8-K: William Penn Bancorporation Reports Net Loss Amidst Pending Merger, Declares Cash Dividend

William Penn Bancorporation announced a net loss for the quarter ended December 31, 2024, impacted by merger-related expenses, while also declaring a cash dividend of $0.03 per share.

Summary

• William Penn Bancorporation reported a net loss of $988 thousand for the three months ended December 31, 2024, and a net loss of $1.0 million for the six months ended December 31, 2024.
• This compares to a net income of $11 thousand and $190 thousand for the same periods in 2023.
• The net loss includes $731 thousand and $836 thousand in professional fees related to the pending merger with Mid Penn Bancorp, Inc. for the three and six month periods respectively.
• Core net losses were $743 thousand and $744 thousand for the three and six months ended December 31, 2024, respectively.
• Gross loans increased by $5.4 million on a linked quarter basis, representing an annualized growth rate of 4.6%.
• Non-performing assets decreased to 0.30% of total assets as of December 31, 2024, from 0.40% as of June 30, 2024.
• The Board of Directors declared a cash dividend of $0.03 per share, payable on February 6, 2025, to shareholders of record on January 27, 2025.
• Total assets decreased by $22.3 million, or 2.7%, to $796.4 million at December 31, 2024, from $818.7 million at June 30, 2024.
• Net interest income decreased by $155 thousand, or 3.7%, for the three months ended December 31, 2024, compared to the same period in 2023.
• Non-interest income increased by $147 thousand, or 17.8%, for the three months ended December 31, 2024, primarily due to a $211 thousand net gain on the disposition of fixed assets.
• Non-interest expense increased by $1.1 million, or 21.9%, for the three months ended December 31, 2024, mainly due to merger-related professional fees and increased salaries and employee benefits.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net loss and increased expenses, although there are some positive aspects such as loan growth and strong asset quality. The pending merger adds uncertainty.

Positives

• Asset quality metrics remain strong, with non-performing assets decreasing to 0.30% of total assets.
• Book value per share and tangible book value per share both increased.
• Non-interest income increased due to gains on the disposition of fixed assets.
• Gross loans increased by $5.4 million on a linked quarter basis, for an annualized growth rate of 4.6%.
• The accumulated other comprehensive loss component of equity related to the unrealized loss on available for sale securities decreased $1.5 million, or 6.8%, during the six months ended December 31, 2024.
• The Bank continues to have substantial liquidity that has been retained in cash or invested in high quality government-backed securities.

Negatives

• The company reported a net loss of $988 thousand for the quarter and $1.0 million for the six-month period.
• Net interest income decreased due to a decrease in interest income on investment securities and an increase in interest expense on deposits.
• Non-interest expense increased significantly due to merger-related professional fees.
• Total assets decreased by $22.3 million, or 2.7%, to $796.4 million at December 31, 2024, from $818.7 million at June 30, 2024.

Risks

• The pending merger with Mid Penn Bancorp, Inc. involves risks such as the possibility of termination, failure to obtain regulatory approvals, legal proceedings, higher-than-anticipated costs, and diversion of management's attention.
• General economic conditions, changes in interest rates, legislative or regulatory changes, and changes in competition could adversely affect the business.
• The company's ability to maintain the security of its data processing and information technology systems is a risk.
• Changes in the quality or composition of the loan or investment portfolios could impact financial performance.
• The decrease in stockholders equity was primarily due to the repurchase of 135,683 shares at a total cost of $1.6 million, or $11.86 per share, under the Company's previously announced stock repurchase programs, the $1.0 million net loss recorded during the six months ended December 31, 2024 and the payment of two $0.03 per share quarterly cash dividends totaling $508 thousand.

Future Outlook

The company's future performance is subject to risks and uncertainties, including those related to the pending merger with Mid Penn Bancorp, Inc., general economic conditions, and changes in the interest rate environment.

Management Comments

• Kenneth J. Stephon, William Penn's Chairman, President, and CEO, stated, 'We remain focused on the continued strength of our balance sheet and the sound execution of our business model.'
• He also noted, 'During the quarter ended December 31, 2024, we had solid growth in our loan portfolio and continued improvement in our asset quality.'

Industry Context

Community banks are facing increased pressure on net interest margins due to rising deposit costs and competition for loans. Merger activity is increasing as banks seek to achieve economies of scale and improve profitability.

Comparison to Industry Standards

• Comparing William Penn's performance to peers like First Commonwealth Financial Corporation and Fulton Financial Corporation, the net interest margin is lower, reflecting the challenges in the current interest rate environment.
• The efficiency ratio is higher than industry benchmarks, indicating higher operating expenses, primarily due to merger-related costs.
• The asset quality metrics are generally in line with industry standards for well-managed community banks.

Stakeholder Impact

• Shareholders will receive a cash dividend of $0.03 per share.
• Employees may experience uncertainty related to the pending merger.
• Customers may see changes in services and products as a result of the merger.
• The merger could impact suppliers and creditors depending on the terms of the transaction.

Next Steps

• The company will continue to focus on the pending merger with Mid Penn Bancorp, Inc.
• Management will work to control operating expenses and improve profitability.
• The company will pay a cash dividend of $0.03 per share on February 6, 2025.

Key Dates