. Generally, deposits in excess of $250,000 are not insured by Federal Deposit Insurance Corporation.

The scheduled maturities of certificates of deposit are as follows (in thousands):

Fiscal year ending June 30:	2009
2010	$	68,903
2011		13,309
2012		3,549
2013		4,174
2014		1,386
Thereafter		4,552
	$	95,873

A summary of interest expense on deposits is as follows (in thousands):

	Year Ended June 30,
	2009		2008
NOW	$	110	$	171
Money market		745		1,327
Savings and club		172		337
Certificates of deposit		3,304		4,235
	$	4,331	$	6,070

At June 30, 2009 and 2008, deposits from principal officers and directors and their affiliates were approximately $457,000 and $560,000, respectively.

Note 10 – Advances From Federal Home Loan Bank

The Bank has a maximum borrowing capacity with the FHLB of Pittsburgh of approximately $130,468,000 at June 30, 2009 of which $89,000,000 was outstanding at June 30, 2009. Advances are secured by qualifying assets of the Bank, which include the Federal Home Loan Bank stock, mortgage-backed securities, and mortgage loans.

In December 2007, the Bank refinanced $25,000,000 of advances from the Federal Home Loan Bank, which had a weighted average rate of 5.87%. The refinancing was funded with new advances totaling $30,000,000, which have a weighted average interest rate of 3.84%. The transaction resulted in a prepayment penalty of approximately $1,524,000, which was reflected during 2008.

F-21

William Penn Bancorp, Inc.

Note 10 – Advances From Federal Home Loan Bank (Continued)

Advances from the Federal Home Loan Bank consist of the following (dollars in thousands):

		Year Ended June 30,
Maturity Date	Interest rate (%)	2009		2008
Aug-09	3.12 Fixed	$	2,000	$	—
Sep-09	5.84 Fixed		5,500		5,500
Feb-10	5.91 Convertible		4,000		4,000
Mar-10	6.05 Convertible		4,000		4,000
Apr-10	5.86 Convertible		4,000		4,000
Jul-10	6.54 Convertible		3,500		3,500
Sep-11	4.34 Fixed		5,000		—
Dec-13	4.22 Fixed		10,000		10,000
Dec-13	3.19 Fixed		5,000		—
Jun-15	4.04 Convertible		5,000		5,000
Sep-15	4.13 Convertible		5,000		5,000
Dec-16	4.49 Convertible		5,000		5,000
Dec-17	3.17 Convertible		5,000		5,000
Dec-17	3.81 Convertible		15,000		15,000
Aug-18	3.65 Convertible		5,000		—
May-23	3.59 Convertible		6,000		6,000
Total		$	89,000	$	72,000

On the convertible rate notes, the Federal Home Loan Bank has the option to convert the notes at rates ranging from 0.01% to 0.23% above the three-month LIBOR on a quarterly basis upon the arrival of specified conversion dates or the occurrence of specific events. Accordingly, contractual maturities above may differ from expected maturities. Should the Federal Home Loan Bank convert these advances, the Bank has the option of accepting the variable rate or repaying the advances without penalty.

Maturities of long-term debt at June 30, 2009 are as follows (in thousands):

	June 30,
Fiscal year ending June 30:	2009
2010	$	19,500
2011		3,500
2012		5,000
2013		—
2014		15,000
Thereafter		46,000
	$	89,000

F-22

William Penn Bancorp, Inc.

Note 11 – Income Taxes

The components of income tax expense are as follows (in thousands):

	Year Ended June 30,
	2009		2008
Federal:
Current	$	1,259	$	461
Deferred		58		(383	)
		1,317		78
State, current		—		—
	$	1,317	$	78

A reconciliation of the statutory federal income tax at a rate of 34% to the income tax expense included in the consolidated statements of income is as follows (dollars in thousands):

	Year Ended June 30,
	2009					2008
				% of					% of
				Pretax					Pretax
	Amount			Income		Amount			Income
Federal income tax at statutory rate	$	1,347		34.0	%	$	119		34.0	%
State tax, net of federal benefit							—		—
Low income housing tax credit		(39	)	(1.0	)		(39	)	(11.1	)
Other		9		0.3			(2	)	(0.7	)
	$	1,317		33.3	%	$	78		22.2	%

Items that gave rise to significant portions of deferred tax assets and liabilities are as follows:

	Year Ended June 30,
	2009		2008
Deferred tax assets:
Loan origination fees	$	286	$	329
Allowance for loan losses		781		703
Deferred director's fees		541		540
Deferred compensation		167		152
Premises and equipment		70		47
ESOP		15		-
Charitable Foundation Bancorp.		103		226
Other		89		113
	$	2,052	$	2,110
Deferred tax liabilities		—		—
Net Deferred Tax Asset	$	2,052	$	2,110

F-23

William Penn Bancorp, Inc.

Note 11 – Income Taxes (Continued)

Under the Internal Revenue Code, the Company is generally allowed a deduction for charitable contributions within a taxable year of 10% of its consolidated taxable income (with certain modifications). Any charitable contributions over the allowable amount will be deductible over each of the five succeeding taxable years, subject to the 10% of modified taxable income limitation. The Company expects to have a charitable contribution carryforward of approximately $270,000 as of its tax year ended June 30, 2009. This carryforward will expire during the tax year ending June 30, 2013. Upon review of the charitable contribution carryforward existing at June 30, 2009, the Company has determined that it is more likely than not that they will have sufficient taxable income during the five succeeding taxable years to be able to utilize 100% of the carryforward, and there has been no valuation allowance established for the carryfoward or any other deferred tax asset.

The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109, effective July 1, 2007. FIN No. 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. FIN No. 48 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest, and penalties. In accordance with FIN No. 48, interest or penalties incurred for income taxes will be recorded as a component of other expenses. The adoption of FIN No. 48 did not have a significant impact on the Company’s financial statements.

Retained earnings included $2,800,000 at June 30, 2009 and 2008, for which no provision for federal income tax has been made.These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The act also provides for the recapture of deductions arising from “applicable excess reserve” defined as the total amount of reserve over the base year reserve. The Bank’s total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.

F-24

William Penn Bancorp, Inc.

Note 12 – Employee and Director Benefit Plans

Defined Benefit Plan:

The Bank terminated its defined benefit plan effective January 20, 2008. All obligations to plan participants were paid in full on March 31, 2008 through lump sum distributions. Pension expense related to the termination of $214,000 was charged to salaries and employee benefit expense at that time. Prior to that, the Bank had a pension plan covering substantially all employees. The plan provided a benefit based on final average earnings and years of service.

The following table sets forth the aggregate funded status of the pension plan at June 30, 2008 (in thousands).

	2008
Accumulated benefit obligation	$	—
Change in benefit obligation:
Benefit obligation at beginning of the year	$	1,483
Service cost		85
Interest cost		94
Actuarial (gain) loss		(69	)
Settlement cost		(1,593	)
Benefits paid		—
Benefit obligation at end of the year		—
Change in plan assets:
Fair value of plan assets at beginning of year		1,223
Actual return on plan assets		59
Employer contributions		322
Settlement		(1,593	)
Benefits paid		—
Fair value of plan assets at end of year	$	11
Funded Status	$	11
Subsequent to the adoption of FAS No. 158:
Unrecognized net actuarial loss	$	—
Unrecognized transition obligation		—
		—
Income tax benefit		—
Net Amount Recognized in Accumulated Other
Comprehensive Loss	$	—

F-25

William Penn Bancorp, Inc.

Note 12 – Employee and Director Benefit Plans (Continued)

Defined Benefit Plan: (Continued)

Components of net periodic benefit cost for the year ended June 30:	2008
Service cost	$	85
Interest cost		94
Expected return on plan assets		(104	)
Settlement cost		214
Amortization of net loss		16
Amortization of transition obligation		8
Net Periodic Pension Plan	$	313

Assumptions used in determining the net periodic pension cost and the plan’s funded status for 2008 are as follows:

	2008
Discount rate	4.53	%
Rate increase in compensation levels	—
Expected long term rate of return on plan assets	8.50

The Bank’s pension plan asset allocations at June 30, 2008 are as follows:

Asset category	2008
Money Market	100	%
William Penn Bank, FSB certificate of deposit	—
	100	%

401(k) Plan

The Bank has a savings plan qualified under Section 401(k) of the Internal Revenue Code which covers substantially all of its employees. Employees can contribute up to 50% of gross pay, and the Bank matches 25% of such contributions up to 12%. Savings plan expense charged to operations amounted to $34,000 and $32,000 for the years ended June 30, 2009 and 2008, respectively.

Employee Stock Ownership Plan (“ESOP”)

In connection with conversion, the Company created an ESOP for the benefit of employees who meet the eligibility requirements, which include having completed one year of service with the Company. The ESOP trust acquired 87,384 shares of the Company’s stock from proceeds from a loan with Company. The Bank makes cash contributions on an annual basis sufficient to enable ESOP to make the required loan payments. Cash dividends paid on allocated shares are distributed to participants and cash dividends paid on unallocated shares are used to repay the outstanding debt of the ESOP.

F-26

William Penn Bancorp, Inc.

Note 12 – Employee and Director Benefit Plans (continued)

Employee Stock Ownership Plan (“ESOP”) (Continued)

ESOP trust’s outstanding loan bears interest at 6 percent and requires annual payment of principal and interest of $87,000 through December of 2018. The Company’s ESOP, which is internally leveraged, does not report the loans receivable extended to the ESOP as assets and does not report the ESOP debt due to the Company.

As the debt is repaid, shares are released from the collateral and allocated to qualified employees based on the proportion of payments made during the year to remaining amount of payments due on the loan through maturity. Accordingly, the shares pledged as collateral are reported as unallocated common stock held by the ESOP in the Consolidated Balance Sheets. As shares are released from collateral, the Bank reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings-per-share computations. The Company recognized ESOP expenses of $117,000 and $61,000 for the years ended June 30, 2009 and 2008, respectively.

	June 30,
	2009		2008
Shares committed to be released		4,369		4,369
Shares released for allocation		8,738		—
Unreleased shares		74,277		83,015
Total ESOP shares		87,384		87,384
Fair Value of unreleased shares (in thousands)	$	1,003	$	1,183

Directors Retirement Plan

The Bank has a retirement plan for the directors of the Bank, who are not full-time employees. Upon retirement, a director who agrees to serve as a consulting director to the Bank will receive a monthly benefit amount for a period of up to 120 months. During 2008, the Bank modified its retirement plan from a 60-months benefit plan to 120 months. The expense included in the consolidated statements of income for these benefits was $58,000 and $235,000 for the years ended June 30, 2009 and 2008, respectively. At June 30, 2009 and 2008, approximately $491,000 and $448,000 respectively, had been accrued under this plan.

F-27

William Penn Bancorp, Inc.

Note 12 – Employee and Director Benefit Plans (continued)

Director Deferred Compensation Plan

The Bank has deferred compensation plans for certain directors of the Bank whereby they can elect to defer their directors’ fees. Under the plans’ provisions, benefits which accrue at the Bank’s highest certificate of deposit rate will be payable upon retirement, death, or permanent disability. At June 30, 2009 and 2008, approximately $1,590,000 and $1,588,000, respectively, had been accrued. Interest expense included in the consolidated statements of income for these benefits was $67,000 and $71,000 for the years ended June 30, 2009 and 2008, respectively.

Note 13 – Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the Company’s financial instruments with off-balance sheet risk is as follows (in thousands):

	June 30,
	2009		2008
Commitments to extend credit	$	5,220	$	10,545
Unfunded commitments under lines of credit		14,964		12,732

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

F-28

William Penn Bancorp, Inc.

Note 13 – Financial Instruments with Off-Balance Sheet Risk (Continued)

Included in the above commitments to extend credit at June 30, 2009 were fixed rate commitments to grant loans of approximately $3,545,000 which had interest rates that range from 4.25% to 7.125%.

Note 14 – Concentration of Credit Risk

The Company grants loans to customers primarily located in Bucks County, Pennsylvania. The concentration of credit by type of loan is set forth in Note 7. Although the Company has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

Note 15 - Regulatory Restrictions

Dividend Restrictions

Federal banking laws, regulations, and policies limit the Bank’s ability to pay dividends and make other distributions to the Company. The Bank must obtain prior OTS approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the Bank’s total distributions to the holding company within that calendar year would exceed 100 percent of its net income during the year plus retained net income for the prior two years; (2) the Bank would not meet capital levels imposed by the OTS in connection with any order; or (3) the Bank is not adequately capitalized at the time.

Regulatory Capital Requirements

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted assets (as defined) and of total capital (as defined) to risk-weighted assets (as defined).

Management believes, as of June 30, 2009, that the Bank meets all capital adequacy requirements to which it is subject.

F-29

William Penn Bancorp, Inc.

Note 15 – Regulatory Restrictions (Continued)

As of June 30, 2009, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum core, Tier I risk-based and total risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are also presented below (in thousands):

							To be Well Capitalized
							under Prompt
				For Capital Adequacy			Corrective Action
	Actual			Purposes			Provisions
	Amount	Ratio		Amount	Ratio		Amount	Ratio
As of June 30, 2009:
Total risk-based capital	$44,690	24.6	%	$>14,561	>8.0	%	$>18,201	>10.0	%
Core capital (to risk-weighted assets)	42,789	23.5		N/A	N/A		>10,921	>6.0
Core capital (to adjusted total assets)	42,789	13.9		>12,320	>4.0		>15,400	>5.0
Tangible capital (to adjusted total assets):	42,789	13.9		>4,620	>1.5		N/A	N/A
As of June 30, 2008:
Total risk-based capital	$41,667	25.9	%	$>12,890	>8.0	%	$>16,113	>10.0	%
Core capital (to risk-weighted assets)	40,147	24.9		N/A	N/A		>9,668	>6.0
Core capital (to adjusted total assets)	40,147	14.3		>11,263	>4.0		>14,079	>5.0
Tangible capital (to adjusted total assets):	40,147	14.3		>4,224	>1.5		N/A	N/A

The following table presents a reconciliation of the Bank’s equity as determined using accounting principles generally accepted in the United States of America (GAAP) and its regulatory capital amounts (in thousands):

	June 30,
	2009			2008
Bank GAAP Equity	$	42,789		$	40,147
Accumulated other comprehensive loss		—			—
Tangible Capital, Core Capital and Tier 1
Risk-Based Capital	$	42,789		$	40,147
Allowance for loan losses (excluding specific
reserves of $106 for 2008)		2,180			1,804
Equity investments and other assets required to be
deducted		(279	)		(284	)
Total Risk-Based Capital	$	44,690		$	41,667

F-30

William Penn Bancorp, Inc.

Note 16 – Fair Value of Financial Instruments

Effective July 1, 2008, the Company adopted the provisions of FAS No. 157, Fair Value Measurements, for financial assets and financial liabilities. FAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. The FASB issued Staff Position No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removed leasing transactions accounted for under FAS No. 13 and related guidance from the scope of FAS No. 157. The FASB also issued Staff Position No.157-2, Partial Deferral of the Effective Date of Statement 157, which deferred the effective date of FAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.

FAS No. 157 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by FAS No. 157 hierarchy are as follows:

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

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

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

Assets and Liabilities Measured on a Recurring Basis

The following table presents the assets reported on the balance sheet at their fair value as of June 30, 2009, by level within the fair value hierarchy (in thousands). As required by FAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	June 30, 2009
	Level I		Level II		Level III		Total
Assets:
Investments available-for sale	$	10	$	—	$	—	$	10

F-31

William Penn Bancorp, Inc.

Note 16 – Fair Value of Financial Instruments (Continued)

Assets and Liabilities Measured on a Non-Recurring Basis

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

Impaired loans are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating impaired loan collateral is based on level 3 inputs utilizing outside appraisals adjusted by management for sales costs and other assumptions regarding market conditions to arrive at fair value. At June 30, 2009, impaired loans with a carrying value of $5,868,000 were reduced by specific valuation allowance totaling $561,000 resulting in a net fair value of $5,307,000, based on Level 3 inputs.

Other real estate owned (OREO) is measured at fair value, based on appraisals less cost to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

Assets measured at fair value on a non-recurring basis are summarized (in thousands):

	June 30, 2009
	Level I		Level II		Level III		Total
Assets:
Impaired loans	$	—	$	—	$	5,307	$	5,307
Other real estate owned		—		206		—		206
		—		206		5,307		5,513

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.

Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

F-32

William Penn Bancorp, Inc.

Note 16 – Fair Value of Financial Instruments (Continued)

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

Cash and Due from Banks and Interest Bearing Time Deposits

The carrying amounts of cash and due from banks and interest bearing time deposits approximate their fair value.

Securities Available for Sale and Held to Maturity

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

Loans Receivable, net

For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, fair values are based on carrying values. The fair values of fixed rate loans are estimated using discounted cash flow analyses at market interest rates currently offered for loans with similar terms to borrowers of similar credit quality.

Federal Home Loan Bank Stock

The carrying amount of Federal Home Loan Bank stock approximates fair value.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and payable approximates fair value.

Deposits

Fair values for demand deposits, savings accounts, and certain money market deposits are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on similar instruments with similar maturities.

Advances from Federal Home Loan Bank

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

Off-Balance Sheet Financial Instruments

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

F-33

William Penn Bancorp, Inc.

Note 16 – Fair Value of Financial Instruments (Continued)

The estimated fair values of the Company’s financial instruments were as follows (in thousands):

	2009				2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and amounts due from banks	$	15,855	$	15,855	$	7,233	$	7,233
Interest bearing time deposits		2,524		2,524		5,137		5,137
Securities available for sale		10		10		5		5
Securities held to maturity		59,015		59,603		63,013		63,646
Loans receivable, net		219,939		228,431		197,025		199,130
Federal Home Loan Bank stock		4,932		4,932		4,058		4,058
Accrued Interest receivable:
Loans receivable		1,022		1,022		966		966
Investment securities		410		410		684		684
Mortgage-backed securities		94		94		57		57
Financial liabilities:
Non-interest bearing demand deposits		2,916		2,916		1,268		1,268
NOW accounts		14,490		14,490		13,094		13,094
Money market accounts		40,273		40,273		38,131		38,131
Savings and club accounts		13,540		13,540		13,881		13,881
Certificates of deposit		95,873		98,451		94,720		96,068
Advances from Federal Home Loan Bank		89,000		93,775		72,000		73,653
Accrued interest payable		342		342		302		302
Off-balance sheet financial instruments		—		—		—		—

Note 17 – Legal Contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

Note 18 – Subsequent Events

The Company assessed events occurring subsequent to June 30, 2009 through September 25, 2009, for potential recognition and disclosure in the consolidated financial statements. No events have occurred that would require adjustment to or disclosure in the consolidated financial statements which were issued on September 25, 2009.

F-34

William Penn Bancorp, Inc.

Note 19 – Financial Statements - Parent only

CONDENSED BALANCE SHEET
	June 30,
	2009		2008
	(dollars in thousands)
Cash	$	3,779	$	3,650
Investment in subsidiary		42,789		40,147
Deferred income taxes		103		276
Accrued interest receivable and other assets		247		87
TOTAL ASSETS	$	46,918	$	44,160
LIABILITIES AND STOCKHOLDER’S EQUITY
Other liabilities	$	11	$	13
Stockholders’ equity		46,907		44,147
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	46,918	$	44,160
CONDENSED STATEMENT OF INCOME
			For the period
			of April 15 to
	June 30, 2009		June 30, 2008
	(dollars in thousands)
INCOME
Interest Income	$	125	$	29
		125		29
EXPENSE
Contribution to charitable foundation		—		814
Other		122		6
Total Other Expenses		122		820
Gain(Loss) before Income Tax Expense (Benefit)		3		(791	)
Income tax expense (benefit)		1		(270	)
Income/(loss) before equity in undistributed net earnings of subsidiary		2		(521	)
Equity in undistributed net earnings of subsidiary		2,641		467
NET INCOME/ (LOSS)	$	2,643	$	(54	)

F-35

William Penn Bancorp, Inc.

Note 19 – Financial Statements - Parent only (Continued)

	June 30, 2009			For the period of April 15 to June 30, 2008
Cash Flows from Operating Activities
Net income(loss)	$	2,643		$	(54	)
Adjustments to reconcile net income(loss) to net cash provided by
(used for) operating activities:
Equity in undistributed net earnings of subsidiary		(2,641	)		(467	)
Contribution of common stock to William Penn Bank
community foundation		—			670
Deferred income taxes		173			(277	)
Increase in accrued interest receivable and other assets		(42	)		(25	)
Increase (decrease) in accrued interest payable and other
liabilities		(4	)		13
Net Cash provided by (used for) Operating Activities		129			(140	)
Cash Flows from Investing Activities
Capital contribution in subsidiary Bank		—			(4,764	)
Net Cash used for Investing Activities		—			(4,764	)
Cash Flows from Financing Activities
Net Proceeds from issuance of Common Stock		—			8,554
Net Cash Provided by Financing
Activities		—			8,554
Net Increase in Cash and Cash
Equivalents		129			3,650
Cash and Cash Equivalents-Beginning		3,650			—
Cash and Cash Equivalents-Ending	$	3,779		$	3,650

F-36

WILLIAM PENN BANCORP, INC.

8150 Route 13

Levittown, Pennsylvania 74056-5215

(215) 945-1200

Board of Directors
William J. Feeney, Chairman Retired Police Chief, Richboro, Pennsylvania
Charles Corcoran President, CEO and CFO William Penn Bank, FSB	Craig Burton Partner Burton & Browse LLP, CPAs
Glenn Davis Retired, Former Owner and President Davis Pontiac, Inc.	William B.K. Parry, Jr. William B. Parry & Son, Ltd. Insurance Agency

Executive Officers

Charles Corcoran, President, CEO and CFO

James D. Douglas, Vice President

Terry L. Sager, Corporate Secretary, Treasurer

Aswini Hiremath, Chief Accounting Officer

Special Counsel	Independent Auditors	Transfer Agent and Registrar
Malizia Spidi & Fisch, PC 901 New York Avenue, N.W. Suite 210 East Washington, D.C. 20001	S.R. Snodgrass, A.C. 2100 Corporate Drive Suite 400 Wexford, PA 15090	Registrar & Transfer Company 10 Commerce Drive Cranford, NJ 07016 (800) 368-5948

EX-21

Exhibit 21

Subsidiaries of the Registrant

Parent

William Penn Bancorp, Inc.

Subsidiaries	State or Other Jurisdiction of Incorporation	Percentage Ownership
William Penn Bank, FSB	United States	100%
Subsidiaries of William Penn Bank, FSB
WPSLA Investment Corporation	Delaware	100%

EX-23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement No. 333-150899 on Form S-8 of William Penn Bancorp, Inc. of our report dated September 25, 2009, (which report expresses an unqualified opinion and an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 157 on June 30, 2007) relating to our audit of the consolidated financial statements which appear in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K of William Penn Bancorp, Inc. for the year ended June 30, 2009.

/s/ S.R. Snodgrass, A.C.

Wexford, Pennsylvania

September 25, 2009

EX-31

Exhibit 31

CERTIFICATION

I, Charles Corcoran. certify:

1. I have reviewed this Annual Report on Form 10-K of William Penn Bancorp, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 28, 2009	/s/ Charles Corcoran
	Charles Corcoran
	Chief Executive and Chief Financial Officer

EX-32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of William Penn Bancorp, Inc. (the “Company”) on Form 10-K for the year ending June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof, I, Charles Corcoran, Chief Executive Officer and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Charles Corcoran

Charles Corcoran

Chief Executive and Financial Officer

Date: September 28, 2009