Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the transition period from to
Commission File No. 001-40255
WILLIAM PENN BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland
85-3898797
(Statement or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
10 Canal Street, Suite 104, Bristol, Pennsylvania
19007
(Address of Principal Executive Offices)
(Zip Code)
(267) 540-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
WMPN
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
☐
Accelerated filer
Non-accelerated filer
☒
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock, as of November 3, 2022: 14,345,730 shares.
TABLE OF CONTENTS
Page
Part I
Financial Information
Item 1.
Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of September 30, 2022 and June 30, 2022
3
Consolidated Statements of Income for the Three Months Ended September 30, 2022 and 2021
4
Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended September 30, 2022 and 2021
5
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2022 and 2021
6
Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2022 and 2021
7
Notes to Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
42
Item 4.
Controls and Procedures
43
Part II
Other Information
Legal Proceedings
44
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
45
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 September 30, 2022 and June 30, 2022 (unaudited)
September 30,
June 30,
2022
ASSETS
Cash and due from banks
$
9,082
8,117
Interest bearing deposits with other banks
10,041
28,053
Total cash and cash equivalents
19,123
36,170
Interest-bearing time deposits
600
Securities available for sale
170,860
182,745
Securities held to maturity, fair value of $84,997 and $88,321, as of September 30, 2022 and June 30, 2022, respectively
104,376
102,135
Equity securities
1,985
2,258
Loans receivable, net of allowance for loan losses of $3,333 and $3,409 as of September 30, 2022 and June 30, 2022, respectively
472,499
475,511
Premises and equipment, net
11,553
11,696
Regulatory stock, at cost
3,379
3,807
Deferred income taxes
9,434
7,459
Bank-owned life insurance
39,443
39,170
Goodwill
4,858
Intangible assets
664
712
Operating lease right-of-use assets
6,716
6,843
Accrued interest receivable and other assets
6,005
5,988
TOTAL ASSETS
851,495
879,952
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
600,174
606,617
Advances from Federal Home Loan Bank
55,000
65,000
Advances from borrowers for taxes and insurance
2,001
3,356
Operating lease liabilities
6,833
6,949
Accrued interest payable and other liabilities
6,293
5,704
TOTAL LIABILITIES
670,301
687,626
Commitments and contingencies (note 12)
—
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued
Common stock, $0.01 par value, 150,000,000 shares authorized; 14,499,238 shares issued and outstanding at September 30, 2022 and 14,896,590 shares issued and outstanding at June 30, 2022
145
149
Additional paid-in capital
155,458
159,546
Unearned common stock held by employee stock ownership plan
(9,497)
(9,599)
Retained earnings
58,195
57,587
Accumulated other comprehensive loss
(23,107)
(15,357)
TOTAL WILLIAM PENN BANCORPORATION STOCKHOLDERS' EQUITY
181,194
192,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 30, 2022 and 2021 (unaudited)
Three Months Ended September 30,
2021
INTEREST INCOME
Loans receivable, including fees
5,297
5,214
Securities
1,657
Other
129
106
Total interest income
7,083
5,984
INTEREST EXPENSE
509
484
Borrowings
333
238
Total interest expense
842
722
Net interest income
6,241
5,262
Provision (recovery) for loan losses
(30)
NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES
5,292
OTHER INCOME
Service fees
211
213
Net gain on sale of securities
62
Earnings on bank-owned life insurance
273
Unrealized (loss) gain on equity securities
(273)
105
Net loss on disposition of premises and equipment
(1)
72
87
Total other income
282
705
OTHER EXPENSES
Salaries and employee benefits
3,241
2,712
Occupancy and equipment
788
675
Data processing
431
421
Professional fees
263
248
Amortization of intangible assets
48
57
Prepayment penalties
64
792
690
Total other expense
5,563
4,867
Income before income taxes
960
1,130
Income tax benefit
(67)
NET INCOME
1,027
1,160
Basic and diluted earnings per share
0.08
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
Net income
Other comprehensive loss:
Changes in net unrealized loss on securities available for sale
(10,066)
(710)
Tax effect
2,316
160
Reclassification adjustment for gain recognized in net income
(62)
14
Other comprehensive loss, net of tax
(7,750)
(598)
Comprehensive (loss) income
(6,723)
562
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
Unearned
Accumulated
Common
Total
Number
Common Stock
Additional
Stock
Retained
Comprehensive
Stockholders'
of Shares, net
Paid-in capital
held by ESOP
Earnings
Loss
Equity
Balance, June 30, 2022
14,896,590
Other comprehensive loss
Restricted stock expense
289
Stock option expense
201
Stock purchased and retired
(397,352)
(4)
(4,578)
(4,582)
ESOP shares committed to be released
102
Regular cash dividend paid ($0.03 per share)
(419)
Balance, September 30, 2022
14,499,238
Balance, June 30, 2021
15,170,566
152
168,349
(10,004)
58,493
(64)
216,926
103
108
Special cash dividend paid ($0.30 per share)
(4,551)
Balance, September 30, 2021
168,354
(9,901)
55,102
(662)
213,045
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense
265
231
Other accretion, net
(133)
(258)
1
Amortization of core deposit intangibles
Amortization of ESOP
Unrealized loss (gain) on equity securities
(105)
(238)
Stock based compensation expense
490
Other, net
799
214
Net cash provided by operating activities
2,599
1,077
Cash flows from investing activities
Securities available for sale:
Purchases
(1,923)
(10,100)
Maturities, calls and principal paydowns
3,637
2,896
Proceeds from sale of securities
5,008
Securities held to maturity:
(4,484)
(38,252)
2,243
122
Equity securities:
(2,500)
Net decrease in loans receivable
3,181
7,369
Interest bearing time deposits:
Maturities and principal paydowns
500
Purchase of bank-owned life insurance
(2,000)
Regulatory stock purchases
(1,487)
Regulatory stock redemptions
1,915
358
Purchases of premises and equipment, net
(122)
(256)
Proceeds from the sale of premises and equipment
123
Net cash provided by (used in) investing activities
3,083
(36,856)
Cash flows from financing activities
Net (decrease) increase in deposits
(6,373)
8,223
Net repayment of short-term borrowed funds
(10,000)
(7,000)
Repurchase of common stock
Decrease in advances from borrowers for taxes and insurance
(1,355)
(1,667)
Cash dividends
Net cash used in financing activities
(22,729)
(4,995)
Net decrease in cash and cash equivalents
(17,047)
(40,774)
Cash and cash equivalents - beginning
168,722
Cash and cash equivalents - ending
127,948
Supplementary cash flows information
Interest paid
877
860
Income tax refunds
(467)
(575)
Operating lease right-of-use asset recorded
2,804
Operating lease liabilities recorded
Unsettled purchases of securities available for sale
2,344
Notes to the Consolidated Financial Statements
Note 1 - Nature of Operations
William Penn Bancorporation (“the Company”) is a Maryland corporation that was incorporated in July 2020 to be the successor to William Penn Bancorp, Inc. (“William Penn Bancorp”) upon completion of the second-step conversion of William Penn Bank (the “Bank”) from the two-tier mutual holding company structure to the stock holding company structure. William Penn, MHC was the former mutual holding company for William Penn Bancorp prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of William Penn, MHC and William Penn Bancorp ceased to exist. The second-step conversion was completed on March 24, 2021, at which time the Company sold, for gross proceeds of $126.4 million, a total of 12,640,035 shares of common stock at $10.00 per share. As part of the second-step conversion, each of the existing 776,647 outstanding shares of William Penn Bancorp common stock owned by persons other than William Penn, MHC was converted into 3.2585 shares of Company common stock. In addition, $5.4 million of cash held by William Penn, MHC was transferred to the Company and recorded as an increase to additional paid-in capital following the completion of the second-step conversion.
In connection with the second-step conversion offering, the William Penn Bank Employee Stock Ownership Plan (“ESOP”) trustees subscribed for, and intended to purchase, on behalf of the ESOP, 8% of the shares of the Company common stock sold in the offering and to fund its stock purchase through a loan from the Company equal to 100% of the aggregate purchase price of the common stock. As previously disclosed, as a result of the second-step conversion offering being oversubscribed in the first tier of subscription priorities, the ESOP trustees were unable to purchase shares of the Company’s common stock in the second-step conversion offering. Subsequent to the completion of the second-step conversion on March 24, 2021, the ESOP trustees purchased 881,130 shares, or $10.1 million, of the Company’s common stock in the open market. Such shares represent 6.97% of the shares of the Company common stock sold in the offering. The ESOP did not purchase any additional shares of Company common stock in connection with the second-step conversion and offering.
The Company owns 100% of the outstanding common stock of the Bank, a Pennsylvania chartered stock savings bank. The Bank offers consumer and commercial banking services to individuals, businesses, and nonprofit organizations throughout the Delaware Valley area through thirteen full-service branch offices in Bucks County and Philadelphia, Pennsylvania, and Burlington, Camden, and Mercer Counties in New Jersey. The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System. The Bank is supervised and regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, the Bank, as well as the Bank’s wholly owned subsidiary, WPSLA Investment Corporation (“WPSLA”). WPSLA is a Delaware corporation organized in April 2000 to hold certain investment securities for the Bank. At September 30, 2022, WPSLA held $267.3 million of the Bank’s $277.2 million investment securities portfolio. All significant intercompany accounts and transactions have been eliminated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis.
Use of Estimates in the Preparation of Financial Statements
These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules of the U.S. Securities and Exchange Commission for Quarterly Reports on Form 10-Q. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The significant estimates include the allowance for loan losses, goodwill, intangible assets, income taxes, postretirement benefits, and the fair value of investment securities. Actual results could differ from those estimates and assumptions.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended September 30, 2022 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.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and interest-bearing demand deposits.
Revenue Recognition
Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments, along with noninterest revenue resulting from investment security and loan gains (losses) and earnings on bank owned life insurances, are not within the scope of ASC 606. The main types of noninterest income within the scope of ASC 606 include service charges on deposit accounts. The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. These fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.
Segment Reporting
The Company acts as an independent community financial services provider and offers traditional banking and related financial services to individual, business, and government customers. Through its branch network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings, and demand deposits; the making of commercial and mortgage loans; and the providing of other financial services. Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Bank. As such, discrete financial information is not available and segment reporting would not be meaningful.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is actively working on preliminary test calculations and data validation, as well as process and procedural documentation. As of September 30, 2022, the Company began performing a parallel run of the new lifetime expected loss model with its current incurred loss model and is currently evaluating the results and assumptions of its new model to estimate lifetime credit losses. The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to
9
sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. This update is not expected to have a significant impact on the Company’s financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinances and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have not yet adopted the amendments in Update 2016-13, which is discussed in greater detail above, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations.
Note 3 - Earnings Per Share
The following table presents a calculation of basic and diluted earnings per share for the three months ended September 30, 2022 and 2021. Earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated ESOP shares and unvested restricted stock shares. There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, the net income of $1.0 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively, were used as the numerators. See Note 11 to these consolidated financial statements for further discussion of stock grants.
The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation.
Basic and diluted earnings per share:
Basic average common shares outstanding
13,435,273
14,301,956
Effect of dilutive securities
17,629
Dilutive average shares outstanding
13,452,902
Earnings per share:
Basic
Diluted
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 months ended September 30, 2022 and 2021.
Unrealized Losses on Securities
Available for Sale
Accumulated Other Comprehensive Loss (1)
Balance at June 30,
Other comprehensive loss before reclassifications
(550)
Amounts reclassified from accumulated other comprehensive loss
(48)
Period change
Balance at September 30,
(1) All amounts are net of tax. Related income tax expense is calculated using an income tax rate approximating 23% and 22% for 2022, and 2021, respectively.
10
The following tables present reclassifications out of AOCI by component for the three months ended September 30, 2022 and 2021:
Amounts Reclassified from Accumulated
Other Comprehensive Loss (1)
Details about Accumulated Other Comprehensive
Affected Line Item in the
Loss Components
Consolidated Statements of Income
Net securities gains reclassified into net income
Related income tax expense
(14)
Note 5 – Investment Securities
Debt Securities
The amortized cost, gross unrealized gains and losses, and fair value of investments in debt securities are as follows:
September 30, 2022
Gross
Amortized
Unrealized
Fair
Cost
Gains
Losses
Value
Available For Sale:
Mortgage-backed securities
129,145
(19,734)
109,414
U.S. agency collateralized mortgage obligations
10,660
(1,714)
8,946
U.S. government agency securities
4,624
25
(86)
4,563
Municipal bonds
20,141
(5,699)
14,442
Corporate bonds
36,300
(2,805)
33,495
Total Available For Sale
200,870
28
(30,038)
Held To Maturity:
99,891
(19,306)
80,585
4,485
(73)
4,412
Total Held To Maturity
(19,379)
84,997
June 30, 2022
130,146
85
(12,725)
117,506
11,001
(1,292)
9,709
5,082
11
(55)
5,038
20,160
(4,518)
15,642
16
(1,466)
34,850
202,689
112
(20,056)
(13,814)
88,321
The Company did not sell any investment securities during the three months ended September 30, 2022. The Company recognized $62 thousand of gross gains on the sale of $5.0 million of investment securities during the three months ended September 30, 2021.
The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Maturities for mortgage-backed securities are dependent upon the rate environment and prepayments of the underlying loans. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without penalties.
Available For Sale
Held To Maturity
Due in one year or less
Due after one year through five years
39
38
Due after five years through ten years
40,488
36,980
Due after ten years
160,343
133,842
The following tables provide information on the gross unrealized losses and fair market value of the Company's investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and June 30, 2022:
Less than 12 Months
12 Months or More
73,334
(11,368)
34,153
(8,366)
107,487
1,334
(282)
7,612
(1,432)
61
(3)
1,224
(83)
1,285
393
(119)
14,049
(5,580)
28,460
(2,590)
1,785
(215)
30,245
103,582
(14,362)
58,823
(15,676)
162,405
54,170
(12,738)
26,415
(6,568)
58,582
(12,811)
Total Temporarily Impaired Securities
162,164
(27,173)
85,238
(22,244)
247,402
(49,417)
93,726
(10,351)
13,750
(2,374)
107,476
2,968
(488)
6,741
(804)
1,556
(52)
1,617
7,415
(1,979)
8,227
(2,539)
25,584
129,754
(14,287)
30,274
(5,769)
160,028
218,075
(28,101)
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
12
securities are at risk for OTTI. To determine which individual securities are at risk for OTTI and should be quantitatively evaluated utilizing a detailed analysis, management uses indicators which consider various characteristics of each security including, but not limited to, the following: the credit rating; the duration and level of the unrealized loss; prepayment assumptions; and certain other collateral-related characteristics such as delinquency rates, the security’s performance, and the severity of expected collateral losses.
The unrealized loss on securities is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at September 30, 2022 and June 30, 2022. There were 122 investment securities that were temporarily impaired at September 30, 2022 and 115 investment securities that were temporarily impaired at June 30, 2022.
At September 30, 2022 and June 30, 2022, $1.8 million and $2.0 million, respectively, of investment securities were pledged to secure municipal deposits.
Equity Securities
The Company had one equity security with a fair value of $2.0 million as of September 30, 2022 and $2.3 million as of June 30, 2022. During the three months ended September 30, 2022 and 2021, the Company recorded $273 thousand of unrealized losses and $105 thousand of unrealized gains, respectively, which were recorded in Unrealized (loss) gain on equity securities in the Consolidated Statements of Income.
Note 6 – Loans
Major classifications of loans at September 30, 2022 and June 30, 2022 are summarized as follows:
Amount
Percent
Residential real estate:
1 - 4 family
144,290
30.29
%
147,061
30.66
Home equity and HELOCs
32,235
6.76
32,529
6.78
Construction -residential
11,630
2.44
14,834
3.09
Commercial real estate:
1 - 4 family investor
94,794
19.89
96,850
20.19
Multi-family (five or more)
14,922
3.13
13,069
2.72
Commercial non-residential
157,606
33.08
158,727
33.10
Construction and land
7,953
1.67
4,951
1.03
Commercial
10,932
2.29
9,409
1.96
Consumer loans
2,154
0.45
2,239
0.47
Total Loans
476,516
100.00
479,669
Unearned loan origination fees
(684)
(749)
Allowance for loan losses
(3,333)
(3,409)
Net Loans
Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Financial Condition. The total amount of loans serviced for the benefit of others was approximately $13.5 million and $14.4 million at September 30, 2022 and June 30, 2022, respectively. The Bank retained the related servicing rights for the loans that were sold and receives a 25 basis point servicing fee from the purchasers of the loans. Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.
Commercial non-residential loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. As of September 30, 2022 and June 30, 2022, the Company had one shared national credit loan commitment for $12.5 million with $8.3 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
13
policies disclosed in our financial statements for the Company’s total loan portfolio. Shared national credits are subject to the same underwriting guidelines as loans originated by the Bank and are subject to annual reviews where the risk rating of the loan is evaluated. Additionally, the Bank obtains quarterly financial information and performs a financial analysis on a regular basis to ensure that the borrower can comply with the financial terms of the loan. The information used in the analysis is provided by the borrower through the agent bank.
Allowance for Loan Losses. The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.
The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. The Company considers the allowance for loan losses of $3.3 million and $3.4 million adequate to cover loan losses inherent in the loan portfolio at both September 30, 2022 and June 30, 2022, respectively.
The following table presents by portfolio segment, the changes in the allowance for loan losses for the three months ended September 30, 2022 and 2021:
Home Equity
Construction-
Multi-family
Construction
(Dollar amounts in thousands)
and HELOCs
residential
investor
(five or more)
non-residential
and Land
Consumer
Allowance for credit losses:
Beginning balance
506
113
386
527
110
1,451
166
100
50
3,409
Charge-offs
(79)
Recoveries
Provision (recovery)
66
(85)
(32)
(20)
58
Ending Balance
493
116
301
495
1,431
224
111
3,333
September 30, 2021
1-4 family
709
133
487
843
159
854
362
51
15
3,613
(51)
(17)
(101)
33
(11)
114
(2)
658
876
148
968
368
49
3,591
During the three months ended September 30, 2022, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. Specifically, we experienced significant growth in our commercial construction and land portfolio and a corresponding increase in the provision for loan losses for this portfolio. The overall decrease in the allowance during the three months ended September 30, 2022 can be primarily attributed to an improving asset quality and continued low levels of net charge-offs and non-performing assets.
During the three months ended September 30, 2021, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. The overall decrease in the allowance and provision credit during the three months ended September 30, 2021 can be primarily attributed to an improving economic outlook combined with continued stable asset quality metrics.
The following tables present the allowance for loan losses and recorded investment by loan portfolio classification as September 30, 2022 and June 30, 2022:
and land
Allowance ending balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance
Loans receivable ending balance:
1,605
343
99
291
1,474
3,812
80,250
15,810
80,666
14,378
138,332
10,311
521
359,851
Acquired non-credit impaired loans (1)
62,302
16,059
14,029
253
17,800
621
1,633
112,697
Acquired credit impaired loans (2)
23
156
Total portfolio
3,336
275
173
1,213
5,288
78,478
15,679
81,834
12,525
138,812
8,626
531
356,270
65,114
16,552
14,843
18,702
783
1,708
117,955
Credit Quality Information
The following tables represent credit exposures by internally assigned grades as of September 30, 2022 and June 30, 2022. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.
The Company’s internally assigned grades are as follows:
Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.
Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.
The following tables set forth the amounts of the portfolio of classified asset categories for the commercial loan portfolios at September 30, 2022 and June 30, 2022:
Commercial Real Estate
Non-residential
Pass
93,322
14,631
156,132
282,970
Special Mention
1,373
1,662
Substandard
1,185
1,575
Doubtful
286,207
95,271
12,778
157,514
279,923
1,473
300
1,773
913
1,310
283,006
The following tables set forth the amounts of the portfolio that are not rated by class of loans for the residential and consumer loan portfolios at September 30, 2022 and June 30, 2022:
Residential Real Estate and Consumer Loans
Credit Risk Internally Assigned
Residential Real Estate
Home equity &
HELOCs
Performing
141,372
32,046
2,038
187,086
Non-performing
2,918
189
3,223
190,309
142,280
32,188
2,122
191,424
4,781
341
117
5,239
196,663
Loans Acquired with Deteriorated Credit Quality
The outstanding principal and related carrying amount of loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, as of September 30, 2022 and June 30, 2022, are as follows:
Outstanding principal balance
229
Carrying amount
The accretable discount on loans acquired with deteriorated credit quality was fully accreted as of September 30, 2022 and June 30, 2022.
Loan Delinquencies and Non-accrual Loans
Following are tables which include an aging analysis of the recorded investment of past due loans as of September 30, 2022 and June 30, 2022.
Aged Analysis of Past Due and Non-accrual Loans
As of September 30, 2022
Recorded
Acquired
Investment
30 - 59 Days
60 - 89 Days
90 Days
Total Past
Credit
>90 Days and
Loans on
Past Due
Or Greater
Due
Impaired
Current
Receivable
Accruing
Non-Accrual
387
1,564
2,911
141,246
32,174
Construction - residential
156,421
32
2,112
1,261
2,819
4,467
471,893
4,798
As of June 30, 2022
1,528
622
2,392
4,542
142,386
19
183
202
32,304
494
418
1,187
157,540
875
27
2,212
1,849
1,116
2,993
5,958
473,555
6,511
Interest income on non-accrual loans that would have been recorded if these loans had performed in accordance with their terms was approximately $75 thousand and $65 thousand during the three months ended September 30, 2022 and 2021, respectively.
Impaired Loans
Management considers commercial loans and commercial real estate loans which are 90 days or more past due to be impaired. Larger commercial loans and commercial real estate loans which are 60 days or more past due are selected for impairment testing in accordance with GAAP. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses.
17
The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at September 30, 2022 and June 30, 2022.
Unpaid
Principal
Related
Balance
Allowance
With no related allowance recorded:
1 - 4 family residential real estate
1,719
344
Construction residential
1 - 4 family investor commercial real estate
308
1,527
With an allowance recorded:
Total:
The impaired loans table above includes accruing troubled debt restructurings (“TDRs”) in the amount of $586 thousand that are performing in accordance with their modified terms. The Company recognized $10 thousand of interest income on accruing TDRs during the three months ended September 30, 2022. 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.
18
1-4 Family residential real estate
3,582
277
Construction Residential
1 - 4 Family investor commercial real estate
185
1,265
The impaired loans table above includes accruing TDRs in the amount of $593 thousand that are performing in accordance with their modified terms. The Company recognized $12 thousand of interest income on accruing TDRs during the three months ended September 30, 2021. 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.
The following tables include the average recorded investment balances for impaired loans and the interest income recognized for the three months ended September 30, 2022 and 2021.
Average
Interest
Income
Recognized
1-4 family residential real estate
2,476
385
1-4 family investor commercial real estate
121
1,348
20
1,802
558
461
258
870
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 months ended September 30, 2022 and 2021, had impaired loans been current according to their original terms, amounted to $47 thousand and $34 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:
21
During the three months ended September 30, 2022 and 2021, there were no loans modified that were identified as a TDR. The Company did not experience any re-defaulted TDRs subsequent to the loan being modified during the three months ended September 30, 2022 and 2021.
Note 7 – Premises and Equipment
The components of premises and equipment are as follows as of September 30, 2022 and June 30, 2022:
Land
2,156
Office buildings and improvements
11,391
11,769
Furniture, fixtures and equipment
2,411
2,540
Automobiles
16,016
16,523
Accumulated depreciation
(4,463)
(4,827)
Depreciation expense amounted to $265 thousand for the three months ended September 30, 2022 and $231 thousand for the three months ended September 30, 2021. 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.
Note 8 – Goodwill and Intangibles
The goodwill and intangible assets arising from acquisitions is accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles — Goodwill and Other. The Company recorded goodwill of $4.9 million and core deposit intangibles of $1.4 million in connection with the 2018 acquisition of Audubon Savings Bank. The Company also recorded core deposit intangibles totaling $65 thousand and $197 thousand in connection with the 2020 acquisitions of Fidelity Savings and Loan Association of Bucks County (“Fidelity”) and Washington Savings Bank (“Washington”), respectively. As of September 30, 2022 and June 30, 2022, the other intangibles consisted of $664 thousand and $712 thousand, respectively, of core deposit intangibles, which are amortized over an estimated useful life of ten years.
The Company performs its annual impairment evaluation on June 30 or more frequently if events and circumstances indicate that the fair value of the banking unit is less than its carrying value. During the year ended June 30, 2022, management included considerations of the current economic environment caused by COVID-19 in its evaluation, and determined that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed at June 30, 2022. During the three months ended September 30, 2022, management considered the current economic environment in its evaluation, and determined based on the totality of its qualitative assessment that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the three months ended September 30, 2022.
Goodwill and other intangibles are summarized as follows for the periods presented:
Core Deposit
Intangibles
Adjustments:
Additions
Amortization
22
937
(57)
880
Aggregate amortization expense was $48 thousand and $57 thousand for the three months ended September 30, 2022 and 2021, respectively.
Note 9 – Deposits
Deposits consist of the following major classifications as of September 30, 2022 and June 30, 2022:
Non-interest bearing checking
63,135
75,758
Interest bearing checking
129,955
122,675
Money market accounts
174,283
171,316
Savings and club accounts
103,435
105,507
Certificates of deposit
129,366
131,361
Note 10 – Advances from Federal Home Loan Bank
The Bank is a member of the FHLB system, which consists of 11 regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. The Bank had a maximum borrowing capacity with the FHLB of Pittsburgh of approximately $296.1 million and $292.7 million at September 30, 2022 and June 30, 2022, respectively. FHLB advances are secured by qualifying assets of the Bank, which include Federal Home Loan Bank stock and loans. The Bank had $428.3 million and $423.1 million of loans pledged as collateral as of September 30, 2022 and June 30, 2022, respectively. The Bank, as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh. The Bank was in compliance with the requirements for the FHLB of Pittsburgh with an investment of $3.1 million and $3.5 million at September 30, 2022 and June 30, 2022, respectively.
Advances from the FHLB of Pittsburgh consisted of the following as of September 30, 2022 and June 30, 2022:
FHLB advances:
Convertible
Fixed
Mid-term
Total FHLB advances
Note 11 – Stock Based Compensation
Stock-based compensation is accounted for in accordance with FASB ASC Topic 718 for Compensation — Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period, using the straight-line method. However, consistent with the guidance, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date. As a result, it may be necessary to recognize the expense using a ratable method.
The Company held a special meeting of shareholders on May 10, 2022, at which meeting the shareholders of the Company approved the William Penn Bancorporation 2022 Equity Incentive Plan (the “Plan”). The Plan provides for the issuance of up to 1,769,604 shares (505,601 restricted stock awards and 1,264,003 stock options) of William Penn Bancorporation 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 stock at the grant date. The expense recognized for the restricted shares for the three months ended September 30, 2022 was $289 thousand. The expected future compensation expense related to the 492,960 non-vested restricted shares outstanding at September 30, 2022 is $5.3 million over a weighted average period of 4.63 years.
The following is a summary of the Company's restricted stock activity during the three months ended September 30, 2022:
Number of
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
Non-vested Restricted Stock Awards outstanding September 30, 2022
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 months ended September 30, 2022 was $201 thousand. The expected future compensation expense related to the 1,232,400 non-vested stock options outstanding at September 30, 2022 is $3.7 million over a weighted average period of 4.63 years.
The following is a summary of the Company's stock option activity during the three months ended September 30, 2022:
Exercise Price
Summary of Stock Option Activity
Options
per Shares
Beginning balance July 1, 2022
1,232,400
Granted
Exercised
Expired
Ending balance September 30, 2022
The weighted average remaining contractual term was approximately 9.63 years and 9.88 years as of September 30, 2022 and June 30, 2022, respectively. There was no aggregate intrinsic value for options outstanding as of September 30, 2022. The aggregate intrinsic value was $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 September 30, 2022 and June 30, 2022:
Commitments to extend credit
19,995
16,894
Unfunded commitments under lines of credit
72,146
71,999
Standby letters of credit
30
24
Commitments to extend credit are agreements to lend to a customer if there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have 90-day fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies, but primarily includes residential and commercial real estate.
Periodically, there have been other various claims and lawsuits against the Bank, such as claims to enforce liens, condemnation proceedings on properties in which it holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, results of operations or cash flows.
Note 13 - Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (described below) of tangible and core capital to total adjusted assets and of total capital to risk-weighted assets.
As of September 30, 2022 and June 30, 2022, the most recent notification from the regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.
Federal banking agencies have established an optional “community bank leverage ratio” of between 8% to 10% tangible equity to average total consolidated assets for qualifying institutions with assets of less than $10 billion of assets. Institutions with capital meeting the specified requirement and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk-based requirements and would be considered well-capitalized under the prompt corrective action framework. In April 2020, the Federal banking regulatory agencies modified the original Community Bank Leverage Ratio (CBLR) framework and provided that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater and that meets the other existing qualifying criteria may elect to use the community bank leverage ratio framework. The modified rule also states that the community bank leverage ratio requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.
The Bank has elected to adopt the optional community bank leverage ratio framework. Management believes, as of September 30, 2022 and June 30, 2022, that the Bank meets all capital adequacy requirements to which it is subject. The leverage ratios of the Bank at September 30, 2022 and June 30, 2022 are as follows:
CBLR Framework
Actual
Requirement
(Dollars in thousands except for ratios)
Ratio
William Penn Bank:
Tier 1 leverage
158,915
18.25
78,380
9.00
157,519
18.28
77,547
Note 14 – Fair Value of Financial Instruments
The Company follows authoritative guidance under FASB ASC Topic 820 for Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The definition of fair value under ASC 820 is the exchange price. The guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
Fair value is based on quoted market prices, when available. If listed prices or quotes are not available, fair value is based on fair value models that use market participant or independently sourced market data which include: discount rate, interest rate yield curves, credit risk, default rates and expected cash flow assumptions. In addition, valuation adjustments may be made in the determination of fair value. These fair value adjustments may include amounts to reflect counter party credit quality, creditworthiness, liquidity, and other unobservable inputs that are applied consistently over time. These adjustments are estimated and, therefore, subject to significant management judgment, and at times, may be necessary to mitigate the possibility of error or revision in the model-based estimate of the fair value provided by the model. The methods described above may produce fair value calculations that may not be indicative of the net realizable value. While the Company believes its valuation methods are consistent with other financial institutions, the use of different methods or assumptions to determine fair values could result in different estimates of fair value. FASB ASC Topic 820 for Fair Value Measurements and Disclosures describes three levels of inputs that may be used to measure fair value:
Level 1:
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level 2:
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level 3:
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
The following table presents the assets required to be measured and reported on a recurring basis on the Company’s Consolidated Statements of Financial Condition at their fair value as of September 30, 2022 and June 30, 2022, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Level I
Level II
Level III
Assets:
Investments available for sale:
Total Assets
172,845
26
185,003
Assets and Liabilities Measured on a Non-Recurring Basis
Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets and liabilities to be assessed for impairment or recorded at the lower of cost or fair value.
Impaired loans are generally measured for impairment using the fair value of the collateral supporting the loan. Evaluating impaired loan collateral is based on Level 3 inputs utilizing outside appraisals adjusted by management for sales costs and other assumptions regarding market conditions to arrive at fair value. As of September 30, 2022 and June 30, 2022, the Company charged-off the collateral deficiency on impaired loans. As a result, there were no specific reserves on impaired loans as of September 30, 2022 and June 30, 2022.
Other real estate owned (OREO) is measured at fair value, based on appraisals less cost to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO. There were no OREO properties held by the Company as of September 30, 2022.
As of June 30, 2022, assets required to be measured and reported at fair value on a non-recurring basis are summarized as follows:
Impaired loans
1,690
Premises transferred to held for sale
1,596
3,286
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
Estimate
Techniques
Input
Range
Appraisal of collateral (1)(3)
Appraisal adjustments (2)
0-7
Appraisal of premises (1)(3)
0-1
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.
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.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest receivable and payable approximates fair value.
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.
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 September 30, 2022
Quoted Prices
Significant
in Active Markets
Other Observable
Carrying
for Identical Assets
Inputs
(Level 1)
(Level 2)
(Level 3)
Financial instruments - assets:
Loans receivable, net
444,984
Securities held to maturity
Financial instruments - liabilities:
127,158
Off-balance sheet financial instruments
Fair Value Measurements at June 30, 2022
468,485
130,974
Note 15 – Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee include real estate property for branches and office space with terms extending through 2043. Topic 842 requires the Company to recognize a right-of-use (“ROU”) asset and corresponding lease liability for each of its operating leases. The operating lease ROU asset was $6.7 million and $6.8 million as of September 30, 2022 and June 30, 2022, respectively, and the operating lease liability was $6.8 million and $6.9 million as of September 30, 2022 and June 30, 2022, respectively. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months of less), or equipment leases (deemed immaterial) on the Consolidated Statements of Financial Condition.
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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.
Weighted average remaining lease term
Operating leases
17.5
years
Weighted average discount rate
2.01
17.6
The Company recorded $162 thousand and $114 thousand of net lease costs during the three months ended September 30, 2022 and 2021, respectively. Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2022 were as follows:
Operating
(in thousands)
Leases
Twelve months ended September 30,
2023
609
2024
612
2025
547
2026
390
2027
400
Thereafter
5,675
Total future minimum lease payments
8,233
Amounts representing interest
(1,400)
Present value of net future minimum lease payments
Note 16 – Subsequent Events
On October 19, 2022, the Company declared a cash dividend of $0.03 per share, payable on November 10, 2022, to common shareholders of record at the close of business on October 31, 2022.
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.
The allowance for loan losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various segments of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses.
Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for loan losses. Such an adjustment could materially affect net income as a result of the change in provision for loan losses. We also have approximately $4.8 million as of September 30, 2022 in non-performing assets consisting of non-performing loans. Most of these assets are collateral dependent loans where we have incurred credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the collectability of these loans and update our appraisals on these loans each year. To the extent the property values continue to decline, there could be additional losses incurred on these non-performing loans which may be material. In recent periods, we experienced strong asset quality metrics including low levels of delinquencies, net charge-offs and non-performing assets. Management considered market conditions in deriving the estimated allowance for loan losses; however, given the continued economic difficulties and uncertainties and the COVID-19 pandemic, the ultimate amount of loss could vary from that estimate.
In June 2016, the FASB issued ASU 2016-13: Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are expected to be effective for us on July 1, 2023. The Company is actively working on preliminary test calculations and data validation, as well as process and procedural documentation. As of September 30, 2022, the Company began performing a parallel run of the new expected lifetime loss model with its current incurred loss model and is currently evaluating the results and assumptions of its new model to estimate lifetime credit losses. The Company expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of July 1, 2023, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed, and consideration paid at their estimated fair values as of the acquisition date. The excess of consideration paid (or the fair value of the equity of the acquiree) over the fair value of net assets acquired represents goodwill. Goodwill totaled $4.9 million at September 30, 2022. Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The provisions of Accounting Standards Codification (“ASC”) Topic 350 allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.
During the three months ended September 30, 2022, management considered the then current economic environment caused by the COVID-19 pandemic in its evaluation, and determined, based on the totality of its qualitative assessment, that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment existed during the three months ended September 30, 2022.
Income Taxes
We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the Consolidated Statements of Income. The evaluation pertaining to the tax expense and related tax asset and liability balances involves a high degree of judgment and subjectivity around the ultimate measurement and resolution of these matters.
Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets on our Consolidated Statements of Financial Condition. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the authorities and newly issued or enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. We regularly evaluate our uncertain tax positions and estimate the appropriate level of reserves related to each of these positions.
As of September 30, 2022, we had net deferred tax assets totaling $9.4 million. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Our net deferred tax assets were determined based on the current enacted federal tax rate of 21%. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.
Comparison of Financial Condition at September 30, 2022 and June 30, 2022
Summary. Total assets decreased $28.5 million, or 3.2%, to $851.5 million at September 30, 2022, from $880.0 million at June 30, 2022, primarily due to a $17.1 million decrease in cash and cash equivalents and a $7.8 million increase in the unrealized loss on available for sale securities net of deferred taxes.
Cash and cash equivalents decreased $17.1 million, or 47.1%, to $19.1 million at September 30, 2022, from $36.2 million at June 30, 2022. The decrease in cash and cash equivalents was primarily driven by a $10.0 million decrease in advances from the FHLB of Pittsburgh and a $6.4 million decrease in deposits.
Investments. Total investments decreased $9.9 million, or 3.5%, to $277.2 million at September 30, 2022, from $287.1 million at June 30, 2022. The decrease in investments was primarily due to a $10.1 million increase in the gross unrealized loss on available for sale securities. The increase in the gross unrealized loss on available for sale securities is due to current interest rate levels relative to the Company’s cost and not credit quality. The Company remains focused on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.
Loans. Net loans decreased $3.0 million, or 0.6%, to $472.5 million at September 30, 2022, from $475.5 million at June 30, 2022. The interest rate environment has created a highly competitive market for lending. The Company maintains conservative lending practices and is focused on lending to borrowers with high credit quality within its market footprint.
Deposits. Deposits decreased $6.4 million, or 1.1%, to $600.2 million at September 30, 2022, from $606.6 million at June 30, 2022. The decrease in deposits was primarily due to a $13.5 million decrease in non-interest-bearing checking accounts, partially offset by a $7.3 million increase in interest-bearing checking accounts. The interest rate environment has created a highly competitive market for deposits.
Borrowings. Borrowings decreased $10.0 million, or 15.4%, to $55.0 million at September 30, 2022, from $65.0 million at June 30, 2022.
Stockholders’ Equity. Stockholders’ equity decreased $11.1 million, or 5.8%, to $181.2 million at September 30, 2022, from $192.3 million at June 30, 2022. The decrease in stockholders’ equity was primarily due to a $7.8 million increase in the accumulated other comprehensive loss component of the unrealized loss on available for sale securities, the repurchase of 397,352 shares at a cost of $4.6 million, or $11.53 per share, and the payment of a $0.03 per share quarterly cash dividend in August 2022 totaling $419 thousand, partially offset by $1.0 million of net income recorded during the quarter ended September 30, 2022.
Book value per share measured $12.50 as of September 30, 2022 compared to $12.91 as of June 30, 2022, and tangible book value per share measured $12.12 as of September 30, 2022 compared to $12.54 as of June 30, 2022. Tangible book value per share is a non-GAAP financial measure that excludes goodwill and other intangible assets. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of tangible book value per share to book value per share.
As previously announced, on August 18, 2022, the Company’s Board of Directors authorized a third stock repurchase program to acquire up to 739,385 shares, or approximately 5.0%, of the Company’s outstanding shares, commencing upon the completion of the Company’s second stock repurchase program. As of September 30, 2022, the Company had repurchased a total of 1,164,288 shares under these repurchase programs at a total cost of $13.7 million, or $11.73 per share.
Results of Operations for the Three Months Ended September 30, 2022 and 2021
Summary
The following table sets forth the income summary for the periods indicated:
Change Fiscal 2022/2021
979
18.61
Non-interest income
(423)
(60.00)
Non-interest expenses
696
14.30
(37)
123.33
(11.47)
Return on average assets (annualized)
0.48
0.56
Core return on average assets(1) (non-GAAP) (annualized)
0.41
Return on average equity (annualized)
2.14
2.16
Core return on average equity(1) (non-GAAP) (annualized)
1.57
General
The Company recorded net income of $1.0 million, or $0.08 per basic and diluted share, for the three months ended September 30, 2022, compared to net income of $1.2 million, or $0.08 per basic and diluted share, for the three months ended September 30, 2021. The Company recorded core net income of $1.0 million, or $0.08 per basic and diluted share, for the three months ended September 30, 2022, compared to core net income of $846 thousand, or $0.06 per basic diluted share, for the three months ended September 30, 2021. Core net income is a non-GAAP financial measure that excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefit adjustments. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of core net income to net income.
Net Interest Income
For the three months ended September 30, 2022, net interest income was $6.2 million, an increase of $979 thousand, or 18.6%, from the three months ended September 30, 2021. The increase in net interest income was primarily due to an increase in interest income on
34
investments and loans, partially offset by an increase in interest expense on borrowings and deposits. The net interest margin measured 3.19% for the three months ended September 30, 2022 compared to 2.80% for the three months ended September 30, 2021. The increase in the net interest margin during the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to an improvement in asset mix during the twelve months ended September 30, 2022, including a $108.8 million decrease in cash and cash equivalents, a $109.5 million increase in investment securities and an $18.3 million increase in net loans.
Provision for Loan Losses
We did not record a provision for loan losses during the three months ended September 30, 2022 due to improved asset quality metrics and continued low levels of net charge-offs and non-performing assets. The provision for loan losses was a $30 thousand net recovery during the quarter ended September 30, 2021. The provision credit for the quarter ended September 30, 2021 was primarily due to continued stable asset quality metrics, including continued low levels of net charge-offs and non-performing assets. Our allowance for loan losses totaled $3.3 million, or 0.70% of total loans and 0.92% of total loans, excluding acquired loans, as of September 30, 2022, compared to $3.4 million, or 0.71% of total loans and 0.94% of total loans, excluding acquired loans, as of June 30, 2022. Total loans, excluding acquired loans, is non-GAAP financial measure that excludes loans acquired in a business combination. Please refer to the “Non-GAAP Financial Information” section below for a reconciliation of the ratio of the allowance for loan losses to total loans, excluding acquired loans, to the ratio of the allowance for loan losses to total loans. Based on a review of the loans that were in the loan portfolio at September 30, 2022, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable at such date.
Management uses available information to establish the appropriate level of the allowance for loan losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various bank regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.
Non-Interest Income
The following table sets forth a summary of non-interest income for the periods indicated:
Three Months Ended September,
For the three months ended September 30, 2022, non-interest income totaled $282 thousand, a decrease of $423 thousand, or 60.0%, from the three months ended September 30, 2021. The decrease was primarily due to a $273 thousand unrealized loss on equity securities recorded during the three months ended September 30, 2022 compared to a $105 thousand unrealized gain on equity securities recorded during the three months ended September 30, 2021, as well as a $62 thousand gain on sale of securities recorded during the three months ended September 30, 2021. These decreases to non-interest income were partially offset by a $35 thousand increase in earnings on bank-owned life insurance due to the purchase of additional bank-owned life insurance (“BOLI”) during fiscal year ended June 30, 2022.
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Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the periods indicated:
For the three months ended September 30, 2022, non-interest expense totaled $5.6 million, an increase of $696 thousand, or 14.3%, from the three months ended September 30, 2021. The increase in non-interest expense was primarily due to a $529 thousand increase in salaries and employee benefits due to annual merit increases and a $351 thousand increase in employee stock-based compensation expense associated with the Company’s 2022 Equity Incentive Plan. The increase in non-interest expense can also be attributed to a $113 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. 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.
For the three months ended September 30, 2022, we recorded a $67 thousand income tax benefit, reflecting an effective tax rate of (7.0)%, compared to a $30 thousand income tax benefit, reflecting an effective tax rate of (2.7)%, for the same period in 2021. The Company recorded a $211 thousand and a $235 thousand income tax benefit related to refunds received associated with the carryback of net operating losses under the CARES Act during the three months ended September 30, 2022 and 2021, respectively. Income tax benefit and the effective tax rate for the three months ended September 30, 2022 and 2021 were impacted by the previously discussed income tax benefit from refunds received associated with the carryback of net operating losses under the CARES Act.
Asset Quality
During the three months ended September 30, 2022, nonperforming assets decreased 26.3% to $4.8 million from $6.5 million as of June 30, 2022. The decrease in nonperforming assets was driven by a decrease in nonaccrual loans primarily due to the payoff of one $1.7 million one-to four-family residential real estate loan that moved to non-accrual status during the fiscal year ended June 30, 2022. During the three months ended September 30, 2022, the Company received payment from the borrower for full satisfaction of the loan.
Total nonperforming loans consisted of 34 loans to 33 unrelated borrowers at September 30, 2022, as compared to 37 loans to 36 unrelated borrowers at June 30, 2022. Interest income related to non-performing loans would have been approximately $75 thousand during the three months ended September 30, 2022 if these loans had performed in accordance with their terms during the period rather than having been on non-accrual.
There are circumstances when foreclosure and liquidations are the remedy pursued. However, from time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms (i.e., interest rate, structure, repayment term, etc.) based on the economic or legal reasons related to the borrower’s financial difficulties. We had no TDRs during the three months ended September 30, 2022.
Impaired loans at September 30, 2022 included $586 thousand of performing loans whose terms have been modified in TDRs, compared to $593 thousand at June 30, 2022. The amount of TDR loans included in impaired loans decreased as a result principal payments and pay-offs. These restructured loans are being monitored by management and are performing in accordance with their restructured terms. At September 30, 2022, none of our thirty-four substandard loans with an aggregate balance of $4.8 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.
Interest and
Yield/
Dividends
Interest-earning assets:
Loans(1)
477,396
4.44
459,034
4.54
Investment securities(2)
287,696
2.30
131,784
2.02
Other interest-earning assets
17,736
2.91
160,400
0.26
Total interest-earning assets
782,828
3.62
751,218
3.19
Non-interest-earning assets
81,924
71,109
Total assets
864,752
822,327
Interest-bearing liabilities:
Interest-bearing accounts
130,261
65
0.20
103,803
0.07
Money market deposit accounts
172,948
216
0.50
145,032
0.34
104,450
101,171
0.10
129,583
207
0.64
155,786
317
0.81
Total interest-bearing deposits
537,242
0.38
505,792
FHLB advances and other borrowings
54,723
2.43
35,457
2.68
Total interest-bearing liabilities
591,965
0.57
541,249
0.53
Non-interest-bearing liabilities:
Non-interest-bearing deposits
65,149
50,670
Other non-interest-bearing liabilities
15,352
15,520
Total liabilities
672,466
607,439
Total stockholders' equity
192,286
214,888
Total liabilities and equity
Interest rate spread(3)
3.05
2.66
Net interest-earning assets(4)
190,863
209,969
Net interest margin(5)
2.80
Ratio of interest-earning assets to interest-bearing liabilities
132.24%
138.79%
(1) Includes nonaccrual loan balances and interest recognized on such loans.
(2) Includes securities available for sale, securities held to maturity, and equity securities.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
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Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by current rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and volume.
Three Months Ended 9/30/2022
Compared to
Three Months Ended 9/30/2021
Increase (Decrease)
Due to
Volume
Rate
Interest income:
Loans
(581)
83
Investment securities
1,416
993
(691)
714
(450)
1,549
1,099
Interest expense:
Interest-bearing checking accounts
46
250
(156)
94
(10)
(5)
(1,565)
1,455
(110)
(1,273)
1,298
233
(138)
95
(1,040)
120
Net change in net interest income
590
389
Non-GAAP Financial Information
In this report, we present the non-GAAP financial measures discussed below, which are used to evaluate our performance and exclude the effects of certain transactions and one-time events that we believe are unrelated to our core business and not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility into our core businesses and underlying trends that may, to some extent, be obscured by inclusion of such items.
Tangible Book Value per Share. Tangible book value per share represents our total equity less goodwill and other intangible assets divided by total common shares outstanding. Management believes tangible book value per share helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. The following table provides a reconciliation of tangible book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure, for the periods presented.
(Dollars in thousands, except share and per share data)
As of September 30,
As of June 30,
Calculation of Tangible Book Value per Share:
Less: goodwill and other intangible assets
5,522
5,570
Total tangible equity (non-GAAP)
175,672
186,756
Total common shares outstanding
Book value per share (GAAP)
12.50
12.91
Tangible book value per share (non-GAAP)
12.12
12.54
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.
Calculation of Allowance for Loan Losses to Total Loans, Excluding Acquired Loans:
Gross loans receivable
Less: Loans acquired in a business combination
112,853
118,111
Gross loans receivable, excluding acquired loans (non-GAAP)
363,663
361,558
Allowance for loan losses to total loans (GAAP)
0.70
0.71
Allowance for loan losses to total loans, excluding acquired loans (non-GAAP)
0.92
0.94
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
Calculation of core net income:
Net income (GAAP)
Less pre-tax adjustments:
-
Tax impact of pre-tax adjustments
(63)
Income tax benefit adjustment
(211)
(235)
Core net income (non-GAAP)
846
Calculation of core earnings per share:
Earnings per share (GAAP)
0.02
(0.02)
Core earnings per share (non-GAAP)
0.06
Calculation of core return on average assets:
Return on average assets (GAAP)
0.48%
0.56%
(0.03)
0.13
(0.05)
0.03
0.01
(0.10)
(0.11)
Core return on average assets (non-GAAP)
0.41%
Average assets
Calculation of core return on average equity:
Return on average equity (GAAP)
2.14%
2.16%
(0.20)
0.12
(0.13)
0.04
(0.44)
Core return on average equity (non-GAAP)
1.57%
Average equity
40
Liquidity and Capital Resources
We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. The Bank’s liquidity ratio was 41.7% as of September 30, 2022 compared to 44.1% as of June 30, 2022. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our liquidity ratio is calculated as the sum of total cash and cash equivalents and unencumbered investments securities divided by the sum of total deposits and advances from the FHLB of Pittsburgh. The Bank maintains a liquidity ratio policy that requires this metric to be above 10.0% to provide for the effective management of extension risk and other interest rate risks.
Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh to provide advances. As a member of the FHLB of Pittsburgh, we are required to own capital stock in the FHLB of Pittsburgh and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. We had an available borrowing limit of $296.1 million with the FHLB of Pittsburgh at September 30, 2022. There were $55.0 million of FHLB of Pittsburgh advances outstanding at September 30, 2022.
At September 30, 2022, we had outstanding commitments to originate loans of $20.0 million, unfunded commitments under lines of credit of $72.1 million and $30 thousand of standby letters of credit. At September 30, 2022, certificates of deposit scheduled to mature in less than one year totaled $78.9 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.
41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.
Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).
Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The analysis at September 30, 2022 indicates a level of risk within the parameters of our model. Our management believes that the September 30, 2022 analysis indicates a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.
Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.
These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of the Bank. Both types of simulation assist in identifying, measuring, monitoring, and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.
We produce these simulation reports and discuss them with our management Asset and Liability Committee and Board Risk Committee on at least a quarterly basis. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures.
If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at September 30, 2022. The income simulation analysis presented represents a one-year impact of the interest scenario assuming a static balance sheet. Various assumptions are made regarding the prepayment speed and optionality of loans, investment securities and deposits, which are based on analysis and market information. The assumptions regarding optionality, such as prepayments of loans and the effective lives and repricing of non-maturity deposit products, are documented periodically through evaluation of current market conditions and historical correlations to our specific asset and liability products under varying interest rate scenarios. Because the prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities or agency issued collateralized obligations (secured by one- to four-family loans and multi-family loans). Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates and assumes a constant asset base. Management periodically reviews the rate assumptions based on existing and projected economic conditions and consults with industry experts to validate our model and simulation results.
The table below sets forth, as of September 30, 2022, the Bank’s net portfolio value, the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous parallel changes in market interest rates.
Twelve Month
Net Interest
Net Portfolio
Estimated
Change in Interest Rates (Basis Points)
of Change
NPV
+200
(3.80)
210,256
(10.50)
+100
(1.88)
221,923
(5.53)
0
234,920
-100
4.08
249,096
6.03
-200
3.60
261,430
11.28
As of September 30, 2022, based on the scenarios above, net interest income would decrease by approximately 1.88% to 3.80%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would increase by approximately 3.60% to 4.08% in a declining interest rate environment.
Economic value at risk would be negatively impacted by a rise in interest rates and would be positively impacted by a decline in interest rates. We have established an interest rate floor of zero percent for measuring interest rate risk. The difference between the two results reflects the relatively long terms of a portion of our assets which is captured by the economic value at risk but has less impact on the one-year net interest income sensitivity.
Overall, our September 30, 2022 analysis indicates that we are adequately positioned with an acceptable net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.
Inflation. Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that they are alerted in a timely manner about material information relating to the Company required to be filed in its periodic Securities and Exchange Commission filings.
During the quarter ended September 30, 2022, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.
ITEM 1A. RISK FACTORS
For information regarding the Company’s risk factors, refer to the “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on September 8, 2022 (the “Form 10-K”). As of September 30, 2022, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 11, 2022, the Company issued a press release announcing that the Company’s Board of Directors has authorized a stock repurchase program to acquire up to 758,528 shares of the Company’s outstanding common stock, or approximately 5% of outstanding shares. That stock repurchase program became effective on March 25, 2022.
On June 9, 2022, the Company issued a press release announcing that the Company’s Board of Directors had authorized a second stock repurchase program to acquire up to 771,445 shares, or approximately 5.0%, of the Company’s currently issued and outstanding stock, commencing upon the completion of the Company’s first stock repurchase program. As of June 30, 2022, the Company had exhausted the first repurchase program and began repurchasing shares under the second repurchase program.
On August 18, 2022, the Company issued a press release announcing that the Company's Board of Directors has authorized a third stock repurchase program to acquire up to 739,385 shares, or approximately 5.0%, of the Company's currently issued and outstanding common stock, commencing upon the completion of the Company's second stock repurchase program. As of September 30, 2022, there were 1,105,070 shares remaining to be repurchased under the Company’s second and third repurchase programs.
Each of the Company’s stock repurchase programs was adopted following the Company's consultation with the Federal Reserve Board.
The following table provides information on repurchases by the Company of its common stock under the Company’s Board approved program.
Total Number of
Maximum Number
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
July 1 - 31, 2022
76,185
11.55
686,852
August 1 - 31, 2022
55,992
11.44
1,370,245
September 1 - 30, 2022
265,175
11.50
1,105,070
397,352
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index.
EXHIBIT INDEX
Exhibit
No.
Description
3.1
Amended and Restated Articles of Incorporation of William Penn Bancorporation (Incorporated by reference to Exhibit 3.1 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))
3.2
Bylaws of William Penn Bancorporation (Incorporated by reference to Exhibit 3.2 to William Penn Bancorporation’s Registration Statement on Form S-1 (Registration No. 333-249492))
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of William Penn Bancorporation
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of William Penn Bancorporation
32.1
Certification of Chief Executive Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer of William Penn Bancorporation Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0
The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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.
Date: November 3, 2022
By:
/s/ Kenneth J. Stephon
Kenneth J. Stephon
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jonathan T. Logan
Jonathan T. Logan
Executive Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer)