Business Overview and History
William Penn Bancorporation (WMPN) represents a compelling investment opportunity in the Pennsylvania banking landscape. The company, which completed its second-step conversion to a publicly traded entity in March 2021, is strategically positioned to capitalize on the ongoing consolidation within the regional banking sector.
William Penn Bancorporation, the parent company of William Penn Bank, is a Maryland-based financial institution that traces its roots back to 1870. The company operates 12 full-service branch offices across Bucks County and Philadelphia in Pennsylvania, as well as Burlington, Camden, and Mercer Counties in New Jersey.
The Company was incorporated in July 2020 to be the successor to William Penn Bancorp, Inc. upon completion of the second-step conversion of William Penn Bank from the two-tier mutual holding company structure to the stock holding company structure. In March 2021, William Penn completed its second-step conversion, selling a total of 12.64 million shares of common stock at $10 per share for gross proceeds of $126.4 million. As part of the conversion, each of the existing 776,650 outstanding shares of William Penn Bancorp common stock was converted into 3.26 shares of Company common stock. Additionally, $5.4 million of cash held by the former mutual holding company was transferred to the Company and recorded as an increase to additional paid-in capital.
The Bank continues to offer consumer and commercial banking services to individuals, businesses, and nonprofit organizations throughout the Delaware Valley area. The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System, while the Bank is supervised and regulated by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.
In recent years, the Company has maintained conservative lending practices and credit pricing discipline, focusing on lending to borrowers with high credit quality within its market footprint. This has resulted in strong asset quality metrics, including low levels of delinquencies, net charge-offs and non-performing assets. However, the Company has also faced challenges, such as the economic difficulties stemming from the COVID-19 pandemic, which put pressure on its net interest margin and required the Company to carefully manage its liquidity and capital positions.
The Bank's acquisition of Audubon Savings Bank in 2018 and the subsequent integrations of Fidelity Savings and Loan Association of Bucks County and Washington Savings Bank in 2020 have further strengthened its market presence and customer base in the greater Philadelphia metropolitan area. These strategic moves have positioned William Penn Bancorporation as a regional player with a diverse suite of banking products and services catering to both retail and commercial customers.
Financial Performance and Ratios
William Penn Bancorporation has demonstrated resilience in its financial performance, even amid the challenges posed by the COVID-19 pandemic. For the fiscal year ended June 30, 2024, the company reported total assets of $818.75 million, a slight decrease from $847.58 million in the prior year. This contraction was primarily driven by a $20.66 million decline in the investment securities portfolio and a $3.10 million decrease in the net loan balance.
The company's net interest income for the fiscal year 2024 stood at $17.12 million, compared to $23.07 million in the previous year. This decline was primarily attributable to an increase in interest expense on deposits, which rose from $7.32 million in fiscal 2023 to $15.40 million in fiscal 2024. The net interest margin decreased from 2.40% in fiscal 2023 to 2.10% in fiscal 2024, reflecting the rising interest rate environment.
William Penn Bancorporation's asset quality metrics remained strong, with non-performing assets to total assets declining from 0.40% as of June 30, 2023, to 0.30% as of June 30, 2024. The allowance for credit losses as a percentage of total loans stood at 0.63% and 0.55% as of June 30, 2023, and June 30, 2024, respectively. The company's total credit losses coverage ratio, which includes the fair value mark on acquired loans, was 1.08x and 0.98x as of June 30, 2023, and June 30, 2024, respectively.
In terms of capital adequacy, William Penn Bancorporation maintained a well-capitalized position, with a Tier 1 leverage ratio of 16.10% as of June 30, 2024, well above the 9.00% regulatory requirement for a bank to be considered well-capitalized. The company's tangible common equity to tangible assets ratio stood at 14.55% as of June 30, 2024.
For the fiscal year ended June 30, 2024, William Penn Bancorporation reported annual revenue of $19.96 million and annual net income of $168,000. The company's annual operating cash flow was $320,000, while its annual free cash flow stood at $179,000.
In the most recent quarter ended December 31, 2024, the company reported revenue of $7.89 million, representing a 4.2% decrease from $8.06 million in the same quarter of the previous year. This decline was primarily due to a decrease in interest income on investment securities. The company reported a net loss of $988,000 for the quarter.
Liquidity and Capital Structure
As of June 30, 2024, William Penn Bancorporation maintained a strong liquidity position with $20.20 million in cash and cash equivalents. The company's debt-to-equity ratio stood at 0.455, indicating a conservative capital structure. The current ratio and quick ratio were both 1.18, suggesting adequate short-term liquidity.
The company had a maximum borrowing capacity of $287.3 million with the Federal Home Loan Bank of Pittsburgh as of June 30, 2024, of which $48.0 million was outstanding. This available credit line provides additional flexibility to meet funding needs and manage liquidity.
Loan Portfolio and Deposit Base
As of December 31, 2024, William Penn Bancorporation's net loans totaled $467.5 million, a slight decrease from $470.6 million as of June 30, 2024. The company's loan portfolio is diversified across various categories, including residential real estate (1-4 family), home equity and home equity lines of credit (HELOCs), commercial real estate (1-4 family investor, multi-family, and non-residential), construction and land, and commercial loans.
The company's allowance for credit losses was $2.6 million, or 0.55% of total loans, as of December 31, 2024, compared to $3.0 million, or 0.63% of total loans, as of June 30, 2024. The decrease in the allowance for credit losses was primarily due to a decrease in delinquent loans, consistently low levels of net charge-offs, strong asset quality metrics, and continued conservative lending practices.
On the deposit side, total deposits decreased slightly from $629.8 million as of June 30, 2024, to $627.4 million as of December 31, 2024. The deposit base consists of non-interest-bearing checking accounts, interest-bearing checking accounts, money market accounts, savings and club accounts, and certificates of deposit. The company focuses on maintaining a stable deposit franchise to support its lending activities.
Non-Interest Income
In addition to its core banking operations, William Penn Bancorporation generates non-interest income from service fees, earnings on bank-owned life insurance, and other sources. For the six months ended December 31, 2024, the company's non-interest income totaled $1.62 million, up from $1.48 million in the same period of the prior year, primarily due to a $211,000 gain on the disposition of fixed assets.
Pending Merger with Mid Penn Bancorp
On October 31, 2024, William Penn Bancorporation entered into a definitive agreement to merge with Mid Penn Bancorp, Inc. (NASDAQ: MPB), a Harrisburg, Pennsylvania-based financial institution. Under the terms of the agreement, each share of William Penn common stock will be converted into the right to receive 0.43 shares of Mid Penn common stock.
The merger, which is expected to close in the first half of 2025, will create a combined entity with approximately $6.3 billion in total assets, $4.9 billion in total loans, and $5.3 billion in total deposits. The combined institution will have a stronger presence in the attractive Greater Philadelphia metropolitan area, aligning with Mid Penn's strategic plan of disciplined growth in the southeastern region of Pennsylvania and the southern region of New Jersey.
The transaction is subject to the receipt of necessary regulatory approvals, as well as the approval of both Mid Penn and William Penn shareholders. Upon completion of the merger, the combined company will operate under the Mid Penn Bancorp, Inc. name and trade on the Nasdaq Global Market under the ticker symbol "MPB."
Industry Trends and Market Position
William Penn Bancorporation operates in the community banking industry, which has experienced consolidation through mergers and acquisitions in recent years as smaller banks seek to achieve greater scale and efficiency. The compound annual growth rate (CAGR) of the U.S. community banking industry's total assets was approximately 3.5% from 2019 to 2023.
The company's focus on the Delaware Valley region, with its 12 full-service branch offices located in Bucks and Philadelphia Counties in Pennsylvania, as well as Burlington, Camden, and Mercer Counties in New Jersey, positions it well to serve the local community's banking needs. The pending merger with Mid Penn Bancorp is expected to further strengthen the combined entity's market presence in the Greater Philadelphia metropolitan area.
Risks and Challenges
While William Penn Bancorporation's prospects appear promising, the company is not without its risks and challenges. The ongoing consolidation in the regional banking sector could lead to increased competition for quality lending opportunities and deposits, potentially impacting the company's future growth and profitability.
Additionally, the transition to a rising interest rate environment may continue to pressure the company's net interest margin, as the cost of deposits may rise at a faster pace than the yield on interest-earning assets. The successful integration of the pending merger with Mid Penn Bancorp will also be crucial in realizing the anticipated synergies and maximizing shareholder value.
Conclusion
William Penn Bancorporation's strategic positioning in the consolidating Pennsylvania banking landscape, coupled with its strong asset quality, capital position, and pending merger with Mid Penn Bancorp, make it a compelling investment opportunity. The company's ability to navigate the evolving industry dynamics and execute on its growth plans will be key to its long-term success. While recent financial performance has shown some challenges, particularly in the most recent quarter, the company's conservative lending practices and focus on its core market area provide a solid foundation for future growth. Investors should closely monitor the company's progress as it aims to capitalize on the opportunities presented by the regional banking sector's ongoing consolidation and its upcoming merger with Mid Penn Bancorp.