William Penn Bancorp, Inc. Announces First Quarter Results

BRISTOL, PA / ACCESSWIRE / November 6, 2020 / William Penn Bancorp, Inc. (“William Penn” or the “Company”) (OTC PINK:WMPN), the parent company of William Penn Bank (the “Bank”), today announced its financial results for the quarter ended September 30, 2020. William Penn recorded net income of $670 thousand, or $0.15 per diluted share, for the quarter ended September 30, 2020, compared to net income of $854 thousand, or $0.21 per diluted share, for the quarter ended September 30, 2019. Net income for the quarter ended September 30, 2020 included $161 thousand, or $0.04 per diluted share, of prepayment penalties associated with the prepayment of $23.2 million of higher-cost advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”).

Kenneth J. Stephon, William Penn’s President and CEO, stated “We continue to experience a difficult operating environment related to the COVID-19 pandemic. The low interest rate environment has made it challenging to effectively deploy the excess cash we hold on our balance sheet from two recent acquisitions. During the quarter, we made a strategic decision to use $23.2 million of cash to prepay higher-cost advances from the FHLB that will effectively lower our future borrowing costs and become accretive to our overall earnings following the quarter ended December 31, 2020. We continue to experience strong growth in deposits, which increased at an annualized rate of 15.5% during the first quarter. We remain 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. In addition, we have maintained consistent and conservative lending practices in our market footprint.”

Highlights for the quarter ended September 30, 2020 are as follows:

William Penn prepaid $23.2 million of higher-cost advances from the FHLB and incurred $161 thousand of prepayment penalties.
William Penn maintained strong credit reserves amidst the uncertain economic environment and recorded a $66 thousand provision for credit losses during the quarter ended September 30, 2020.
During the quarter ended September 30, 2020, William Penn recorded net income of $670 thousand, or $0.15 per diluted share.
Tangible book value per share measured $19.94 as of September 30, 2020, compared to $17.42 as of September 30, 2019, an increase of $2.52, or 14.5%.
Net interest income increased $1.8 million, or 54.7%, for the quarter ended September 30, 2020 compared to the same period in the prior year.
Non-interest income increased $53 thousand, or 15.3%, for the quarter ended September 30, 2020 compared to the same period in the prior year.
Asset quality metrics continued to remain strong with non-performing assets to total assets of 0.67% as of September 30, 2020. Our allowance for loan losses totaled $3.6 million, or 1.27% of total loans, excluding acquired loans, as of September 30, 2020, compared to $3.5 million, or 1.26% of total loans, excluding acquired loans, as of June 30, 2020.
The balance of loans on deferral in accordance with the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) decreased to $6.1 million as of September 30, 2020, compared to $49.8 million at June 30, 2020.

Balance Sheet

Total assets decreased $4.9 million, or 0.7%, to $731.6 million at September 30, 2020, from $736.5 million of total assets at June 30, 2020. The decrease in total assets can primarily be attributed to a $26.8 million decrease in total cash and cash equivalents and a $10.9 million decrease in gross loans, partially offset by a $33.6 million increase in investment securities.

Cash and cash equivalents decreased $26.8 million, or 32.4%, to $56.1 million at September 30, 2020, from $82.9 million at June 30, 2020. The decrease in cash and cash equivalents was primarily driven by a $33.6 million increase in investment securities as we continue to deploy our excess cash through the purchase of high-quality investment securities and a $23.9 million decrease in advances from the FHLB due to the previously discussed prepayment of $23.2 million of higher-cost advances from the FHLB. These decreases to cash and cash equivalents were partially offset by a $10.9 million decrease in gross loans and a $21.6 million increase in deposits.

Investments increased $33.6 million, or 37.3%, to $123.6 million at September 30, 2020, from $90.0 million at June 30, 2020. We focus on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.

Gross loans decreased $10.9 million, or 2.1%, to $501.2 million at September 30, 2020, from $512.1 million at June 30, 2020. The COVID-19 pandemic and low interest rate environment have created a highly competitive market for residential lending. The Company maintains conservative lending practices and is focused on lending to borrowers with high credit quality within its market footprint.

Deposits increased $21.6 million, or 3.9%, to $581.5 million at September 30, 2020, from $559.9 million at June 30, 2020. Deposit growth was achieved through strong organic growth and the successful opening of a new branch location located in Collingswood, New Jersey during the quarter ended June 30, 2020.

Borrowings decreased $23.9 million, or 36.8%, to $41.0 million at September 30, 2020, from $64.9 million at June 30, 2020. The decrease in borrowings was primarily due to the previously discussed prepayment of $23.2 million of higher-cost advances from the FHLB.

Stockholders’ equity decreased $859 thousand, or 0.9%, to $95.5 million at September 30, 2020, from $96.4 million at June 30, 2020. The decrease in stockholders’ equity was due to $1.9 million of dividends paid to common shareholders in August 2020, partially offset by $670 thousand of net income and a $357 thousand increase in the accumulated other comprehensive income component of the unrealized gain on available-for-sale investment securities during the quarter ended September 30, 2020. Tangible book value per share totaled $19.94 as of September 30, 2020, compared to $17.42 as of September 30, 2019.

Net Interest Income

For the quarter ended September 30, 2020, net interest income was $5.2 million, an increase of $1.8 million, or 54.7%, from the quarter ended September 30, 2019. The increase in net interest income was primarily due to an increase in interest-earning assets as a result of the acquisitions of Washington Savings Bank (“Washington”) and Fidelity Savings and Loan Association of Bucks County (“Fidelity”) effective May 1, 2020. The net interest margin totaled 3.11% for the quarter ended September 30, 2020 compared to 3.52% for the same period in 2019. The decrease in the net interest margin is consistent with the recent decrease in interest rates and current margin compression primarily due to the COVID-19 pandemic and its impact on the economy and interest rate environment.

Non-interest Income

For the quarter ended September 30, 2020, non-interest income totaled $400 thousand, an increase of $53 thousand, or 15.3%, from the quarter ended September 30, 2019. The increase was primarily due to an increase in service fees as a result of higher deposit transaction volume due primarily to the acquisitions of Washington and Fidelity effective May 1, 2020, as well as an increase in rental income, partially offset by a decrease in the gain on sale of investment securities.

Non-interest Expense

For the quarter ended September 30, 2020, non-interest expense totaled $4.7 million, an increase of $2.1 million, or 78.9%, from the quarter ended September 30, 2019. The increase in non-interest expense was primarily due to a $983 thousand increase in salaries and employee benefits due to the addition of new employees from the acquisitions of Washington and Fidelity and a $464 thousand increase in occupancy and equipment expense due to additional operating costs from new branch offices and increased depreciation expense associated with premises and equipment from the acquisitions of Washington and Fidelity. In addition, the quarter ended September 30, 2020 included $161 thousand of prepayment penalties associated with the prepayment of $23.2 million of higher-cost advances from the FHLB. The increase in other non-interest expense can be attributed to operating a larger organization that has resulted from the two acquisitions by William Penn Bank completed on May 1, 2020.

Income Taxes

For the quarter ended September 30, 2020, we recorded a provision for income taxes of $146 thousand, reflecting an effective tax rate of 17.9%, compared to a provision for income taxes of $220 thousand, reflecting an effective tax rate of 20.5%, for the same period in 2019. The decrease in the provision for income taxes for the quarter ended September 30, 2020 compared to the same period a year ago is primarily due to lower income before income taxes. The decrease in the effective tax rate for the quarter ended September 30, 2020 compared to the same period a year ago is primarily due to a higher ratio of tax-exempt income on the Company’s investment in bank-owned life insurance and municipal securities relative to income before income taxes.

Asset Quality

Our ratio of non-performing assets to total assets remained low at 0.67% as of September 30, 2020. In addition, we did not record any charge-offs during the quarter ended September 30, 2020. As a result of the continued economic uncertainty due to the COVID-19 pandemic, we recorded a $66 thousand provision for loan losses during the quarter ended September 30, 2020 compared to no provision for loan losses during the same period in 2019. Our allowance for loan losses totaled $3.6 million, or 1.27% of total loans, excluding acquired loans, as of September 30, 2020, compared to $3.5 million, or 1.26% of total loans, excluding acquired loans, as of June 30, 2020. In addition, the balance of loans on deferral in accordance with the provisions of the CARES Act decreased to $6.1 million as of September 30, 2020, compared to $49.8 million at June 30, 2020.

Capital

The Bank’s capital position remains strong relative to current regulatory requirements. The Bank continues to have substantial liquidity that has been retained in cash or invested in high quality government-backed securities. As of September 30, 2020, William Penn’s tangible capital to tangible assets totaled 12.34%. In addition, at September 30, 2020, we had the ability to borrow up to $304.1 million from the Federal Home Loan Bank of Pittsburgh. The federal regulators issued a final rule, effective January 1, 2020, that set the elective community bank leverage ratio at 9% tier 1 capital to average total consolidated assets. William Penn Bank has elected to follow this alternative framework. As of September 30, 2020, William Penn Bank had a community bank leverage ratio of 11.92% and is considered well-capitalized under the prompt corrective action framework.

About William Penn Bancorp, Inc.

William Penn Bancorp, Inc., headquartered in Bristol, Pennsylvania, is the holding company for William Penn Bank, which serves the Delaware Valley area through twelve full-service branch offices in Bucks County and Philadelphia, Pennsylvania, and Burlington and Camden Counties in New Jersey. The Company’s executive offices are located at 10 Canal Street, Suite 104, Bristol, Pennsylvania 19007. William Penn Bank’s deposits are insured up to the legal maximum (generally $250,000 per depositor) by the Federal Deposit Insurance Corporation (FDIC). The primary federal regulator for William Penn Bank is the FDIC. For more information about the Bank and William Penn, please visit www.williampenn.bank.

Forward Looking Statements

This news release may contain forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Such forward-looking statements and all other statements that are not historic facts are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. These factors include, but are not limited to, general economic conditions, the effect of the COVID-19 pandemic (including its impact on our business operations and credit quality, on our customers and their ability to repay their loan obligations and on general economic and financial market conditions), changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets, changes in deposit flows, changes in the quality or composition of our loan or investment portfolios and our ability to successfully integrate the business operations of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank, each of which we recently acquired on May 1, 2020, into our business operations. Additionally, other risks and uncertainties may be described in William Penn’s Annual Report, which is available through the Company’s website www.williampenn.bank. Should one or more of these risks materialize, actual results may vary from those anticipated, estimated or projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as may be required by applicable law or regulation, William Penn assumes no obligation to update any forward-looking statements.

WILLIAM PENN BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Financial Condition
(Dollars in thousands, except share amounts)

	September 30,			June 30,			September 30,
	2020			2020			2019

ASSETS
Cash and due from banks	$	11,336		$	21,385		$	7,317
Interest bearing deposits with other banks		34,539			56,755			7,685
Federal funds sold		10,207			4,775			–
Total cash and cash equivalents		56,082			82,915			15,002
Interest-bearing time deposits		2,300			2,300			6,487
Securities available for sale		123,597			89,998			36,749
Loans receivable, net of allowance for loan losses of
$3,585, $3,519, and $3,151, respectively		497,630			508,605			326,592
Premises and equipment, net		13,924			16,733			9,017
Regulatory stock, at cost		3,219			4,200			2,778
Deferred income taxes		4,448			4,817			1,472
Bank-owned life insurance		14,870			14,758			11,286
Goodwill		4,858			4,858			4,858
Intangible assets		1,128			1,192			1,113
Accrued interest receivable and other assets		9,497			6,076			2,539
TOTAL ASSETS	$	731,553		$	736,452		$	417,893

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposits	$	581,493		$	559,848		$	286,371
Advances from Federal Home Loan Bank		41,000			64,892			50,000
Advances from borrowers for taxes and insurance		2,910			4,536			2,033
Accrued interest payable and other liabilities		10,644			10,811			4,178
TOTAL LIABILITIES		636,047			640,087			342,582

Commitments and contingencies		–			–			–

STOCKHOLDERS’ EQUITY
Preferred stock, no par value		–			–			–
Common Stock, $.10 par value		467			467			416
Additional paid-in capital		42,932			42,932			22,441
Treasury stock		(3,710	)		(3,710	)		(3,710	)
Retained earnings		55,384			56,600			56,126
Accumulated other comprehensive income		433			76			38
TOTAL STOCKHOLDERS’ EQUITY		95,506			96,365			75,311
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	731,553		$	736,452		$	417,893

WILLIAM PENN BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
(Dollars in thousands, except per share amounts)

	Three months ended
	September 30, 2020		June 30, 2020			September 30, 2019
INTEREST INCOME
Loans receivable, including fees	$	5,893	$	5,414		$	4,151
Securities		653		355			273
Other		111		42			152
Total Interest Income		6,657		5,811			4,576
INTEREST EXPENSE
Deposits		1,081		946			873
Borrowings		359		350			330
Total Interest Expense		1,440		1,296			1,203

Net Interest Income		5,217		4,515			3,373

Provision for Loan Losses		66		605			–
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,151		3,910			3,373
OTHER INCOME
Service fees		183		124			139
Gain on sale of securities		–		41			93
Earnings on bank-owned life insurance		112		98			83
Gain on bargain purchase		–		746			–
Gain on sale of premises and equipment		15		–			–
Other		90		132			32
Total Other Income		400		1,141			347
OTHER EXPENSES
Salaries and employee benefits		2,554		2,229			1,571
Occupancy and equipment		759		576			295
Data processing		422		356			304
Professional fees		188		49			102
Merger related expenses		–		3,294			–
Amortization on intangible assets		64		66			59
Prepayment penalties		161		–			–
Other		587		252			315
Total Other Expense		4,735		6,822			2,646

Income (Loss) Before Income Taxes		816		(1,771	)		1,074

Income Tax Expense (Benefit)		146		(479	)		220
NET INCOME (LOSS)	$	670	$	(1,292	)	$	854

Basic and diluted earnings per share	$	0.15	$	(0.30	)	$	0.21

WILLIAM PENN BANCORP, INC. AND SUBSIDIARIES
Unaudited Selected Consolidated Financial and Other Data
(Dollars in thousands)

	Three months ended
	September 30, 2020									June 30, 2020									September 30, 2019
	Average Balance			Interest and Dividends			Yield/Cost			Average Balance			Interest and Dividends			Yield/Cost			Average Balance			Interest and Dividends			Yield/Cost

Interest-earning assets:
Loans	$	504,463		$	5,893			4.67	%	$	432,797		$	5,414			5.00	%	$	329,964		$	4,151			5.03	%
Investment securities		109,663			653			2.53			68,637			355			2.17			30,828			273			3.54
Other interest-earning assets		63,051			111			0.70			44,125			42			0.38			22,821			152			2.66
Total interest-earning assets		677,177			6,657			3.96			545,559			5,811			4.27			383,613			4,576			4.77
Non-interest-earning assets		58,669									50,826									34,156
Total assets	$	735,846								$	596,385								$	417,769

Interest-bearing liabilities:
Interest-bearing checking accounts	$	101,272			51			0.20	%	$	77,074			36			0.19	%	$	55,394			16			0.12	%
Money market deposit accounts		136,543			326			0.96			108,257			233			0.86			70,500			287			1.63
Savings, including club deposits		94,586			43			0.18			62,789			32			0.20			32,105			12			0.15
Certificates of deposit		198,933			661			1.33			154,973			645			1.66			113,628			558			1.96
Total interest-bearing deposits		531,334			1,081			0.81			403,093			946			0.94			271,627			873			1.29
FHLB advances		52,608			359			2.73			62,204			350			2.25			50,000			330			2.64
Total interest-bearing liabilities		583,942			1,440			0.99			465,297			1,296			1.11			321,627			1,203			1.50

Non-interest-bearing liabilities:
Non-interest-bearing deposits		41,145									32,180									13,049
Other non-interest-bearing liabilities		14,938									11,827									7,471

Total liabilities		640,025									509,304									342,147
Total equity		95,821									87,081									75,622
Total liabilities and equity	$	735,846								$	596,385								$	417,769

Net interest income				$	5,217								$	4,515								$	3,373

Interest rate spread					2.96	%								3.15	%								3.27	%
Net interest-earning assets	$	93,235								$	80,262								$	61,986
Net interest margin					3.11	%								3.32	%								3.52	%
Ratio of interest-earning assets to interest-bearing liabilities		115.97	%								117.25	%								119.27	%

Key performance ratios (annualized) are as follows for the three months ended (unaudited):

ASSET QUALITY INDICATORS	September 30,			June 30,			September 30,
(Dollars in thousands)	2020			2020			2019

Non-performing assets:
Non-accruing loans	$	4,775		$	3,172		$	1,917
Accruing loans past due 90 days or more		28			90			139
Total non-performing loans	$	4,803		$	3,262		$	2,056

Real estate owned		100			100			–

Total non-performing assets	$	4,903		$	3,362		$	2,056

Non-performing loans to total loans and leases		0.96	%		0.64	%		0.62	%
Non-performing assets to total assets		0.67	%		0.46	%		0.49	%
ALLL to total loans and leases		0.72	%		0.69	%		0.96	%
ALLL to non-performing loans		74.64	%		107.88	%		153.26	%

Key annualized performance ratios are as follows for the three months ended (unaudited):

	For the Three Months Ended
	September 30,			June 30,			September 30,
	2020			2020			2019
PERFORMANCE RATIOS:
(annualized)
Return on average assets		0.36	%		-0.87	%		0.82	%
Return on average assets (excluding merger charges and gain on bargain purchase)		0.36	%		0.84	%		0.82	%
Return on average equity		2.80	%		-5.93	%		4.52	%
Return on average equity (excluding merger charges and gain on bargain purchase)		2.80	%		5.77	%		4.52	%
Net interest margin		3.11	%		3.32	%		3.52	%
Net charge-off ratio		0.00	%		0.02	%		0.00	%
Efficiency ratio		85.30	%		135.06	%		71.13	%
Efficiency ratio (excluding merger charges and gain on bargain purchase)		85.30	%		81.95	%		71.13	%
Tangible common equity		12.34	%		12.37	%		16.83	%