UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

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

EXCHANGE ACT OF 1934

For the transition period from                      to                  

Commission File No. 001-40255

WILLIAM PENN BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

(267) 540-8500

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

The number of shares outstanding of the issuer’s common stock, as of May 4, 2023: 12,813,797 shares.

WILLIAM PENN BANCORPORATION

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2023 and June 30, 2022	3
	Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2023 and 2022	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended March 31, 2023 and 2022	6
	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	48
Part II	Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures

2

PART I —FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

As of March 31, 2023 and June 30, 2022 (unaudited)

	March 31,		June 30,
	2023		2022
ASSETS
Cash and due from banks	$	4,848	$	8,117
Interest bearing deposits with other banks		6,314		28,053
Federal funds sold		8,715		—
Total cash and cash equivalents		19,877		36,170
Interest-bearing time deposits		600		600
Securities available for sale		171,611		182,745
Securities held to maturity, fair value of $84,796 and $88,321, as of March 31, 2023 and June 30, 2022, respectively		101,410		102,135
Equity securities		1,604		2,258
Loans receivable, net of allowance for loan losses of $3,337 and $3,409 as of March 31, 2023 and June 30, 2022, respectively		484,858		475,511
Premises and equipment, net		10,946		11,696
Regulatory stock, at cost		2,669		3,807
Deferred income taxes		8,930		7,459
Bank-owned life insurance		40,292		39,170
Goodwill		4,858		4,858
Intangible assets		566		712
Operating lease right-of-use assets		9,116		6,843
Accrued interest receivable and other assets		5,035		5,988
TOTAL ASSETS	$	862,372	$	879,952
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	632,675	$	606,617
Advances from Federal Home Loan Bank		38,000		65,000
Advances from borrowers for taxes and insurance		2,990		3,356
Operating lease liabilities		9,270		6,949
Accrued interest payable and other liabilities		5,391		5,704
TOTAL LIABILITIES		688,326		687,626
Commitments and contingencies (note 12)		—		—
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized; 13,525,821 shares issued and outstanding at March 31, 2023 and 14,896,590 shares issued and outstanding at June 30, 2022		135		149
Additional paid-in capital		145,240		159,546
Unearned common stock held by employee stock ownership plan		(9,295)		(9,599)
Retained earnings		58,637		57,587
Accumulated other comprehensive loss		(20,671)		(15,357)
TOTAL WILLIAM PENN BANCORPORATION STOCKHOLDERS' EQUITY		174,046		192,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	862,372	$	879,952

See accompanying notes to consolidated financial statements

3

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

For the Three and Nine Months Ended March 31, 2023 and 2022 (unaudited)

	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
INTEREST INCOME
Loans receivable, including fees	$	5,725	$	5,212	$	16,688	$	15,535
Securities		1,714		1,329		5,078		3,026
Other		169		43		485		189
Total interest income		7,608		6,584		22,251		18,750
INTEREST EXPENSE
Deposits		1,623		424		3,106		1,329
Borrowings		452		180		1,335		649
Total interest expense		2,075		604		4,441		1,978
Net interest income		5,533		5,980		17,810		16,772
Provision (recovery) for loan losses		—		10		—		(20)
NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES		5,533		5,970		17,810		16,792
OTHER INCOME
Service fees		197		196		617		652
Net gain on sale of securities		—		—		—		62
Earnings on bank-owned life insurance		276		259		823		775
Unrealized loss on equity securities		(435)		(236)		(654)		(96)
Net gain on disposition of premises and equipment		97		15		396		15
Other		39		81		176		276
Total other income		174		315		1,358		1,684
OTHER EXPENSES
Salaries and employee benefits		3,217		2,932		9,680		8,440
Occupancy and equipment		810		836		2,505		2,237
Data processing		480		451		1,383		1,291
Professional fees		208		289		729		778
Amortization of intangible assets		49		56		146		169
Gain on lease abandonment		—		(117)		—		(117)
Prepayment penalties		—		209		—		273
Other		805		645		2,349		1,936
Total other expense		5,569		5,301		16,792		15,007
Income before income taxes		138		984		2,376		3,469
Income tax (benefit) expense		(45)		160		105		310
NET INCOME	$	183	$	824	$	2,271	$	3,159
Basic and diluted earnings per share	$	0.01	$	0.06	$	0.17	$	0.22

See accompanying notes to consolidated financial statements

4

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

For the Three and Nine Months Ended March 31, 2023 and 2022 (unaudited)

	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Net income	$	183	$	824	$	2,271	$	3,159
Other comprehensive income (loss):
Changes in net unrealized gain (loss) on securities available for sale		2,127		(10,408)		(6,901)		(11,693)
Tax effect		(489)		2,332		1,587		2,620
Reclassification adjustment for gain recognized in net income		—		—		—		(62)
Tax effect		—		—		—		14
Other comprehensive income (loss), net of tax		1,638		(8,076)		(5,314)		(9,121)
Comprehensive income (loss)	$	1,821	$	(7,252)	$	(3,043)	$	(5,962)

See accompanying notes to consolidated financial statements

5

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands, except share amounts)

For the Three and Nine Months Ended March 31, 2023 and 2022 (unaudited)

						Unearned				Accumulated
						Common				Other		Total
	Number	Common Stock		Additional		Stock		Retained		Comprehensive		Stockholders'
	of Shares, net	Stock		Paid-in capital		held by ESOP		Earnings		Loss		Equity
Balance, June 30, 2022	14,896,590	$	149	$	159,546	$	(9,599)	$	57,587	$	(15,357)	$	192,326
Net income	—		—		—		—		1,027		—		1,027
Other comprehensive loss	—		—		—		—		—		(7,750)		(7,750)
Restricted stock expense	—		—		289		—		—		—		289
Stock option expense	—		—		201		—		—		—		201
Stock purchased and retired	(397,352)		(4)		(4,578)		—		—		—		(4,582)
ESOP shares committed to be released	—		—		—		102		—		—		102
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(419)		—		(419)
Balance, September 30, 2022	14,499,238	$	145	$	155,458	$	(9,497)	$	58,195	$	(23,107)	$	181,194
Net income	—		—		—		—		1,061		—		1,061
Other comprehensive income	—		—		—		—		—		798		798
Restricted stock expense	—		—		269		—		—		—		269
Stock option expense	—		—		186		—		—		—		186
Shares forfeited under the William Penn Bancorporation 2022 Equity Incentive Plan	(13,904)		—		—		—		—		—		—
Stock purchased and retired	(342,007)		(4)		(3,973)		—		—		—		(3,977)
ESOP shares committed to be released	—		—		2		102		—		—		104
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(405)		—		(405)
Balance, December 31, 2022	14,143,327	$	141	$	151,942	$	(9,395)	$	58,851	$	(22,309)	$	179,230
Net income	—		—		—		—		183		—		183
Restricted stock expense	—		—		275		—		—		—		275
Stock option expense	—		—		191		—		—		—		191
Other comprehensive income	—		—		—		—		—		1,638		1,638
Stock purchased and retired	(617,506)		(6)		(7,170)		—		—		—		(7,176)
ESOP shares committed to be released	—		—		2		100		—		—		102
Regular cash dividend paid ($0.03 per share)	—		—		—		—		(397)		—		(397)
Balance, March 31, 2023	13,525,821	$	135	$	145,240	$	(9,295)	$	58,637	$	(20,671)	$	174,046

						Unearned				Accumulated
						Common				Other		Total
	Number	Common Stock		Additional		Stock		Retained		Comprehensive		Stockholders'
	of Shares, net	Stock		Paid-in capital		held by ESOP		Earnings		Loss		Equity
Balance, June 30, 2021	15,170,566	$	152	$	168,349	$	(10,004)	$	58,493	$	(64)	$	216,926
Net income	—		—		—		—		1,160		—		1,160
Other comprehensive loss	—		—		—		—		—		(598)		(598)
ESOP shares committed to be released	—		—		5		103		—		—		108
Special cash dividend paid ($0.30 per share)	—		—		—		—		(4,551)		—		(4,551)
Balance, September 30, 2021	15,170,566	$	152	$	168,354	$	(9,901)	$	55,102	$	(662)	$	213,045
Net income	—		—		—		—		1,175		—		1,175
Other comprehensive loss	—		—		—		—		—		(447)		(447)
ESOP shares committed to be released	—		—		6		101		—		—		107
Balance, December 31, 2021	15,170,566	$	152	$	168,360	$	(9,800)	$	56,277	$	(1,109)	$	213,880
Net income	—		—		—		—		824		—		824
Other comprehensive loss	—		—		—		—		—		(8,076)		(8,076)
Stock purchased and retired	(22,800)		(1)		(292)		—		—		—		(293)
ESOP shares committed to be released	—		—		10		100		—		—		110
Regular cash dividend paid ($0.03 per share), net of dividends on unallocated ESOP shares	—		—		—		—		(165)		—		(165)
Balance, March 31, 2022	15,147,766	$	151	$	168,078	$	(9,700)	$	56,936	$	(9,185)	$	206,280

See accompanying notes to consolidated financial statements

6

WILLIAM PENN BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

For the Nine Months Ended March 31, 2023 and 2022 (unaudited)

	Nine Months Ended
	March 31,
	2023		2022
Cash flows from operating activities
Net income	$	2,271	$	3,159
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (recovery) for loan losses		—		(20)
Depreciation expense		815		722
Other accretion, net		(300)		(810)
Deferred income taxes		(267)		210
Gain on lease abandonment		—		(117)
Net gain on disposition of premises and equipment		(396)		(15)
Amortization of core deposit intangibles		146		169
Amortization of ESOP		308		325
Net gain on sale of securities		—		(62)
Unrealized loss on equity securities		654		96
Earnings on bank-owned life insurance		(823)		(775)
Stock based compensation expense		1,411		—
Other, net		(535)		683
Net cash provided by operating activities		3,284		3,565
Cash flows from investing activities
Securities available for sale:
Purchases		(4,778)		(68,068)
Maturities, calls and principal paydowns		8,675		9,635
Proceeds from sale of securities		—		5,008
Securities held to maturity:
Purchases		(5,023)		(106,967)
Maturities, calls and principal paydowns		5,756		2,723
Equity securities:
Purchases		—		(2,500)
Net (increase) decrease in loans receivable		(8,898)		4,971
Interest bearing time deposits:
Maturities and principal paydowns		—		750
Purchase of bank-owned life insurance		(299)		(2,000)
Regulatory stock purchases		(3,147)		(1)
Regulatory stock redemptions		4,285		992
Purchases of premises and equipment, net		(333)		(649)
Proceeds from the sale of premises and equipment		2,270		20
Net cash used in investing activities		(1,492)		(156,086)
Cash flows from financing activities
Net increase in deposits		26,237		68,622
Net repayment of borrowed funds		(27,000)		(21,000)
Repurchase of common stock		(15,735)		(293)
Decrease in advances from borrowers for taxes and insurance		(366)		(568)
Cash dividends		(1,221)		(4,716)
Net cash (used in) provided by financing activities		(18,085)		42,045
Net decrease in cash and cash equivalents		(16,293)		(110,476)
Cash and cash equivalents - beginning		36,170		168,722
Cash and cash equivalents - ending	$	19,877	$	58,246
Supplementary cash flows information
Interest paid	$	4,665	$	2,359
Income tax payments (refunds)		258		(666)
Transfers from loans to other real estate owned		141		—
Operating lease right-of-use asset recorded		2,701		5,202
Operating lease liabilities recorded		2,701		5,202
Unsettled purchases of securities available for sale		—		4,972
Premises transferred to held for sale		268		—

See accompanying notes to consolidated financial statements

7

Notes to the Consolidated Financial Statements

Note 1 - Nature of Operations

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

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

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

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, the Bank, as well as the Bank’s wholly owned subsidiary, WPSLA Investment Corporation (“WPSLA”).  WPSLA is a Delaware corporation organized in April 2000 to hold certain investment securities for the Bank. At March 31, 2023, WPSLA held $264.8 million of the Bank’s $274.6 million investment securities portfolio.  All significant intercompany accounts and transactions have been eliminated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis.

Use of Estimates in the Preparation of Financial Statements

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

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

8

Presentation of Cash Flows

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

Revenue Recognition

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

Segment Reporting

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

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will use the Weighted Average Remaining Life (WARM) method and rely on the use of qualitative factors to estimate future credit losses.  The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023 not to exceed $500 thousand of additional loss reserve.

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

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on

9

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

Note 3 - Earnings Per Share

The following table presents a calculation of basic and diluted earnings per share for the three and nine months ended March 31, 2023 and 2022. Earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated ESOP shares and unvested restricted stock shares. There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of $183 thousand and $2.3 million for the three and nine months ended March 31, 2023, respectively, and $824 thousand and $3.2 million for the three and nine months ended March 31, 2022, respectively, were used as the numerators. See Note 11 to these consolidated financial statements for further discussion of stock grants.

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

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(Dollars in thousands, except share and per share amounts)	2023		2022		2023		2022
Basic and diluted earnings per share:
Net income	$	183	$	824	$	2,271	$	3,159
Basic average common shares outstanding		12,643,435		14,318,839		13,024,076		14,310,484
Effect of dilutive securities		74,732		—		45,782		—
Dilutive average shares outstanding		12,718,167		14,318,839		13,069,858		14,310,484
Earnings per share:
Basic	$	0.01	$	0.06	$	0.17	$	0.22
Diluted	$	0.01	$	0.06	$	0.17	$	0.22

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

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

The following tables present the changes in the balances of each component of accumulated other comprehensive loss (“AOCI”) for the three and nine months ended March 31, 2023 and 2022.

(Dollars in thousands)
	Unrealized Losses on Securities
	Available for Sale
Accumulated Other Comprehensive Loss (1)	2023		2022
Balance at June 30,	$	(15,357)	$	(64)
Other comprehensive loss before reclassifications		(7,750)		(550)
Amounts reclassified from accumulated other comprehensive loss		—		(48)
Period change		(7,750)		(598)
Balance at September 30,	$	(23,107)	$	(662)
Other comprehensive income (loss) before reclassifications		798		(447)
Amounts reclassified from accumulated other comprehensive loss		—		—
Period change		798		(447)
Balance at December 31,	$	(22,309)	$	(1,109)
Other comprehensive income (loss) before reclassifications		1,638		(8,076)
Amounts reclassified from accumulated other comprehensive loss		—		—
Period change		1,638		(8,076)
Balance at March 31,	$	(20,671)	$	(9,185)

(1) All amounts are net of tax. Related income tax expense is calculated using an income tax rate approximating 23% and 22% for 2023 and 2022, respectively.

There were no reclassifications out of AOCI during the three months ended March 31, 2023 and 2022. The following table presents reclassifications out of AOCI by component for the nine months ended March 31, 2023 and 2022:

(Dollars in thousands)	Amounts Reclassified from Accumulated
	Other Comprehensive Loss (1)
Details about Accumulated Other Comprehensive	Nine Months Ended March 31,				Affected Line Item in the
Loss Components	2023		2022		Consolidated Statements of Income
Securities available for sale:
Net securities gains reclassified into net income	$	—	$	62	Net gain on sale of securities
Related income tax expense		—		(14)	Income tax (benefit) expense
	$	—	$	48

(1) Amounts in parenthesis indicate debits.

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Note 5 – Investment Securities

Debt Securities

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

	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available For Sale:
Mortgage-backed securities	$	126,698	$	96	$	(16,231)	$	110,563
U.S. agency collateralized mortgage obligations		10,254		—		(1,594)		8,660
U.S. government agency securities		4,203		102		(87)		4,218
Municipal bonds		20,101		—		(4,925)		15,176
Corporate bonds		37,200		—		(4,206)		32,994
Total Available For Sale	$	198,456	$	198	$	(27,043)	$	171,611
Held To Maturity:
Mortgage-backed securities	$	96,375	$	—	$	(16,549)	$	79,826
U.S. government agency securities		4,975		—		(65)		4,910
Municipal bonds		60		—		—		60
Total Held To Maturity	$	101,410	$	—	$	(16,614)	$	84,796

	June 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available For Sale:
Mortgage-backed securities	$	130,146	$	85	$	(12,725)	$	117,506
U.S. agency collateralized mortgage obligations		11,001		—		(1,292)		9,709
U.S. government agency securities		5,082		11		(55)		5,038
Municipal bonds		20,160		—		(4,518)		15,642
Corporate bonds		36,300		16		(1,466)		34,850
Total Available For Sale	$	202,689	$	112	$	(20,056)	$	182,745
Held To Maturity:
Mortgage-backed securities	$	102,135	$	—	$	(13,814)	$	88,321
Total Held To Maturity	$	102,135	$	—	$	(13,814)	$	88,321

The Company did not sell any investment securities during the three and nine months ended March 31, 2023.  The Company recognized $62 thousand of gross gains on the sale of $5.0 million of investment securities during the nine months ended March 31, 2022.  The Company did not sell any investment securities during the three months ended March 31, 2022.

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

	March 31, 2023
	Available For Sale				Held To Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	—	$	—	$	546	$	546
Due after one year through five years		31		30		4,489		4,424
Due after five years through ten years		41,251		36,452		—		—
Due after ten years		157,174		135,129		96,375		79,826
	$	198,456	$	171,611	$	101,410	$	84,796

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The following tables provide information on the gross unrealized losses and fair market value of the Company's investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and June 30, 2022:

	March 31, 2023
	Less than 12 Months				12 Months or More				Total		Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Available For Sale:
Mortgage-backed securities	$	26,083	$	(1,412)	$	80,738	$	(14,819)	$	106,821	$	(16,231)
U.S. agency collateralized mortgage obligations		—		—		8,660		(1,594)		8,660		(1,594)
U.S. government agency securities		—		—		1,086		(87)		1,086		(87)
Municipal bonds		—		—		15,176		(4,925)		15,176		(4,925)
Corporate bonds		15,161		(989)		17,833		(3,217)		32,994		(4,206)
		41,244		(2,401)		123,493		(24,642)		164,737		(27,043)
Held To Maturity:
Mortgage-backed securities		—		—		79,826		(16,549)		79,826		(16,549)
U.S. government agency securities		4,910		(65)		—		—		4,910		(65)
		4,910		(65)		79,826		(16,549)		84,736		(16,614)
Total Temporarily Impaired Securities	$	46,154	$	(2,466)	$	203,319	$	(41,191)	$	249,473	$	(43,657)

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

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

The unrealized loss on securities is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at March 31, 2023 and June 30, 2022. There were 126 investment securities that were temporarily impaired at March 31, 2023 and 115 investment securities that were temporarily impaired at June 30, 2022.

At March 31, 2023 and June 30, 2022, $2.5 million and $2.0 million, respectively, in the carrying value of investment securities were pledged to secure municipal deposits.

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Equity Securities

The Company had one equity security with a fair value of $1.6 million as of March 31, 2023 and $2.3 million as of June 30, 2022.  During the three and nine months ended March 31, 2023, the Company recorded $435 thousand and $654 thousand of unrealized losses, respectively, and during the three and nine months ended March 31, 2022, the Company recorded $236 thousand and $96 thousand, respectively, of unrealized losses, which were recorded in Unrealized loss on equity securities in the Consolidated Statements of Income.

Note 6 – Loans

Major classifications of loans at March 31, 2023 and June 30, 2022 are summarized as follows:

	March 31,				June 30,
	2023				2022
(Dollars in thousands)	Amount		Percent		Amount		Percent
Residential real estate:
1 - 4 family	$	139,106	28.45	%	$	147,061	30.66	%
Home equity and HELOCs		32,567	6.67			32,529	6.78
Construction -residential		10,138	2.07			14,834	3.09
Commercial real estate:
1 - 4 family investor		98,115	20.07			96,850	20.19
Multi-family (five or more)		15,613	3.19			13,069	2.72
Commercial non-residential		164,592	33.67			158,727	33.10
Construction and land		13,898	2.84			4,951	1.03
Commercial		12,692	2.60			9,409	1.96
Consumer loans		2,144	0.44			2,239	0.47
Total Loans		488,865	100.00	%		479,669	100.00	%
Unearned loan origination fees		(670)				(749)
Allowance for loan losses		(3,337)				(3,409)
Net Loans	$	484,858			$	475,511

Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Financial Condition. The total amount of loans serviced for the benefit of others was approximately $12.7 million and $14.4 million at March 31, 2023 and June 30, 2022, respectively. The Bank retained the related servicing rights for the loans that were sold and receives a 25 basis point servicing fee from the purchasers of the loans.  Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.

Commercial non-residential loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. As of March 31, 2023 and June 30, 2022, the Company had one shared national credit loan commitment for $12.5 million with $3.3 million and $9.2 million outstanding, respectively, that is a purchased participation classified as pass rated and all payments are current and the loan is performing in accordance with its contractual terms.  The Company’s accounting policies for shared national credits, including our charge off and reserve policy, are consistent with the significant accounting policies disclosed in our financial statements for the Company’s total loan portfolio.  Shared national credits are subject to the same underwriting guidelines as loans originated by the Bank and are subject to annual reviews where the risk rating of the loan is evaluated.  Additionally, the Bank obtains quarterly financial information and performs a financial analysis on a regular basis to ensure that the borrower can comply with the financial terms of the loan.  The information used in the analysis is provided by the borrower through the agent bank.

Allowance for Loan Losses. The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.

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

14

value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. The Company considers the allowance for loan losses of $3.3 million and $3.4 million adequate to cover loan losses inherent in the loan portfolio at both March 31, 2023 and June 30, 2022, respectively.

The following table presents by portfolio segment, the changes in the allowance for loan losses for the three months ended March 31, 2023 and 2022:

March 31, 2023	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	514	$	109	$	272	$	508	$	92	$	1,409	$	249	$	123	$	58	$	3,334
Charge-offs		—		—		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—		3		3
Provision (recovery)		(22)		8		(44)		(22)		(1)		67		31		(15)		(2)		—
Ending Balance	$	492	$	117	$	228	$	486	$	91	$	1,476	$	280	$	108	$	59	$	3,337

March 31, 2022	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	605	$	109	$	326	$	742	$	116	$	1,320	$	265	$	31	$	50	$	3,564
Charge-offs		(73)		—		—		—		—		—		—		—		(23)		(96)
Recoveries		—		—		—		—		—		—		—		—		1		1
Provision (recovery)		50		19		23		(113)		6		58		(79)		24		22		10
Ending Balance	$	582	$	128	$	349	$	629	$	122	$	1,378	$	186	$	55	$	50	$	3,479

The following table presents by portfolio segment, the changes in the allowance for loan losses for the nine months ended March 31, 2023 and 2022:

March 31, 2023	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Charge-offs		(79)		—		—		—		—		—		—		—		—		(79)
Recoveries		—		—		—		—		—		—		—		—		7		7
Provision (recovery)		65		4		(158)		(41)		(19)		25		114		8		2		—
Ending Balance	$	492	$	117	$	228	$	486	$	91	$	1,476	$	280	$	108	$	59	$	3,337

March 31, 2022	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1-4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Total
Allowance for credit losses:
Beginning balance	$	709	$	133	$	487	$	843	$	159	$	854	$	362	$	51	$	15	$	3,613
Charge-offs		(88)		—		—		(55)		—		—		—		—		(23)		(166)
Recoveries		—		8		—		42		—		—		—		—		2		52
Provision (recovery)		(39)		(13)		(138)		(201)		(37)		524		(176)		4		56		(20)
Ending Balance	$	582	$	128	$	349	$	629	$	122	$	1,378	$	186	$	55	$	50	$	3,479

During the three and nine months ended March 31, 2023, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment.  Specifically, we experienced significant growth in our commercial construction and land portfolio during the nine months ended March 31, 2023 and a corresponding increase in the provision for loan losses for this portfolio.  The overall decrease in the allowance during the nine months ended March 31, 2023 can be primarily attributed to improved asset quality metrics with continued low levels of net charge-offs and a decrease in non-performing assets.

During the three and nine months ended March 31, 2022, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment.  Specifically, we experienced significant growth in our commercial non-residential real estate portfolio and a corresponding increase in the provision for loan losses for this portfolio.  The overall decrease in the allowance and provision credit during the nine months ended March 31, 2022 can be primarily attributed to an improving economic outlook.

15

The following tables present the allowance for loan losses and recorded investment by loan portfolio classification as March 31, 2023 and June 30, 2022:

March 31, 2023	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and land		Commercial		Consumer		Total
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		492		117		228		486		91		1,476		280		108		59		3,337
Total allowance	$	492	$	117	$	228	$	486	$	91	$	1,476	$	280	$	108	$	59	$	3,337
Loans receivable ending balance:
Individually evaluated for impairment	$	1,622	$	468	$	—	$	88	$	267	$	1,048	$	—	$	—	$	—	$	3,493
Collectively evaluated for impairment		79,264		18,554		10,138		85,252		15,096		147,374		13,898		12,149		639		382,364
Acquired non-credit impaired loans (1)		58,145		13,545		—		12,775		250		16,170		—		543		1,505		102,933
Acquired credit impaired loans (2)		75		—		—		—		—		—		—		—		—		75
Total portfolio	$	139,106	$	32,567	$	10,138	$	98,115	$	15,613	$	164,592	$	13,898	$	12,692	$	2,144	$	488,865

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

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

June 30, 2022	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and land		Commercial		Consumer		Total
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		506		113		386		527		110		1,451		166		100		50		3,409
Total allowance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Loans receivable ending balance:
Individually evaluated for impairment	$	3,336	$	275	$	—	$	173	$	291	$	1,213	$	—	$	—	$	—	$	5,288
Collectively evaluated for impairment		78,478		15,679		14,834		81,834		12,525		138,812		4,951		8,626		531		356,270
Acquired non-credit impaired loans (1)		65,114		16,552		—		14,843		253		18,702		—		783		1,708		117,955
Acquired credit impaired loans (2)		133		23		—		—		—		—		—		—		—		156
Total portfolio	$	147,061	$	32,529	$	14,834	$	96,850	$	13,069	$	158,727	$	4,951	$	9,409	$	2,239	$	479,669

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

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

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of March 31, 2023 and June 30, 2022. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

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

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The following tables set forth the amounts of the portfolio of classified asset categories for the commercial loan portfolios at March 31, 2023 and June 30, 2022:

March 31, 2023
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	96,733	$	15,346	$	163,544	$	13,898	$	12,692	$	302,213
Special Mention		1,294		—		267		—		—		1,561
Substandard		88		267		781		—		—		1,136
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	98,115	$	15,613	$	164,592	$	13,898	$	12,692	$	304,910

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

The following tables set forth the amounts of the portfolio that are not rated by class of loans for the residential and consumer loan portfolios at March 31, 2023 and June 30, 2022:

Residential Real Estate and Consumer Loans
Credit Risk Internally Assigned
(Dollars in thousands)
March 31, 2023
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	136,206	$	32,477	$	10,138	$	2,029	$	180,850
Non-performing		2,900		90		—		115		3,105
	$	139,106	$	32,567	$	10,138	$	2,144	$	183,955

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

17

Loan Delinquencies and Non-accrual Loans

Following are tables which include an aging analysis of the recorded investment of past due loans as of March 31, 2023 and June 30, 2022.

	Aged Analysis of Past Due and Non-accrual Loans
	As of March 31, 2023
															Recorded		Recorded
									Acquired						Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past		Credit				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Impaired		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	61	$	506	$	1,694	$	2,261	$	75	$	136,770	$	139,106	$	—	$	2,900
Home equity and HELOCs		—		—		—		—		—		32,567		32,567		—		90
Construction - residential		—		—		—		—		—		10,138		10,138		—		—
Commercial real estate:
1 - 4 family investor		—		—		—		—		—		98,115		98,115		—		88
Multi-family		—		267		—		267		—		15,346		15,613		—		267
Commercial non-residential		564		—		781		1,345		—		163,247		164,592		—		781
Construction and land		—		—		—		—		—		13,898		13,898		—		—
Commercial		—		—		—		—		—		12,692		12,692		—		—
Consumer		20		—		32		52		—		2,092		2,144		—		115
Total	$	645	$	773	$	2,507	$	3,925	$	75	$	484,865	$	488,865	$	—	$	4,241

	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2022
															Recorded		Recorded
									Acquired						Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past		Credit				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Impaired		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	1,528	$	622	$	2,392	$	4,542	$	133	$	142,386	$	147,061	$	—	$	4,781
Home equity and HELOCs		19		—		183		202		23		32,304		32,529		—		341
Construction - residential		—		—		—		—		—		14,834		14,834		—		—
Commercial real estate:
1 - 4 family investor		—		—		—		—		—		96,850		96,850		—		106
Multi-family		—		—		—		—		—		13,069		13,069		—		291
Commercial non-residential		275		494		418		1,187		—		157,540		158,727		—		875
Construction and land		—		—		—		—		—		4,951		4,951		—		—
Commercial		—		—		—		—		—		9,409		9,409		—		—
Consumer		27		—		—		27		—		2,212		2,239		—		117
Total	$	1,849	$	1,116	$	2,993	$	5,958	$	156	$	473,555	$	479,669	$	—	$	6,511

Interest income on non-accrual loans that would have been recorded if these loans had performed in accordance with their terms was approximately $63 thousand, $188 thousand, $76 thousand, and $229 thousand during the three and nine months ended March 31, 2023 and 2022, respectively.

Impaired Loans

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

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The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at March 31, 2023 and June 30, 2022.

March 31, 2023
			Unpaid
	Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1 - 4 family residential real estate	$	1,622	$	1,776	$	—
Home equity and HELOCs		468		468		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		88		104		—
Multi-family		267		293		—
Commercial non-residential		1,048		1,052		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—
With an allowance recorded:
1 - 4 family residential real estate	$	—	$	—	$	—
Home equity and HELOCs		—		—		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		—		—		—
Multi-family		—		—		—
Commercial non-residential		—		—		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total:
1 - 4 family residential real estate	$	1,622	$	1,776	$	—
Home equity and HELOCs		468		468		—
Construction residential		—		—		—
1 - 4 family investor commercial real estate		88		104		—
Multi-family		267		293		—
Commercial non-residential		1,048		1,052		—
Construction and land		—		—		—
Commercial		—		—		—
Consumer		—		—		—

The impaired loans table above includes accruing troubled debt restructurings (“TDRs”) in the amount of $735 thousand that are performing in accordance with their modified terms. The Company recognized $11 thousand and $30 thousand of interest income on accruing TDRs during the three and nine months ended March 31, 2023, respectively. The table above does not include $75 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

19

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

The impaired loans table above includes accruing TDRs in the amount of $593 thousand that are performing in accordance with their modified terms. The Company recognized $10 thousand and $33 thousand of interest income on accruing TDRs during the three and nine months ended March 31, 2022, respectively.  The table above does not include $156 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

20

The following tables include the average recorded investment balances for impaired loans and the interest income recognized for the three and nine months ended March 31, 2023 and 2022.

March 31, 2023	Three Months Ended				Nine Months Ended
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
1-4 family residential real estate	$	1,617	$	—	$	1,955	$	—
Home equity and HELOCs		381		6		371		14
Construction residential		—		—		—		—
1-4 family investor commercial real estate		94		—		106		1
Multi-family		273		—		282		—
Commercial non-residential		1,056		5		1,120		17
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
1-4 family residential real estate	$	—	$	—	$	—	$	—
Home equity and HELOCs		—		—		—		—
Construction residential		—		—		—		—
1-4 family investor commercial real estate
Multi-family		—		—		—		—
Commercial non-residential		—		—		—		—
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—
Total:
1-4 family residential real estate	$	1,617	$	—	$	1,955	$	—
Home equity and HELOCs		381		6		371		14
Construction residential		—		—		—		—
1-4 family investor commercial real estate		94		—		106		1
Multi-family		273		—		282		—
Commercial non-residential		1,056		5		1,120		17
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—

21

March 31, 2022	Three Months Ended				Nine Months Ended
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
1-4 family residential real estate	$	3,042	$	—	$	2,301	$	—
Home equity and HELOCs		445		4		491		13
Construction residential		—		—		—		—
1-4 family investor commercial real estate		207		1		340		3
Multi-family		474		—		394		—
Commercial non-residential		1,249		6		1,023		17
Construction and land		—		—		—		—
Commercial		5		—		2		—
Consumer		—		—		—		—
With an allowance recorded:
1-4 family residential real estate	$	—	$	—	$	—	$	—
Home equity and HELOCs		—		—		—		—
Construction residential		—		—		—		—
1-4 family investor commercial real estate
Multi-family		—		—		—		—
Commercial non-residential		—		—		—		—
Construction and land		—		—		—		—
Commercial		—		—		—		—
Consumer		—		—		—		—
Total:
1-4 family residential real estate	$	3,042	$	—	$	2,301	$	—
Home equity and HELOCs		445		4		491		13
Construction residential		—		—		—		—
1-4 family investor commercial real estate		207		1		340		3
Multi-family		474		—		394		—
Commercial non-residential		1,249		6		1,023		17
Construction and land		—		—		—		—
Commercial		5		—		2		—
Consumer		—		—		—		—

Generally, the Bank will charge-off the collateral or discounted cash flow deficiency on all impaired loans. Interest income that would have been recorded for the three and nine months ended March 31, 2023, had impaired loans been current according to their original terms, amounted to $31 thousand and $107 thousand, respectively. Interest income that would have been recorded for the three and nine months ended March 31, 2022, had impaired loans been current according to their original terms, amounted to $55 thousand and $128 thousand, respectively.

Troubled Debt Restructurings

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

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

22

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

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

During the three and nine months ended March 31, 2023 and 2022, there were no loans modified that were identified as a TDR. The Company did not experience any re-defaulted TDRs subsequent to the loan being modified during the three and nine months ended March 31, 2023 and 2022.

Note 7 – Premises and Equipment

The components of premises and equipment are as follows as of March 31, 2023 and June 30, 2022:

	March 31,		June 30,
(Dollars in thousands)	2023		2022
Land	$	2,056	$	2,156
Office buildings and improvements		11,003		11,769
Furniture, fixtures and equipment		2,331		2,540
Automobiles		58		58
		15,448		16,523
Accumulated depreciation		(4,502)		(4,827)
	$	10,946	$	11,696

Depreciation expense amounted to $232 thousand and $815 thousand for the three and nine months ended March 31, 2023, respectively, and $252 thousand and $722 thousand for the three and nine months ended March 31, 2022, respectively.  During the three months ended September 30, 2022, the Company made a strategic decision to close the Bank’s branch office located in Collingswood, New Jersey and to consolidate the deposits from this branch office into the Bank’s Audubon, New Jersey branch office after assessing the branch’s profitability and its close geographic proximity to the Audubon, New Jersey branch location.  The branch office located in Collingswood, New Jersey was closed effective December 31, 2022.

Note 8 – Goodwill and Intangibles

The goodwill and intangible assets arising from acquisitions is accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles — Goodwill and Other. The Company recorded goodwill of $4.9 million and core deposit intangibles of $1.4 million in connection with the 2018 acquisition of Audubon Savings Bank. The Company also recorded core deposit intangibles totaling $65 thousand and $197 thousand in connection with the 2020 acquisitions of Fidelity Savings and Loan Association of Bucks County (“Fidelity”) and Washington Savings Bank (“Washington”), respectively. As of March 31, 2023 and June 30, 2022, the other intangibles consisted of $566 thousand and $712 thousand, respectively, of core deposit intangibles, which are amortized over an estimated useful life of ten years.

The Company performs its annual impairment evaluation on June 30 or more frequently if events and circumstances indicate that the fair value of the banking unit is less than its carrying value. During the year ended June 30, 2022, management included considerations of the current economic environment caused by COVID-19 in its evaluation, and determined that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed at June 30, 2022. During the nine months ended March 31, 2023, management considered the current economic environment in its evaluation, and determined based on the totality of its qualitative assessment that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the nine months ended March 31, 2023.

23

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

			Core Deposit
(Dollars in thousands)	Goodwill		Intangibles
Balance, June 30, 2022	$	4,858	$	712
Adjustments:
Additions		—		—
Amortization		—		(48)
Balance, September 30, 2022	$	4,858	$	664
Adjustments:
Additions		—		—
Amortization		—		(49)
Balance, December 31, 2022	$	4,858	$	615
Adjustments:
Additions		—		—
Amortization		—		(49)
Balance, March 31, 2023	$	4,858	$	566

			Core Deposit
(Dollars in thousands)	Goodwill		Intangibles
Balance, June 30, 2021	$	4,858	$	937
Adjustments:
Additions		—		—
Amortization		—		(57)
Balance, September 30, 2021	$	4,858	$	880
Adjustments:
Additions		—		—
Amortization		—		(56)
Balance, December 31, 2021	$	4,858	$	824
Adjustments:
Additions		—		—
Amortization		—		(56)
Balance, March 31, 2022	$	4,858	$	768

Aggregate amortization expense was $49 thousand and $146 thousand for the three and nine months ended March 31, 2023, respectively, and $56 thousand and $169 thousand for the three and nine months ended March 31, 2022, respectively.

Note 9 – Deposits

Deposits consist of the following major classifications as of March 31, 2023 and June 30, 2022:

(Dollars in thousands)	March 31, 2023		June 30, 2022
Non-interest bearing checking	$	57,352	$	75,758
Interest bearing checking		119,486		122,675
Money market accounts		209,450		171,316
Savings and club accounts		94,181		105,507
Certificates of deposit		152,206		131,361
	$	632,675	$	606,617

24

Note 10 – Borrowings

The Bank is a member of the Federal Home Loan Bank (“FHLB”) system, which consists of 11 regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. The Bank had a maximum borrowing capacity with the FHLB of Pittsburgh of approximately $297.1 million and $292.7 million at March 31, 2023 and June 30, 2022, respectively. FHLB advances are secured by qualifying assets of the Bank, which include Federal Home Loan Bank stock and loans. The Bank had $430.6 million and $423.1 million of loans pledged as collateral as of March 31, 2023 and June 30, 2022, respectively. The Bank, as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh. The Bank was in compliance with the requirements for the FHLB of Pittsburgh with an investment of $2.4 million and $3.5 million at March 31, 2023 and June 30, 2022, respectively.

Advances from the FHLB of Pittsburgh consisted of $38.0 million and $65.0 million of fixed rate short-term borrowings as of March 31, 2023 and June 30, 2022, respectively.

As of March 31, 2023, the Bank had $11.3 million of loans pledged as collateral to secure a $4.6 million overnight line of credit with the Federal Reserve Bank.  The Bank had no loans pledged to the Federal Reserve Bank as of June 30, 2022.  There was no outstanding balance for the overnight line of credit with the Federal Reserve Bank as of March 31, 2023 and June 30, 2022. In addition, as of March 31, 2023 and June 30, 2022, we had $10.0 million of available credit from Atlantic Community Bankers Bank to purchase federal funds.

Note 11 – Stock Based Compensation

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

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

During the year ended June 30, 2022, the Company granted 492,960 shares of restricted stock, with a weighted average grant date fair value of $11.67 per share. To fund the grant of restricted common stock, the Company issued shares from authorized but unissued shares. Restricted shares granted under the Plan vest in equal installments over a five year period. Compensation expense related to the restricted shares is recognized ratably over the vesting period in an amount which totals the market price of the Company’s common stock at the grant date. The expense recognized for the restricted shares for the three and nine months ended March 31, 2023 was $275 thousand and $833 thousand, respectively. The expected future compensation expense related to the non-vested restricted shares outstanding at March 31, 2023 is $4.6 million over a weighted average period of 4.13 years.

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

	Number of		Average
Summary of Non-vested Restricted Stock Award Activity	Shares		Grant Price
Non-vested Restricted Stock Awards outstanding July 1, 2022		492,960	$	11.67
Issued		—		—
Vested		—		—
Forfeited		(13,904)		11.82
Non-vested Restricted Stock Awards outstanding March 31, 2023		479,056	$	11.66

During the year ended June 30, 2022, the Company granted 1,232,400 stock options, with a weighted average grant date fair value of $3.24 per share. Stock options granted under the Plan vest in equal installments over a five year period. Stock options were granted at a weighted average exercise price of $11.67, which represents the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration period of 10 years. The fair value of stock options granted was valued using the Black-Scholes option pricing model using the following weighted average assumptions: expected life of 6.5 years, risk-free rate of return of 2.92%, volatility of 24.85%, and a dividend yield of 1.03%. Compensation expense recognized for the stock options for the three and

25

nine months ended March 31, 2023 was $191 thousand and $578 thousand, respectively. The expected future compensation expense related to the non-vested stock options outstanding at March 31, 2023 is $3.2 million over a weighted average period of 4.13 years.

The following is a summary of the Company's stock option activity during the nine months ended March 31, 2023:

	Number of		Exercise Price
Summary of Stock Option Activity	Options		per Shares
Beginning balance July 1, 2022		1,232,400	$	11.67
Granted		—		—
Exercised		—		—
Forfeited		(34,760)		11.82
Expired		—		—
Ending balance March 31, 2023		1,197,640	$	11.66

The weighted average remaining contractual term was approximately 9.13 years and 9.88 years as of March 31, 2023 and June 30, 2022, respectively.  There was no aggregate intrinsic value of outstanding options as of March 31, 2023. The aggregate intrinsic value was $80 thousand for outstanding options as of June 30, 2022.

Note 12 – Commitments and Contingencies

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

A summary of the Company's loan commitments is as follows as of March 31, 2023 and June 30, 2022:

	March 31,		June 30,
(Dollars in thousands)	2023		2022
Commitments to extend credit	$	12,125	$	16,894
Unfunded commitments under lines of credit		73,038		71,999
Standby letters of credit		30		30

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

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

Note 13 - Regulatory Capital Requirements

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

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

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As of March 31, 2023 and June 30, 2022, the most recent notification from the regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

Federal banking agencies have established an optional “community bank leverage ratio” of between 8% to 10% tangible equity to average total consolidated assets for qualifying institutions with assets of less than $10 billion of assets. Institutions with capital meeting the specified requirement and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk-based requirements and would be considered well-capitalized under the prompt corrective action framework.  In April 2020, the Federal banking regulatory agencies modified the original Community Bank Leverage Ratio (CBLR) framework and provided that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater and that meets the other existing qualifying criteria may elect to use the community bank leverage ratio framework. The modified rule also states that the community bank leverage ratio requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.

					CBLR Framework
As of March 31, 2023	Actual				Requirement
(Dollars in thousands except for ratios)	Amount		Ratio		Amount		Ratio
William Penn Bank:
Tier 1 leverage	$	161,100	18.46	%	$	78,554		9.00	%

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

Note 14 – Fair Value of Financial Instruments

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

Fair value is based on quoted market prices, when available. If listed prices or quotes are not available, fair value is based on fair value models that use market participant or independently sourced market data which include: discount rate, interest rate yield curves, credit risk, default rates and expected cash flow assumptions. In addition, valuation adjustments may be made in the determination of fair value. These fair value adjustments may include amounts to reflect counter party credit quality, creditworthiness, liquidity, and other unobservable inputs that are applied consistently over time. These adjustments are estimated and, therefore, subject to significant management judgment, and at times, may be necessary to mitigate the possibility of error or revision in the model-based estimate of the fair value provided by the model. The methods described above may produce fair value calculations that may not be indicative of the net realizable value. While the Company believes its valuation methods are consistent with other financial institutions, the use of different methods or assumptions to determine fair values could result in different estimates of fair value. FASB ASC Topic 820 for Fair Value Measurements and Disclosures describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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The following table presents the assets required to be measured and reported on a recurring basis on the Company’s Consolidated Statements of Financial Condition at their fair value as of March 31, 2023 and June 30, 2022, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	March 31, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
Investments available for sale:
Mortgage-backed securities	$	—	$	110,563	$	—	$	110,563
U.S. agency collateralized mortgage obligations		—		8,660		—		8,660
U.S. government agency securities		—		4,218		—		4,218
Municipal bonds		—		15,176		—		15,176
Corporate bonds		—		32,994		—		32,994
Equity securities		1,604		—		—		1,604
Total Assets	$	1,604	$	171,611	$	—	$	173,215

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

Assets and Liabilities Measured on a Non-Recurring Basis

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

Impaired loans are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating impaired loan collateral is based on Level 3 inputs utilizing outside appraisals adjusted by management for sales costs and other assumptions regarding market conditions to arrive at fair value. As of March 31, 2023 and June 30, 2022, the Company charged-off the collateral deficiency on impaired loans. As a result, there were no specific reserves on impaired loans as of March 31, 2023 and June 30, 2022.

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

As of March 31, 2023, there were no assets required to be measured and reported at fair value on a non-recurring basis.  As of June 30, 2022, assets required to be measured and reported at fair value on a non-recurring basis are summarized as follows:

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

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

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

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

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

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

Cash and Due from Banks and Interest-Bearing Time Deposits

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

Securities Available for Sale and Held to Maturity

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

Equity Securities

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

Loans Receivable

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms are adjusted for liquidity and credit risk.

Regulatory Stock

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

Bank-Owned Life Insurance

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

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Accrued Interest Receivable and Payable

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

Deposits

Fair values for demand deposits, NOW accounts, savings and club accounts, and money market deposits are, by definition, equal to the amount payable on demand at the reporting date as these products have no stated maturity. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on similar instruments with similar maturities.

Advances from Federal Home Loan Bank

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

Off-Balance Sheet Financial Instruments

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

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

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

	Fair Value Measurements at March 31, 2023
					Quoted Prices		Significant		Significant
					in Active Markets		Other Observable		Unobservable
	Carrying		Fair		for Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets:
Loans receivable, net	$	484,858	$	446,332	$	—	$	—	$	446,332
Securities held to maturity		101,410		84,796		—		84,796		—
Financial instruments - liabilities:
Certificates of deposit		152,206		149,533		—		—		149,533
Advances from Federal Home Loan Bank		38,000		38,000		—		—		38,000
Off-balance sheet financial instruments		—		—		—		—		—

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	Fair Value Measurements at June 30, 2022
					Quoted Prices		Significant		Significant
					in Active Markets		Other Observable		Unobservable
	Carrying		Fair		for Identical Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets:
Loans receivable, net	$	475,511	$	468,485	$	—	$	—	$	468,485
Securities held to maturity		102,135		88,321		—		88,321		—
Financial instruments - liabilities:
Certificates of deposit		131,361		130,974		—		—		130,974
Advances from Federal Home Loan Bank		65,000		65,000		—		—		65,000
Off-balance sheet financial instruments		—		—		—		—		—

Note 15 – Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee include real estate property for branches and office space with terms extending through 2043. Topic 842 requires the Company to recognize a right-of-use (“ROU”) asset and corresponding lease liability for each of its operating leases. The operating lease ROU asset was $9.1 million and $6.8 million as of March 31, 2023 and June 30, 2022, respectively, and the operating lease liability was $9.3 million and $6.9 million as of March 31, 2023 and June 30, 2022, respectively. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months of less), or equipment leases (deemed immaterial) on the Consolidated Statements of Financial Condition.

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

During the nine months ended March 31, 2023, the Company’s lease agreements for the Levittown and Morrisville branch office locations commenced, which resulted in an increase of the ROU asset and lease liability of $1.7 million and $970 thousand, respectively.

	March 31,
	2023
Weighted average remaining lease term
Operating leases	16.5	years
Weighted average discount rate
Operating leases	2.88	%

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

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The Company recorded $222 thousand and $575 thousand of net lease costs during the three and nine months ended March 31, 2023, respectively. The Company recorded $45 thousand and $311 thousand of net lease costs during the three and nine months ended March 31, 2022, respectively. Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2023 were as follows:

	March 31,
	2023
	Operating
(in thousands)	Leases
Twelve months ended March 31,
2024	$	831
2025		828
2026		671
2027		632
2028		646
Thereafter		8,200
Total future minimum lease payments	$	11,808
Amounts representing interest		(2,538)
Present value of net future minimum lease payments	$	9,270

Note 16 – Subsequent Events

On April 19, 2023, the Company declared a cash dividend of $0.03 per share, payable on May 11, 2023, to common shareholders of record at the close of business on May 1, 2023.

As of May 3, 2023, the Company had repurchased a total of 2,835,825 shares at a total cost of $32.3 million, or $11.42 per share under the Company’s stock repurchase programs, and had 131,845 shares remaining to repurchase under the previously announced fourth stock repurchase program that was approved on February 17, 2023.  

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

Forward-Looking Statements

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

The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, either nationally or in our market area, that are worse than expected (including higher inflation and its impact on national and local economic conditions); (ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products; (iii) increased competitive pressures among financial services companies; (iv) changes in consumer spending, borrowing and savings habits; (v) changes in the quality and composition of our loan or investment portfolios; (vi) changes in real estate market values in our market area; (vii) decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area; (viii) major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the current coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; (ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; (x) technological changes that may be more difficult or expensive than expected; (xi) success or consummation of new business initiatives may be more difficult or expensive than expected; (xii) our ability to successfully execute our business plan and integrate the business operations of acquired businesses into our business operations (xiii) the inability to successfully deploy the proceeds raised in our recently completed second-step conversion offering; (xiv) adverse changes in the securities markets; (xv) the inability of third party service providers to perform; and (xvi) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

Critical Accounting Policies

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

Allowance for Loan Losses

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

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The allowance for loan losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various segments of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses.

Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for loan losses. Such an adjustment could materially affect net income as a result of the change in provision for loan losses. We also have approximately $4.4 million as of March 31, 2023 in non-performing assets consisting of non-performing loans and one property held in other real estate owned. Most of these assets are collateral dependent loans where we have incurred credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the collectability of these loans and update our appraisals on these loans each year. To the extent the property values continue to decline, there could be additional losses incurred on these non-performing loans which may be material. In recent periods, we experienced strong asset quality metrics including low levels of delinquencies, net charge-offs and non-performing assets. Management considered market conditions in deriving the estimated allowance for loan losses; however, given the continued economic difficulties, the ultimate amount of loss could vary from that estimate.

In June 2016, the FASB issued ASU 2016-13: Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are expected to be effective for us on July 1, 2023. The Company will use the Weighted Average Remaining Life (WARM) method and rely on the use of qualitative factors to estimate future credit losses.  The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023 not to exceed $500 thousand of additional loss reserve.

Goodwill

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

During the three and nine months ended March 31, 2023, management considered the then current economic environment in its evaluation, and determined, based on the totality of its qualitative assessment, that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the three and nine months ended March 31, 2023.

Income Taxes

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

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Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets on our Consolidated Statements of Financial Condition. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the authorities and newly issued or enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. We regularly evaluate our uncertain tax positions and estimate the appropriate level of reserves related to each of these positions.

As of March 31, 2023, we had net deferred tax assets totaling $8.9 million. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Our net deferred tax assets were determined based on the current enacted federal tax rate of 21%. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.

Comparison of Financial Condition at March 31, 2023 and June 30, 2022

Summary.  Total assets decreased $17.6 million, or 2.0%, to $862.4 million at March 31, 2023, from $880.0 million at June 30, 2022, primarily due to $15.7 million of cash used to repurchase shares and a $12.5 million decrease in investments, partially offset by a $9.4 million increase in net loans.

Cash and cash equivalents decreased $16.3 million, or 45.0%, to $19.9 million at March 31, 2023, from $36.2 million at June 30, 2022.  The decrease in cash and cash equivalents was primarily due to the repurchase of 1,356,865 shares at a total cost of $15.7 million.

Investments.  Total investments decreased $12.5 million, or 4.4%, to $274.6 million at March 31, 2023, from $287.1 million at June 30, 2022.  The decrease in investments was primarily due to a $6.9 million increase in the gross unrealized loss on available for sale securities, as well as principal paydowns of the securities included in the available for sale and held to maturity portfolios.  The increase in the gross unrealized loss on available for sale securities is due to current interest rate levels relative to the Company’s cost and not credit quality.  The Company remains focused on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.

Loans.  Net loans increased $9.4 million, or 2.0%, to $484.9 million at March 31, 2023, from $475.5 million at June 30, 2022.  During the nine months ended March 31, 2023, the Company originated $56.1 million of new loans, including $44.9 million of commercial loans. The Company maintains conservative lending practices and is focused on lending to borrowers with high credit quality within its market footprint.

Deposits.  Deposits increased $26.1 million, or 4.3%, to $632.7 million at March 31, 2023, from $606.6 million at June 30, 2022.  The increase in deposits was primarily due to a $38.1 million increase in money market accounts and a $20.8 million increase in time deposit accounts, partially offset by an $18.6 million decrease in non-interest bearing checking accounts and an $11.3 million decrease in savings accounts.  The interest rate environment has created a highly competitive market for deposits.

The Bank has a varied depositor base with over 21,000 accounts with an average depositor account balance of approximately $29,300 as of March 31, 2023.  The estimated amount of uninsured and uncollateralized deposits totaled approximately $109.6 million, or 17.3% of the Company’s total deposits, as of March 31, 2023.

Borrowings.  Borrowings decreased $27.0 million, or 41.5%, to $38.0 million at March 31, 2023, from $65.0 million at June 30, 2022.  During the quarter ended March 31, 2023, the Company used cash from the increase in deposits to pay off a portion of short-term borrowings.

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Stockholders’ Equity.  Stockholders’ equity decreased $18.3 million, or 9.5%, to $174.0 million at March 31, 2023, from $192.3 million at June 30, 2022.  The decrease in stockholders’ equity was primarily due to the repurchase of 1,356,865 shares at a total cost of $15.7 million, or $11.51 per share, during the nine months ended March 31, 2023 under the Company’s previously announced stock repurchase programs, as well as the payment of a $0.03 per share quarterly cash dividend in August 2022, November 2022 and February 2023 totaling $419 thousand, $405 thousand and $397 thousand, respectively, and a $5.3 million increase in the accumulated other comprehensive loss component of equity, related to the unrealized loss on available for sale securities. These decreases to stockholders’ equity were partially offset by $2.3 million of net income during the nine months ended March 31, 2023.

Book value per share measured $12.87 as of March 31, 2023, compared to $12.91 as of June 30, 2022, and tangible book value per share measured $12.47 as of March 31, 2023, compared to $12.54 as of June 30, 2022.  Tangible book value per share is a non-GAAP financial measure that excludes goodwill and other intangible assets. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of tangible book value per share to book value per share.

As previously announced, the Company’s Board of Directors had authorized four stock repurchase programs to acquire up to 2,967,670 shares of the Company’s outstanding shares. As of March 31, 2023, the Company had repurchased a total of 2,123,801 shares under these repurchase programs at a total cost of $24.7 million, or $11.65 per share.  

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Summary

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

	Three Months Ended March 31,
							Change Fiscal 2023/2022
(Dollars in thousands)	2023			2022			$		%
Net interest income	$	5,533		$	5,980		$	(447)		(7.47)	%
Provision for loan losses		—			10			(10)		—
Non-interest income		174			315			(141)		(44.76)
Non-interest expenses		5,569			5,301			268		5.06
Income tax expense		(45)			160			(205)		(128.13)
Net income	$	183		$	824		$	(641)		(77.79)
Return on average assets (annualized)		0.09	%		0.38	%
Core return on average assets(1) (non-GAAP) (annualized)		0.21			0.50
Return on average equity (annualized)		0.42			1.57
Core return on average equity(1) (non-GAAP) (annualized)		1.01			2.03

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

General

The Company recorded net income of $183 thousand, or $0.01 per basic and diluted share, for the three months ended March 31, 2023, compared to net income of $824 thousand, or $0.06 per basic and diluted share, for the three months ended March 31, 2022.  The Company recorded core net income of $443 thousand, or $0.04 per basic and diluted share, for the three months ended March 31, 2023, compared to core net income of $1.1 million, or $0.07 per basic and diluted share, for the three months ended March 31, 2022.  Core net income is a non-GAAP financial measure that excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments.  Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core net income to net income.

Net Interest Income

For the three months ended March 31, 2023, net interest income was $5.5 million, a decrease of $447 thousand, or 7.5%, from the three months ended March 31, 2022.  The decrease in net interest income was primarily due to an increase in interest expense on deposits and borrowings, partially offset by an increase in interest income on loans and investments. The net interest margin measured 2.84% for the three months ended March 31, 2023, compared to 3.06% for the three months ended March 31, 2022.  The decrease in the net interest

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margin during the three months ended March 31, 2023, compared to the same period in 2022 was primarily due to an increase in the average balance of deposits and borrowings and the rise in interest rates that caused an increase in the cost of borrowings and deposits that exceeded the increase in interest income on loans and investments.

Provision for Loan Losses

We did not record a provision for loan losses during the three months ended March 31, 2023 due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets.  We recorded a $10 thousand provision for loan losses during the three months ended March 31, 2022.  Our allowance for loan losses totaled $3.3 million, or 0.68% of total loans, and 0.86% of total loans, excluding acquired loans, as of March 31, 2023, compared to $3.4 million, or 0.71% of total loans, and 0.94% of total loans, excluding acquired loans, as of June 30, 2022. Total loans, excluding acquired loans, is a non-GAAP financial measure that excludes loans acquired in a business combination.  Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans. Based on a review of the loans that were in the loan portfolio at March 31, 2023, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable at such date.

Management uses available information to establish the appropriate level of the allowance for loan losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various bank regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.

Non-Interest Income

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

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Service fees	$	197	$	196
Earnings on bank-owned life insurance		276		259
Net gain on disposition of premises and equipment		97		15
Unrealized loss on equity securities		(435)		(236)
Other		39		81
Total	$	174	$	315

For the three months ended March 31, 2023, non-interest income totaled $174 thousand, a decrease of $141 thousand, or 44.8%, from the three months ended March 31, 2022.  The decrease was primarily due to a $199 thousand increase in the unrealized loss on equity securities, partially offset by a $97 thousand net gain on the sale of premises and equipment associated with the sale of one property with a total carrying value of $268 thousand recorded during the three months ended March 31, 2023.

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Non-Interest Expense

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

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Salaries and employee benefits	$	3,217	$	2,932
Occupancy and equipment		810		836
Data processing		480		451
Professional fees		208		289
Amortization of intangible assets		49		56
Gain on lease abandonment		—		(117)
Prepayment penalties		—		209
Other		805		645
Total	$	5,569	$	5,301

For the three months ended March 31, 2023, non-interest expense totaled $5.6 million, an increase of $268 thousand, or 5.1%, from the three months ended March 31, 2022.  The increase in non-interest expense was primarily due to a $285 thousand increase in salaries and employee benefits due to a $343 thousand increase in employee stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan, partially offset by a reduction in the number of full-time employees consistent with the Company’s expense management initiatives.  The increase in non-interest expense can also be attributed to a $123 thousand increase in director stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan.  These increases to non-interest expense were partially offset by an $81 thousand decrease in professional fees primarily due to a decrease in legal expenses.

Income Taxes

For the three months ended March 31, 2023, the Company recorded an income tax benefit of $45 thousand, reflecting an effective tax rate of (32.6)%, compared to a provision for income taxes of $160 thousand, reflecting an effective tax rate of 16.3%, for the same period in 2022.  The decrease in the provision for income taxes and the effective tax rate during the three months ended March 31, 2023, compared to the same period in 2022, can be attributed to an $846 thousand decrease in income before income taxes.  The Company recorded an income tax benefit during the three months ended March 31, 2023 primarily due to $276 thousand of federal tax-exempt income recorded on bank-owned life insurance.

Results of Operations for the Nine Months Ended March 31, 2023 and 2022

Summary

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

	Nine Months Ended March 31,
							Change 2023/2022
(Dollars in thousands)	2023			2022			$		%
Net interest income	$	17,810		$	16,772		$	1,038		6.19	%
Provision (recovery) for loan losses		—			(20)			20		100.00
Non-interest income		1,358			1,684			(326)		(19.36)
Non-interest expenses		16,792			15,007			1,785		11.89
Income tax expense		105			310			(205)		(66.13)
Net income	$	2,271		$	3,159		$	(888)		(28.11)
Return on average assets (annualized)		0.35	%		0.51	%
Core return on average assets(1) (non-GAAP) (annualized)		0.35			0.48
Return on average equity (annualized)		1.65			1.96
Core return on average equity(1) (non-GAAP) (annualized)		1.64			1.87

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

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General

The Company recorded net income of $2.3 million, or $0.17 per basic and diluted share, for the nine months ended March 31, 2023, compared to net income of $3.2 million, or $0.22 per basic and diluted share, for the nine months ended March 31, 2022.  The Company recorded core net income of $2.3 million, or $0.17 per basic and diluted share, for the nine months ended March 31, 2023, compared to core net income of $3.0 million, or $0.21 per basic diluted share, for the nine months ended March 31, 2022.  Core net income is a non-GAAP financial measure that excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments.  Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core net income to net income.

Net Interest Income

For the nine months ended March 31, 2023, net interest income was $17.8 million, an increase of $1.0 million, or 6.2%, from the nine months ended March 31, 2022.  The increase in net interest income was primarily due to an increase in interest income on loans and investments, partially offset by an increase in interest expense on deposits and borrowings. The net interest margin measured 3.04% for the nine months ended March 31, 2023, compared to 2.96% for the nine months ended March 31, 2022.  The increase in the net interest margin during the nine months ended March 31, 2023, compared to the same period in 2022 was primarily due to an improvement in asset mix during the twelve months ended March 31, 2023, including a $38.4 million decrease in cash and cash equivalents and a $27.7 million increase in net loans.

Provision for Loan Losses

We did not record a provision for loan losses during the nine months ended March 31, 2023 due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets.  The provision for loan losses was a $20 thousand net recovery during the nine months ended March 31, 2022.  The credit to the provision for the nine months ended March 31, 2022 was primarily due to continued stable asset quality metrics, including continued low levels of net charge-offs and non-performing assets. Our allowance for loan losses totaled $3.3 million, or 0.68% of total loans, and 0.86% of total loans, excluding acquired loans, as of March 31, 2023, compared to $3.4 million, or 0.71% of total loans, and 0.94% of total loans, excluding acquired loans, as of June 30, 2022. Total loans, excluding acquired loans, is non-GAAP financial measure that excludes loans acquired in a business combination.  Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans. Based on a review of the loans that were in the loan portfolio at March 31, 2023, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable at such date.

Management uses available information to establish the appropriate level of the allowance for loan losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various bank regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.

Non-Interest Income

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

	Nine Months Ended March 31,
(Dollars in thousands)	2023		2022
Service fees	$	617	$	652
Net gain on sale of securities		—		62
Earnings on bank-owned life insurance		823		775
Net gain on disposition of premises and equipment		396		15
Unrealized loss on equity securities		(654)		(96)
Other		176		276
Total	$	1,358	$	1,684

For the nine months ended March 31, 2023, non-interest income totaled $1.4 million, a decrease of $326 thousand, or 19.4%, from the nine months ended March 31, 2022.  The decrease was primarily due to a $558 thousand increase in the unrealized loss on equity securities and a $62 thousand gain on sale of securities recorded during the three months ended March 31, 2022.  These decreases to

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non-interest income were partially offset by a $396 thousand net gain on the sale of premises and equipment associated with the sale of three properties securities with a total carrying value of $1.9 million recorded during the nine months ended March 31, 2023.

Non-Interest Expense

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

	Nine Months Ended March 31,
(Dollars in thousands)	2023		2022
Salaries and employee benefits	$	9,680	$	8,440
Occupancy and equipment		2,505		2,237
Data processing		1,383		1,291
Professional fees		729		778
Amortization of intangible assets		146		169
Gain on lease abandonment		—		(117)
Prepayment penalties		—		273
Other		2,349		1,936
Total	$	16,792	$	15,007

For the nine months ended March 31, 2023, non-interest expense totaled $16.8 million, an increase of $1.8 million, or 11.9%, from the nine months ended March 31, 2022.  The increase in non-interest expense was primarily due to a $1.2 million increase in salaries and employee benefits due to annual merit increases and a $1.0 million increase in employee stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan.  The increase in non-interest expense can also be attributed to a $268 thousand increase in occupancy and equipment expense associated with new branch locations in Doylestown, Pennsylvania and Hamilton Township, New Jersey that were opened during the three months ended December 31, 2021.  In addition, the increase in non-interest expense can be attributed to a $367 thousand increase in director stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan.

Income Taxes

For the nine months ended March 31, 2023, the Company recorded a provision for income taxes of $105 thousand, reflecting an effective tax rate of 4.4%, compared to a provision for income taxes of $310 thousand, reflecting an effective tax rate of 8.9%, for the same period in 2022.  The provision for income taxes and the effective tax rate for the nine months ended March 31, 2023 and 2022 were impacted by a $211 thousand and a $288 thousand income tax benefit related to refunds received associated with the carryback of net operating losses under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act during the nine months ended March 31, 2023 and 2022, respectively.

Asset Quality

During the nine months ended March 31, 2023, we received payments from borrowers for full satisfaction of three non-performing loans with a total carrying value of $2.6 million.  The payoff of these non-performing loans contributed to a significant reduction in our non-performing assets and the Company’s ratio of non-performing assets to total assets decreased to 0.51% as of March 31, 2023 from 0.74% as of June 30, 2022.

Total nonperforming loans consisted of 31 loans to 28 unrelated borrowers at March 31, 2023, as compared to 37 loans to 36 unrelated borrowers at June 30, 2022.  Interest income related to non-performing loans would have been approximately $188 thousand during the nine months ended March 31, 2023 if these loans had performed in accordance with their terms during the period rather than having been on non-accrual.

There are circumstances when foreclosure and liquidations are the remedy pursued. However, from time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms (i.e., interest rate, structure, repayment term, etc.) based on the economic or legal reasons related to the borrower’s financial difficulties.  We had no new TDRs during the nine months ended March 31, 2023.

Impaired loans at March 31, 2023 included $735 thousand of performing loans whose terms have been modified in TDRs, compared to $593 thousand at June 30, 2022. The amount of TDR loans included in impaired loans decreased as a result principal payments and pay-offs. These restructured loans are being monitored by management and are performing in accordance with their restructured terms. At March 31, 2023, none of our thirty-one substandard loans with an aggregate balance of $4.2 million were considered TDRs.

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Average Balances and Yields

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

	Three Months Ended March 31,
	2023							2022
	Average		Interest and			Yield/		Average		Interest and			Yield/
(Dollars in thousands)	Balance		Dividends			Cost		Balance		Dividends			Cost
Interest-earning assets:
Loans(1)	$	487,676	$	5,725		4.70	%	$	459,414	$	5,212		4.54	%
Investment securities(2)		277,161		1,714		2.47			267,221		1,329		1.99
Other interest-earning assets		13,281		169		5.09			53,886		43		0.32
Total interest-earning assets		778,118		7,608		3.91			780,521		6,584		3.37
Non-interest-earning assets		81,895							79,280
Total assets	$	860,013						$	859,801
Interest-bearing liabilities:
Interest-bearing checking accounts	$	125,529		81		0.26	%	$	125,217		12		0.04	%
Money market deposit accounts		204,172		1,004		1.97			180,933		164		0.36
Savings and club accounts		95,672		16		0.07			106,144		13		0.05
Certificates of deposit		143,697		522		1.45			138,827		235		0.68
Total interest-bearing deposits		569,070		1,623		1.14			551,121		424		0.31
FHLB advances and other borrowings		37,244		452		4.85			25,556		180		2.82
Total interest-bearing liabilities		606,314		2,075		1.37			576,677		604		0.42
Non-interest-bearing liabilities:
Non-interest-bearing deposits		58,238							57,550
Other non-interest-bearing liabilities		19,438							15,316
Total liabilities		683,990							649,543
Total stockholders' equity		176,023							210,258
Total liabilities and equity	$	860,013						$	859,801
Net interest income			$	5,533						$	5,980
Interest rate spread(3)				2.54	%						2.95	%
Net interest-earning assets(4)	$	171,804						$	203,844
Net interest margin(5)				2.84	%						3.06	%
Ratio of interest-earning assets to interest-bearing liabilities		128.34%							135.35%
(1) Includes nonaccrual loan balances and interest recognized on such loans.
(2) Includes securities available for sale, securities held to maturity, and equity securities.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.

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	Nine Months Ended March 31,
	2023							2022
	Average		Interest and			Yield/		Average		Interest and			Yield/
(Dollars in thousands)	Balance		Dividends			Cost		Balance		Dividends			Cost
Interest-earning assets:
Loans(1)	$	483,225	$	16,688		4.60	%	$	458,664	$	15,535		4.52	%
Investment securities(2)		280,557		5,078		2.41			202,383		3,026		1.99
Other interest-earning assets		16,196		485		3.99			94,919		189		0.27
Total interest-earning assets		779,978		22,251		3.80			755,966		18,750		3.31
Non-interest-earning assets		82,753							75,375
Total assets	$	862,731						$	831,341
Interest-bearing liabilities:
Interest-bearing checking accounts	$	129,858		244		0.25	%	$	111,697		45		0.05	%
Money market deposit accounts		185,356		1,768		1.27			161,634		407		0.34
Savings and club accounts		99,922		53		0.07			103,271		54		0.07
Certificates of deposit		136,492		1,041		1.02			147,330		823		0.74
Total interest-bearing deposits		551,628		3,106		0.75			523,932		1,329		0.34
FHLB advances and other borrowings		49,394		1,335		3.60			31,718		649		2.73
Total interest-bearing liabilities		601,022		4,441		0.99			555,650		1,978		0.47
Non-interest-bearing liabilities:
Non-interest-bearing deposits		62,252							53,925
Other non-interest-bearing liabilities		15,566							6,877
Total liabilities		678,840							616,452
Total stockholders' equity		183,891							214,889
Total liabilities and equity	$	862,731						$	831,341
Net interest income			$	17,810						$	16,772
Interest rate spread(3)				2.81	%						2.84	%
Net interest-earning assets(4)	$	178,956						$	200,316
Net interest margin(5)				3.04	%						2.96	%
Ratio of interest-earning assets to interest-bearing liabilities		129.78%							136.05%

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

⁽²⁾ Includes securities available for sale, securities held to maturity, and equity securities.

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

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

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

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Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by current rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and volume.

	Three Months Ended 3/31/2023						Nine Months Ended 3/31/2023
	Compared to						Compared to
	Three Months Ended 3/31/2022						Nine Months Ended 3/31/2022
	Increase (Decrease)						Increase (Decrease)
	Due to						Due to
(Dollars in thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest income:
Loans	$	192	$	321	$	513	$	537	$	616	$	1,153
Investment securities		336		49		385		776		1,276		2,052
Other interest-earning assets		(241)		367		126		(378)		674		296
Total interest-earning assets		287		737		1,024		935		2,566		3,501
Interest expense:
Interest-bearing checking accounts		—		69		69		11		188		199
Money market deposit accounts		148		692		840		93		1,268		1,361
Savings and club accounts		(7)		10		3		(2)		1		(1)
Certificates of deposit		59		228		287		(98)		316		218
Total interest-bearing deposits		200		999		1,199		4		1,773		1,777
FHLB advances and other borrowings		190		82		272		308		378		686
Total interest-bearing liabilities		390		1,081		1,471		312		2,151		2,463
Net change in net interest income	$	(103)	$	(344)	$	(447)	$	623	$	415	$	1,038

Non-GAAP Financial Information

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

Tangible Book Value per Share.  Tangible book value per share represents our total equity less goodwill and other intangible assets divided by total common shares outstanding. Management believes tangible book value per share helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of tangible book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure, for the periods presented.

(Dollars in thousands, except share and per share data)
	As of March 31,		As of June 30,
Calculation of Tangible Book Value per Share:	2023		2022
Total stockholders' equity	$	174,046	$	192,326
Less: goodwill and other intangible assets		5,424		5,570
Total tangible equity (non-GAAP)		168,622		186,756
Total common shares outstanding		13,525,821		14,896,590
Book value per share (GAAP)	$	12.87	$	12.91
Tangible book value per share (non-GAAP)	$	12.47	$	12.54

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Ratio of the Allowance for Loan Losses to Total Loans, Excluding Acquired Loans.  The ratio of the allowance for loan losses to total loans, excluding acquired loans, represents our allowance for loan losses divided by our gross loans receivable less loans acquired in a business combination.  We believe the ratio of the allowance for loan losses to total loans, excluding acquired loans, helps management and investors better understand and assess changes from period to period in the allowance for loan losses exclusive of acquired loans. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans, the most directly comparable GAAP financial measure.

(Dollars in thousands)
	As of March 31,			As of June 30,
Calculation of Allowance for Loan Losses to Total Loans, Excluding Acquired Loans:	2023			2022
Gross loans receivable	$	488,865		$	479,669
Less: Loans acquired in a business combination		103,008			118,111
Gross loans receivable, excluding acquired loans (non-GAAP)		385,857			361,558
Allowance for loan losses	$	3,337		$	3,409
Allowance for loan losses to total loans (GAAP)		0.68	%		0.71	%
Allowance for loan losses to total loans, excluding acquired loans (non-GAAP)		0.86	%		0.94	%

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Core net income, core earnings per share, core return on average assets, and core return on average equity.  These non-GAAP financial measures exclude certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments.  We believe these ratios help management and investors better understand the earnings attributable to our core business. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

	For the Three Months Ended				For the Nine Months Ended
	March 31,		March 31,		March 31,		March 31,
	2023		2022		2023		2022
Calculation of core net income:
Net income (GAAP)	$	183	$	824	$	2,271	$	3,159
Less pre-tax adjustments:
Net gain on sale of securities		-		-		-		(62)
Net gain on disposition of premises and equipment		(97)		(15)		(396)		(15)
Unrealized loss on equity securities		435		236		654		96
Gain on lease abandonment		-		(117)		-		(117)
Prepayment penalties		-		209		-		273
Tax impact of pre-tax adjustments		(78)		(70)		(59)		(39)
Income tax benefit adjustment		-		-		(211)		(288)
Core net income (non-GAAP)	$	443	$	1,067	$	2,259	$	3,007
Calculation of core earnings per share:
Earnings per share (GAAP)	$	0.01	$	0.06	$	0.17	$	0.22
Less pre-tax adjustments:
Net gain on sale of securities		-		-		-		-
Net gain on disposition of premises and equipment		-		-		(0.03)		-
Unrealized loss on equity securities		0.03		0.01		0.05		0.01
Gain on lease abandonment		-		(0.01)		-		(0.01)
Prepayment penalties		-		0.01		-		0.02
Tax impact of pre-tax adjustments		-		-		-		(0.01)
Income tax benefit adjustment		-		-		(0.02)		(0.02)
Core earnings per share (non-GAAP)	$	0.04	$	0.07	$	0.17	$	0.21
Calculation of core return on average assets:
Return on average assets (GAAP)		0.09%		0.38%		0.35%		0.51%
Less pre-tax adjustments:
Net gain on sale of securities		-		-		-		(0.01)
Net gain on disposition of premises and equipment		(0.04)		(0.01)		(0.06)		-
Unrealized loss on equity securities		0.20		0.11		0.10		0.02
Gain on lease abandonment		-		(0.05)		-		(0.02)
Prepayment penalties		-		0.10		-		0.04
Tax impact of pre-tax adjustments		(0.04)		(0.03)		(0.01)		(0.01)
Income tax benefit adjustment		-		-		(0.03)		(0.05)
Core return on average assets (non-GAAP)		0.21%		0.50%		0.35%		0.48%
Average assets	$	860,013	$	859,801	$	862,731	$	831,341
Calculation of core return on average equity:
Return on average equity (GAAP)		0.42%		1.57%		1.65%		1.96%
Less pre-tax adjustments:
Net gain on sale of securities		-		-		-		(0.04)
Net gain on disposition of premises and equipment		(0.22)		(0.03)		(0.29)		(0.01)
Unrealized loss on equity securities		0.99		0.44		0.47		0.06
Gain on lease abandonment		-		(0.22)		-		(0.07)
Prepayment penalties		-		0.40		-		0.17
Tax impact of pre-tax adjustments		(0.18)		(0.13)		(0.04)		(0.02)
Income tax benefit adjustment		-		-		(0.15)		(0.18)
Core return on average equity (non-GAAP)		1.01%		2.03%		1.64%		1.87%
Average equity	$	176,023	$	210,258	$	183,891	$	214,889

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Liquidity and Capital Resources

We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. The Bank’s liquidity ratio was 41.1% as of March 31, 2023 compared to 44.1% as of June 30, 2022. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our liquidity ratio is calculated as the sum of total cash and cash equivalents and unencumbered investments securities divided by the sum of total deposits and advances from the FHLB of Pittsburgh. The Bank maintains a liquidity ratio policy that requires this metric to be above 10.0% to provide for the effective management of extension risk and other interest rate risks.

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

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh to provide advances and with the Federal Reserve Bank to provide an overnight line of credit. We also have available credit from the Atlantic Community Bankers Bank to purchase federal funds.  As a member of the FHLB of Pittsburgh, we are required to own capital stock in the FHLB of Pittsburgh and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. We had an available borrowing limit of $297.1 million with the FHLB of Pittsburgh at March 31, 2023. There were $38.0 million of FHLB of Pittsburgh advances outstanding at March 31, 2023.

At March 31, 2023, we had outstanding commitments to originate loans of $12.1 million, unfunded commitments under lines of credit of $73.0 million and $30 thousand of standby letters of credit. At March 31, 2023, certificates of deposit scheduled to mature in less than one year totaled $112.3 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as FHLB of Pittsburgh advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal.

Inflation

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

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

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

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

	Twelve Month
	Net Interest		Net Portfolio
	Income		Value
	Percent		Estimated		Percent
Change in Interest Rates (Basis Points)	of Change		NPV		of Change
+200	(11.20)	%	$	178,709	(8.20)	%
+100	(5.53)			186,418	(4.24)
0	—			194,675	—
-100	3.40			200,754	3.12
-200	5.92			204,702	5.15

As of March 31, 2023, based on the scenarios above, net interest income would decrease by approximately 5.53% to 11.20%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would increase by approximately 3.40% to 5.92% in a declining interest rate environment.

Economic value at risk would be negatively impacted by a rise in interest rates and would be positively impacted by a decline in interest rates.  We have established an interest rate floor of zero percent for measuring interest rate risk. The difference between the two results reflects the relatively long terms of a portion of our assets which is captured by the economic value at risk but has less impact on the one-year net interest income sensitivity.

ITEM 4. CONTROLS AND PROCEDURES

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

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

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

For information regarding the Company’s risk factors, refer to the “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on September 8, 2022 (the “Form 10-K”).  Except as set forth below, as of March 31, 2023, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

Financial challenges at other banking institutions could lead to disruptive and destabilizing deposit outflows, as well as an increase in FDIC deposit premiums, which could negatively impact our profitability and results of operations.

In March 2023, Silicon Valley Bank and Signature Bank experienced large deposit outflows, coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receivership. Additionally in May 2023, First Republic Bank experienced similar circumstances which resulted in the institution being placed into FDIC receivership.  The placement of these institutions into receivership has resulted in market disruption and increased concerns that diminished depositor confidence across the banking industry in general could lead to deposit outflows that could destabilize other institutions.  At March 31, 2023, we had $259.1 million in available liquidity with the FHLB of Pittsburgh and $19.9 million in cash and cash equivalents, which was sufficient to cover 254.6% of our uninsured and uncollateralized deposits.  Notwithstanding our significant liquidity, large deposit outflows could materially and adversely affect our financial condition and results of operations. Following the placement of Silicon Valley Bank and Signature Bank into FDIC receivership, the federal banking regulators also issued a joint statement providing that the losses to support the uninsured deposits of those banks would be recovered via a special assessment on banks. The announced special assessment, as well as any future additional special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums, to the extent that they result in increased deposit insurance costs, would reduce our profitability.

Insufficient liquidity could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.

We require sufficient liquidity to fund loan commitments, satisfy depositor withdrawal requests, make payments on our debt obligations as they become due, and meet other cash commitments. Liquidity risk is the potential that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences. Our sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities), increases in deposits, advances, as needed, from the FHLB of Pittsburgh, and other borrowings. Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically or the financial services industry or economy in general. Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair our ability to fund operations and meet our obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations. 

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

On March 11, 2022, the Company issued a press release announcing its first stock repurchase program, which became effective on March 25, 2022 and authorized the purchase of up to 758,528 shares of the Company’s outstanding common stock, or approximately 5% of outstanding shares. The Company completed this repurchase program during the quarter ended June 30, 2022.

On June 9, 2022, the Company issued a press release announcing that the Company’s Board of Directors had authorized a second stock repurchase program to acquire up to 771,445 shares, or approximately 5.0%, of the Company’s currently issued and outstanding stock, commencing upon the completion of the Company’s first stock repurchase program.  The Company completed this repurchase program during the quarter ended March 31, 2023.

On August 18, 2022, the Company issued a press release announcing that the Company's Board of Directors has authorized a third stock repurchase program to acquire up to 739,385 shares, or approximately 5.0%, of the Company's currently issued and outstanding common

49

stock, commencing upon the completion of the Company's second stock repurchase program. As of March 31, 2023, there were 145,557 shares remaining to be repurchased under the Company’s third repurchase program.

On February 17, 2023 the Company issued a press release announcing that the Company's Board of Directors has authorized a fourth stock repurchase program to acquire up to 698,312 shares, or approximately 5.0%, of the Company's currently issued and outstanding common stock, commencing upon the completion of the Company's third stock repurchase program. As of March 31, 2023, there were 698,312 shares remaining to be repurchased under the Company’s fourth repurchase program.

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

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

				Total Number of		Maximum Number
				Shares Purchased		of Shares that May
	Total Number			as Part of Publicly		Yet Be Purchased
	of Shares	Average Price		Announced Plans		Under the Plans
Period	Purchased	Paid Per Share		or Programs		or Programs
January 1 - 31, 2023	111,670	$	12.00		111,670	651,393
February 1 - 28, 2023	102,700		11.88		102,700	1,247,005
March 1 - 31, 2023	403,136		11.23		403,136	843,869
Total	617,506	$	11.48		617,506

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

See Exhibit Index.

EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Articles of Incorporation of William Penn Bancorporation (Incorporated by reference to Exhibit 3.1 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))
3.2	Bylaws of William Penn Bancorporation (Incorporated by reference to Exhibit 3.2 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of William Penn Bancorporation
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of William Penn Bancorporation
32.1	Certification of Chief Executive Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0	The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

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

	WILLIAM PENN BANCORPORATION
Date: May 4, 2023	By:	/s/ Kenneth J. Stephon
		Kenneth J. Stephon
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)
Date: May 4, 2023	By:	/s/ Jonathan T. Logan
		Jonathan T. Logan
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

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